To understand corruption in India today it is useful to analyze it along two dimensions. Economic and Institutional.
The main Economic categories (from a corruption perspective) are, (i) Government purchase of Goods and Services (including government employment). (ii) Production and sale of Goods and Services by Departmental Public Undertaking and Public Sector Units. (iii) Natural Resource Rents: Natural resources include all minerals (including coal, oil & gas), Land and Electromagnetic Spectrum. (iv) Natural and Artificial (policy created) Monopolies & PPP contracts related to these. Networks such as electricity T&D & rail lines, airports, major ports and dams are natural monopolies. State Electricity production, Railway services (INR), Coal India, Dual use items of Defense production are monopolies created by policy & can be made competitive by policy change. PPP contracts for these as well as for Social services exclusively produced & supplied by government take on the character of artificial monopoly when good auction procedures are not used.
The main Institutional dimensions are, (a) The “Lower Bureaucracy:” The ‘State government’ machinery dealing with repeated routine economic & social activities. This is the machinery we deal with as citizens, as workers, as employees, as self-employed, as small businesses, as NGOs and large corporations as tenants or house owners, as land owners or rentiers. This is the government whose functionaries, often referred to as “babus,” we all interact with, in one way or another, in every sphere of activity. Also includes the entire local government (Nagarpalikas & Panchayats) & a part of the Central bureaucracy (non-IAS, IPS) that operates at State-City level (e.g. Customs, Income tax, Central excise). (b) The “Higher Bureaucracy”(Officers of the central services like IAS, & equivalent parts of State services) The decision making process for deciding on policy and implementing one off or unique procedures that have to decided anew every time. This is more high level decision making. (c) The criminal justice system. This is the notorious “politician-criminal-police” nexus that actively thwarts the “rule of law,” and believes it is above the law and behaves as if the constitution of India does not apply to it. Judges who take bribes to give knowingly wrong decisions should perhaps be seen as part of this.
With some danger of over-simplification, much of the first two economic categories of corruption is institutionally carried out by the lower bureaucracy, with systemic payments (bribe shares) moving up the system, while much of the third and fourth economic categories of corruption is done at the Higher bureaucracy level (with Lower Bureaucracy involvement only when needed) either with knowledge of or under the direction of the political bosses.
There are four major categories or sources of government related corruption in India.
Govt. Expenditures/G&S Purchases
Goods and Services Purchases that constitute the expenditure side of the budget of government at every level. This includes wages & salaries and therefore hiring and recruitment and contracts for construction and maintenance of roads etc. My informal inquires & reading suggests that the cut that government as a whole takes (shared between the functionaries & the bosses) has gone up progressively from about 15% in the 1960-70s to a range of 30% to 50% in the 2000s (% depends on nature of the G&S).
Public Production & Sale of items that can be produced by private producers and sold in market. These include all the Cetral government and State government owned.
There is a massive system of corruption in government expenditures and purchases in which all levels of workers are involved, from the lowliest sweeper & chaprasis, through petty clerks, dealing hands inspectors & superintendents through officers and politicians. In this well oiled machinery the unchanging faceless bureaucracy collects the bribes and shares it up to the officer and political level. It is my understanding that a new politicians or concerned State minister does not have to ask for anything, it would be delivered to him whether he wants it or not. This is the part which is so pervasive and systemic that only a major institutional reform can reverse the process.
Natural Resource Rents
Natural Resources such as Urban Land, minerals/oil, Spectrum, Aquifers. Theoretically these resources are the common property of the citizens. With few exceptions government at different levels [Local (Nagarpalika, Panchayat) State, Central] control all natural resources through multiple means and can manipulate policies, rules, procedures & enforcement to extract resource rents for themselves and those who help them cheat the people out of these resources.
These are generally large case by case decisions and are therefore likely to be controlled at relatively higher levels of State, Central Governments. An economically sound way to reduce natural resource related corruption is to make it compulsory for government to sell or lease all natural resources through an auction procedure that is designed to facilitate a large number of bidders. These auction procedures have to be simple, well designed and understood, otherwise the corrupt will manipulate these auctions too. There are a host of complication related to Urban land that have to addressed separately in detail. One of the most critical is the way “Land use” is determined and changed. Manipulation of this aspect can be source of massive corruption.
PPP for Natural (or Created) Monopolies
PPP Contracts related to "Natural Monopolies" or artificially created "monopolies". Manipulation of terms and conditions and the contracting process can be used to give contracts to favored parties. In some cases, an honest person knows that the strict terms of the contract cannot be fulfilled without making losses. The dishonest know that they can later bribe and get terms changed and therefore apply.
Lower and Upper Bureaucracy: To deal effectively with corruption, it is necessary to distinguish between the lower bureaucracy and the institutionalized-routineised, entrenched corruption that has become a way of life for the ‘Babus’ and the case by case corruption at the higher levels in which manipulation decisions have to be made case by case or for groups of cases. The latter involves the active participation of the government ministers.
Violations of Law: (a) Major violations include violations of criminal law that come under the rubric of "Politician-Criminal-Police" nexus. Also include violations of govt. rules & regulations that could cost human lives or cause serious damage to health. (b) Other violations are related to violation of government rules, regulations and procedures on day to day economic and personal activities.