Understanding Corruption in India

Ever since Anna Hazare launched his anti-corruption movement earlier this year, reams of newsprint and terabytes of online space have been spent analysing corruption in India. Nearly every aspect of corruption in the country has been explored and every socio-political theory has been examined.

Anna Hazare’s Protest

Mr Hazare launched his campaign on 5 April 2011 in Jantar Mantar, Delhi. The 72-year-old demanded the enactment of an anti-corruption bill called Jan-Lokpal (a Lokpal is an ombudsman), which was designed to give wider powers to the Lokpal by bringing the judiciary and Prime Minister under its purview. Four days after he launched a fast that caught the imagination of India, iconic Gandhi-style leader Anna Hazare declared “victory” when the Government accepted his demands on the content of a Jan-Lokpal Bill. The drafting committee was formed and the Bill was introduced in parliament where it was passed. However, the Government passed its own version, rather than the draft suggested by Mr Hazare and his team. One key difference was that the Government’s version did not include the Prime Minister. Mr Hazare subsequently declared a second term of fast to start on 16 August 2011.

Mr Hazare’s second attempt included a twist, as he was denied grounds for protest by the Delhi police and was later arrested on the premise of preventive arrest. Mr Hazare’s arrest sent fury all over the country and his supporters launched a protest for his immediate release. He was taken to the infamous Tihar Jail, where, ironically, politicians arrested for US$ multi billion frauds are also imprisoned. Thousands of people gathered outside the jail to support Mr Hazare, who said he would rather stay in the prison until his demands were met.

Background to the Protest

Many have argued that the proverbial final straw for Indian corruption was the understanding by the Indian middle class of its scale. Of course, all Indians are aware of the corruption going on around them, but Mr. Hazare’s protest drew attention to the vast sums of money involved and the middle classes were shocked into action. As evidenced by the 2G spectrum scandal (which the Comptroller and Auditor General’s (CAG) recent report valued as costing the country Rs.1.40 lakh crores (approximately US$38 Billion) and is said by the CAG to be the biggest scandal since independence) and the Commonwealth Games scams, independent India has seen a massive increase in the value of illicit transactions, which now run to billions of dollars, as opposed to a few millions in the “good old days” pre-independence. Research conducted by Indiaforensic found that the value of corruption in India in the past decade alone was US$345 billion.

But the quantification of the money involved in corruption doesn’t explain the staggering level, scale, breadth and volume of corruption in India. Corruption is not a phenomenon invented by Indians and for that matter, it is not something unique to the developing world. It is found in developed countries, too. In the United States, for instance, a number of governors and state and federal officials have been jailed on corruption-related charges in recent years. But countries such as the United States are not crippled by corruption.

This is because there are major differences between India and the United States. In the United States, corruption doesn’t affect the middle class and the poor the way it does in India. Americans are not forced to bribe officials on a day-to-day basis for even the most basic services. In India, corruption is rampant at the grassroots level, fuelled by the relatively low wages of the public officials and the centralised nature of dispensing services, both at the state and federal level.

Indiaforensic research shows that, every year, the ordinary Indian man spends more than 2,200 rupees on corruption (around US$43). Every activity from obtaining a passport to purchasing a train ticket leaves scope for bribery: getting a birth certificate, obtaining a death certificate, enrolling a child at a school, applying for jobs, citizens pay bribes in India as if it is mandatory, which, in a way, it has become. Even if one objects to paying the bribe, the system doesn’t leave any choice. The Jan-Lokpal Bill is expected to provide a voice for the victims of corruption at grass root level.

Shortcomings of The Jan-Lokpal Bill

But this is only half the story in India. What the Bill does not tackle, is corruption at corporate level.

In India, corruption is not just at the micro, individual, personal level of wearisome-but small-bribes to officials. It also affects the entire population at the macro level by hampering the construction and maintenance of infrastructure such as roads, bridges, public transportation, telecommunication, power, and schools. In countries such as the United States and the United Kingdom, there is legislation in place designed to curb corporate corruption. What Anna Hazare and his supporters did not call for, and should have called for, is an equivalent to the UK Bribery Act or the US Foreign Corrupt Practices Act.

However, the companies that benefit from major, high level corruption are still likely to have a tough time ahead of them. Transparency and accountability are rare commodities in the Indian political system but as the culture changes, these companies could become the targets of investigations by the Lokpal. For example, in the State of Karnataka, which is one of the fastest developing states in the country, an investigation by the Lokpal proved the corrupt relationship between politicians and corporates, prompting the Chief Minister to resign. The findings of the investigation will undoubtedly affect foreign investment in corporates that have too-close relationships with politicians. The 2 G scandal is a good example of foreign companies being exposed in corruption cases. Looking purely at return on investment in India, profits are unlikely to be affected, but pending Lokpal investigations will have to become the part of the extended due diligence undertaken prior to investment.

In addition, the Bill does not address the practicality of investigating every instance of daily corruption. The costs involved in the investigation of cases such as having to bribe a traffic policeman to discard a trumped-up charge are going to be difficult to justify. For the “petty” complaint against the traffic police accepting a Rs.200 bribe (around US$3.90), the cost of investigations would be enormously high.

But the good news for India is that Mr Hazare’s campaign has put corruption at the front and centre of the country’s political debate. For the first time, it has empowered the common man-despairing, anguished and unable to speak against it until now-to fight against corruption. The Indian masses may have tolerated corruption all these years, but they have signaled that it’s not business as usual any more.

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About Mayur Joshi

Mayur Joshi is a founder of Indiaforensic, and Principal Consultant of RiskproManagement Consulting Pvt. Ltd, a Pune-based forensic accounting firm. He is a Chartered Accountant and a Certified Forensic Accounting Professional in India, with more than 7 years of experience in fraud investigation, prevention and detection. Mayur is the first Indian to receive the international award from Association of Certified Fraud Examiners.

Contact Details:
Tel: +91 020 245 31 584
Email: mayur.joshi@riskpro.co.in

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