Preface

Corruption is a phenomenon that plagues many countries and, mostly, walks hand in hand with inefficient institutional structures, which choke the effectiveness of public and private investment. In countries with widespread corruption, for each monetary unit invested, a sizable share is wasted, implying that less investment are made, in fact. Corruption can also be a burden on a nations wealth and economic growth, by driving away new investment and creating uncertainties regarding private and social rights. In extreme cases, chronic corruption leads countries to a state of permanent political crises, resulting in overthrown governments and civil wars. This report seeks to establish the relationship between corruption and development in India.

Introduction

Corruption is considered to be one of the major roadblocks in Indias journey from a developing to a developed economy. There is an urgent need to have a comprehensive framework that would help curtail corruption at higher levels. Different nations and cultures have differing conceptions of corruption; legally, in terms of public interest, and in public opinion. There are nations where official corruption has been widespread for many years with no visible signs of public outrage. The reason for this may be, as the analysis on the benefits of corruption reveals, there are instances when corrupt activities seem to be beneficial to development. For ex: At times, bribery can activate the bureaucracy to get things done which otherwise would not take place. Though these certain nations and situations demonstrated that development and corruption can coexist, corruption creates unsustainable inefficiencies and inherent weakness in the economy for the long term. Corruption breeds many evils in the society & once corruption grows prevalent, slowly and gradually the whole country passes through its net and it becomes extremely hard to get rid of it from the system. Whilst it is difficult to ascertain the exact impact of corruption on development, in the absence of corruption, even greater and more sustained levels of development can flourish. Corruption undermines development by distorting the rule of law and weakening the institutional foundation on which economic growth depends. The harmful effects of corruption are especially severe on the poor, who are hardest hit by economic decline, are most reliant on the provision of public services, and are least capable of paying the extra costs associated with bribery, fraud, and the misappropriation of economic privileges. Thus corruption can be seen to be one of the greatest enemies of development.

Prevalence of Corruption in India

The prevalence of corruption in India, and the public attention that it has been receiving can be gauged from the Centre for Media Services analysis that from 2005 to 2010, corruption coverage in prime-time bulletins showed almost a four times increase in percentage of time given for news stories on corruption. A 2005 study conducted by Transparency International in India found that more than 62% of Indians had first-hand experience of paying bribes or influence peddling to get jobs done in public offices successfully. Indian media has widely published allegations of corrupt Indian citizens stashing trillions of dollars in Swiss banks. Swiss authorities, however, assert these allegations to be a complete fabrication and false. However in its 2008 study, Transparency International reports about 40% of Indians had first-hand experience of paying bribes or using a contact to get a job done in public office. From what started as petty payments demanded by babus during the license raj days, corruption has taken a much larger form and scale today.

It is not about petty bribes anymore but scams to the tune of thousands of crores that highlight a political/industry nexus which if not checked could have a far reaching impact. Media stories on nancial scams indicate that while petty corruption is more of an irritant and mostly driven by public ofcials at lower levels, larger scams could be attributed to the willingness of the private sector to pay senior public ofcials to get their work done.

Impact on the Indian Economy

1. Lesser foreign direct investment (FDI) Foreign investments in a given country can be jeopardized when public agencies of this country, controlled by politicians and bureaucrats, demand bribes from private agents in charge of implementing such projects. Considering that such informal costs diminish the profitability of these ventures, foreign investors may prefer to place their money in countries less plagued with corruption International research suggests that the corruption levels in a country often have an adverse effect on FDI inows: a one-point increase in the corruption level can lead to a reduction in per capita FDI inows by up to 11percent. 2. Negative impact on the performance of capital markets Corruption negatively impacts the performance of stock markets by increasing volatility and prevents institutional investors from making long term investments Across international nancial markets, corruption is considered to be associated with higher borrowing costs, lower stock valuations and bad corporate governance. Similarly most investors opine that corruption, if not checked, can erode the very pillars of our economic growth. 3. Distortion of social policies aimed at economic development Dishonest government officials may favour promoting government activities, where bribery is most easily concealed. The demands of secrecy can shift a countrys investments away from the highest value projects, such as health and education into potentially useless projects such as defence and infrastructure, if the latter offer better opportunities for secret corruption. Not only are total funds available for public use diminished but they are spent on projects which are not necessarily best for development. 4. Corruption skews the level playing field and tends to attract organisations with lesser capability to execute projects. Such practices could have a serious impact on efciency and the quality of delivery resulting in increased costs 5. Impact the valuation of a company during mergers and acquisitions thereby denying shareholders of a fair price

Silver Lining
It was not long ago that the Indian market was saddled with excessive regulations and protectionist government policies that signicantly limited foreign investment and stied competition. The

business culture in this environment was one in which corruption was prevalent and in many cases, it became a normal pricing mechanism in the economy. Post liberalisation and technological revolution, India has been able to eliminate middle men in certain areas such as tax ling and refunds, telephone connections or acquiring commercial permits etc. hence containing corruption, to a limited extent, at lower level. In recent times, 1. 2. 3. 4. 5. Central Vigilance Commission, Prevention of Corruption Act, 1988 Right to Information Act, 2005 Lokpal Bill, 2011(still pending) Computerisation of services

Have considerably reduced corruption or at least have opened up avenues to redress grievances.