Has Corruption Increased In India?
Over the last
few years there has been a lot of discussion about increasing corruption in
India. This discussion has been based
largely on a number of high profile cases that have hit the headlines, such as
those relating to Telecom Minister A Raja’s allocation of 2G spectrum in 2008
and the visible failures relating to the building of Infrastructure for the Commonwealth
Games 2010 and the subsequent Anna Hazare led movement for a radical new Lok
Pal Bill. In this note we use
Transparency International’s Corruption perception Index (TI CPI) and the
Corruption Control sub-index of the World Bank’s Governance index (WB CCI) to
look beneath the media headlines to examine what has happened to corruption in
India during the past two decades.
Corruption Trends
The corruption perception index of Transparency
International scores countries on a scale from 0 to 100 (least corrupt) and is
available for every year from 1995 to 2012.
This measures public perception of corruption in each country based on a
number of surveys. The World Bank
Governance Indicators project constructs aggregate indicators of six broad
areas of governance, one of which is “control of corruption.” This gives scores from -2.5 to +2.5 (best),
from 1995 onwards, but is only available for India for 1996, 1998, 2000 and
from 2002 to 2011. As India is a large country with over two
dozen States, one has to be cautious in attributing changes in the latter index
to the actions of the Central Government or of specific State Governments.
According to the
CPI there was no visible trend in
corruption between 1995 and 2003, as the index fluctuated and the level of
perceived corruption in 2003 was almost identical to that in 1995. As the CCI is only available for a few
selected years, it is difficult to draw
definitive conclusions about the trend in government efforts to control
corruption during 1995 to 2002. The CCI data for 1996, 1998, 2000 and 2002
suggests that corruption control efforts reached a peak around 1998 and
deteriorated thereafter and reached a trough around 2001 or 2002. Therefore,
the corruption control effort made prior to 1998 resulted in corresponding
changes in corruption perception. Supporters of the 1990s reforms, such as the
author, had argued prior to these reforms that they would reduce corruption in
the departments and areas in which these reforms were undertaken namely
(foreign trade and customs, central excise, income taxation and central
licensing of industry). As these were
Central Government reforms there was no logical reason to expect any changes in
State and local corruption related to State laws, rules and procedures. By 1999
it was also clear that reforms would need to be extended from economic policy
to governance institutions and from Central to State level.[i]
The fact that both the overall national
Corruption Control score deteriorated so rapidly after 1998 confirms the need
for fundamental institutional reform (police, legal and judicial, political- election
funding, LokPal) to underpin a sustained decline in corruption.
According to the WB CCI government efforts to control
corruption improved substantially from 2002 to 2006, to the extent that India’s
score was restored in 2006 to almost the same level as the previous peak in
1998. From 2007 to 2011 the CCI deteriorated equally sharply, and had fallen
below its 2002 level by 2011. This was
mirrored, with a short lag, in the improved perception of corruption, with the
CPI improving from 2004 to 2007, peaking in 2007 and then deteriorating till
2011. The deterioration in perceptions
of corruption, however, seems to be less than in the CCI, with the CPI in 2011
still higher than in 2005.
The two sub-periods of rise and fall coincide
roughly with UPA I and UPA II respectively .
The degree of corruption control
and of perceived corruption was significantly
better at the end of the UPA I
government’s tenure than before it took
over. This good performance was
reversed during the UPAII government : Corruption control deteriorated and
perceived corruption increased steadily
till last year (2011). But for the
entire period of the UPA, taken as a whole we have a contradiction between the
WB CCI and the TI CPI. The former shows
that governance quality measured in terms of corruption control was much worse
in 2011 than at the time the UPA government came into power, while the latter
shows that even in 2011 the low point of the CPI, corruption was perceived to be less than at
the start of the UPA I government. In
other words the UPA surrendered only part of the gains made earlier. According to the latest CPI, which has just
been released by Transparency International, the corruption situation has
improved dramatically in 2012, with the score higher/better than its earlier
peak in 2007. Thus the action taken in
response to exposure of corruption by the media and the Anna Hazare anti–corruption
agitation appears to have had a positive effect in increasing awareness and
bringing about moderation in the depth of corruption.
Hypothesis
The
improvement and subsequent deterioration in corruption control (CCI) and
corruption perception suggest that the causation is from degree of corruption
control to corruption to perception of corruption. On the contrary we find that the correlation
between the two indices is close to zero.
One possible explanation for this is that the corruption control index
(CCI) is capturing action taken at the State level, while corruption
perceptions index has more to do with the National Television media and its
focus on issues of mis-governance and corruption. Thus it could be argued that exposure various
scams at the Central level since 2007 has played an important role in
perceptions of corruption, but ccould have had the paradoxical effect of
emboldening the corrupt at the State level to weaken governance with respect to
corruption control.
Our analysis shows that the
correlation co-efficient between growth in GDP (at factor cost) and the TI CPI
is 0.35 and increases to 0.5 if growth is lagged one year.
This suggests an alternative
hypothesis, that fluctuations in perception of corruption are linked to changes
in the growth rate of the economy. Between 2003-4 and 2007-8 the economy grew
at an average of 8.9 per cent per year.
This was a dramatic change from the 5.2 per cent average of the previous
six years. Further the growth rate appeared
in general perception to be on a rising trend during the five year period
2003-4 to 2007-8. Thus the economic pie
was expanding fairly rapidly and there was enough for all to share in this
expansion. Therefore I hypothesize that the demanders of bribe were quite happy
to receive, without a change in the bribe rate (and perhaps even with a
slightly lower rate), the rising share from their usual sources. On the other side of the coin, the bribe
givers, with a more rapid rise in incomes did not feel so bad (decline in
marginal effective cost) about giving bribes for the usual services. This lead, after a lag of 2 years, to a
decline in perception of corruption from 2004 to 2007.
The economic
situation then deteriorated sharply under the impact of the global financial
crises in 2008. The growth rate declined
sharply to 6.7% in 2008-9 and remained on a declining trend from then
onwards. A large majority of the public
had got used to the (erroneous) idea that the Indian economy was on auto-pilot
for 8.5 to 9% growth and the only issue was how to raise it even further. Thus a growth slowdown that reduced the
income growth was a shock to the new equilibrium and increased the tussle
between the bribe givers and takers and contributed to a rise in corruption. The fact that there was no lag on the
downside and the relatively gradual decline in CPI from 2008 to 2011 suggests
that there may also have been an increase in corruption reminiscent of the
micro licensee-permit raj era in areas such as taxation, public sector banking,
environment and natural resources where such case by case interference is still
possible.
Anti-Corruption Drive
The sharp
reduction in corruption perception (rise in CP index) in 2012 is however in
clear contradiction of the growth related explanation, as GDP (FC) growth has
slowed further to 5.5 per cent during the current year. As indicated earlier, the improvement CPI is
likely due to the public outcry against corruption, led by NGOs and supported
by the media. This has probably led to
both greater circumspection on the bribe demander/taker as well as greater
efforts on the anti-corruption front that have increased the risk from
extortive rents, resulting in a dramatic reduction in perception of corruption.
Hopefully this will encourage the relatively sincere
parties and State governments as well as the crusaders and the media to keep up
the fight to improve not only corruption perceptions but governance in general.
Corruption in India Relative to the World
NRIs and US
citizens of Indian Origin often complain about their experiences in India and
the degree of corruption in it. Some
explicitly claim that it is probably the most corrupt place in the World. It is therefore useful to compare India’s
ranking according to the corruption perception
index and how this has changed over time. A common way of comparing countries is to
look at their rank according to the index.
Thus India’s rank according to the CPI was 72 in 1999 and exactly the
same in 2007, while it deteriorated dramatically to 95 in 2011. This is, however, highly misleading, because
the number of countries for which the index has been constructed changed over
time. The total number of countries covered was 99 in 1999, 180 in 2007 and 183
in 2011, and there was considerable
fluctuation from year to year, rather than a progressive increase. As each new country can have an index lower
or higher than the earlier one for India, the relative position can shift up or
down.
The simplest way
to adjust for this problem is to determine the percentile in which India falls
in each year. The percentile represents
the proportion of all countries that have a CPI rank worse than that of India.
India’s relative
position with respect to corruption perception (TI CPI) improved fairly
steadily from the 15th percentile in 1995-1997 to the 60th
percentile in 2007. Thereafter it
progressively declined to the 45th percentile in 2012. India was therefore back where it was in 2005. In
terms of the hypothesis presented earlier, it seems that the increase in Indian
growth, optimism and animal spirits unleashed by the 1990s reforms improved
India’s corruption ranking relative to the rest of the world in the second half
of the 1990s and first half of the 2000s.
The Global financial crises of 2008 coupled with domestic developments
since 2008, slowed economic growth and worsened perceived corruption relative
to the rest of the World. There is
clearly a need to identify to identify and rectify these errors.
India’s Global
ranking in terms of the world Bank corruption control index follows the same
pattern as that of Transparency Internationals Corruption perception index,
between 2002 and 2011 i.e. rising and falling, but the ranking is much worse in
2011 compared to its rank in any earlier year ( for which the rank is
available). The pattern of this index
for India is a little puzzling and requires further investigation.
Conclusion
The time series data for
Transparency International’s Corruption perception index shows that, perceived
corruption declined from 2003 to 2007 and then increased till 2011. Perceived corruption was however, less in
2011 than in 2003. Further it declined
sharply in 2012, to a level not seen earlier.
India’s global ranking mirrored this pattern till 2011, though the 2012
improvement is not reflected in an improvement in global ranking.
A shorter version of this post appeared in the Financial Express of Friday 11, January 2013, http://www.financialexpress.com/news/column-corruption-perception-rises-as-gdp-slows/1057076
[i]
Arvind Virmani, From Poverty To Middle Income: Reforms for Accelerating Growth
in The 21st Century, Chintan, April 1999.
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