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G. Ramachandran

Some amount of sharp practices has become necessary in Indian society to get ahead. People in high places practice the art of deception for monetary gain at the expense of other citizens. However, it is most disturbing that the young too need to resort to these subterfuges to earn high incomes, says G. Ramachandran.

MANY poignant inferences can be drawn from the case of the fake stamp papers used for registering ownership of property and property rights and the case of the leaked question papers for admission into India's top-ranked business schools, the Indian Institutes of Management (IIMs), and other competitive examinations. The first inference is that some amount of cheating has become necessary in Indian society to get ahead.

The second inference is that the establishment will tolerate some amount of cheating. The third inference is that people in high places could cheat and practice the art of deception for monetary gain at the expense of other citizens.

Lastly, young people — those in the late teens and early twenties — may willingly indulge in cheating if the stakes are high. These cases involve the use of patently unscrupulous and questionable methods by some citizens so that the users may earn a substantially better standing in society and significantly higher incomes than other citizens that choose not to use these dubious methods.

For example, the fake stamp paper case has been reported to involve a loss of at least Rs 30,000 crore to the Central and State Governments. That is the loss imposed on the governments and it is the gain to those involved in the distribution of fake stamp papers.

After reckoning with the substantial gains earned by the unscrupulous, it may appear that society has made up for the losses borne by the scrupulous. But the adoption of unscrupulous and questionable methods and the results thereof do not belong to the realm of `zero-sum games' where the indirect and unseen losses imposed on the scrupulous are compensated by the direct and verifiable gains earned by the unscrupulous.

Unscrupulous and questionable methods belong to the realm of 'negative-sum games'. Society as a whole loses on many counts.

Squeezing the scrupulous

First, many scrupulous and compliant participants may be incapable or unwilling to work along as integral parts of society. They may choose to drop out of events and activities that require some cheating. The competence and creative energies of the scrupulous and compliant will then become unavailable for nation building. For example, those that think that entrance exams and selection processes are rigged will choose not to appear for the Common Admission Test (CAT).

Second, the real effective losses faced by society will then include the first order losses of a small magnitude borne by the scrupulous who appear for CAT. They will also include the hidden losses — second-order losses of a larger magnitude — associated with those scrupulous and compliant practitioners who choose not to participate in CAT and other competitive examinations.

Third, society as a whole will then have to depend on more and more unscrupulous and non-compliant participants to compensate for the real effective losses. What this means on the darker side is that society will choose to make the unscrupulous and non-compliant very `productive'.

In other words, society will have to encourage the proliferation of unscrupulous and non-compliant participants. But society involves specialisation and the division of labour. Not all participants can do all things to complete an economic event. For example, some may be competent and efficient at sowing, some at harvesting and storing, and some others at processing and retailing of food grains.

To make the food-grains economy productive, society has to inject a certain amount of unscrupulousness and non-compliance in each of the stages.

Race to the bottom

Why? If all participants were scrupulous and compliant at the sowing stage, they would be ill-fitting and undesirable counterparties to those in the harvesting and storing stage who are not as scrupulous. It is as difficult for the unscrupulous to deal with the scrupulous as it is for the scrupulous to deal with the unscrupulous. Some symmetry in scrupulousness is an absolute necessity. If society accepts unscrupulousness in the harvesting and storing of food grains, it will have to promote unscrupulousness at the sowing stage. This sets off the race to the bottom. The race to the bottom in the context of scruples and creativity is the first visible evidence of the results of `negative-sum games'.

The second visible evidence of the results of `negative-sum games' is the decline in overall productivity and income-earning capability of all participants involved in the race to the bottom. After society has chosen to promote unscrupulousness in sowing, harvesting, storing, processing and retailing, it has to depend on the ability of participants in each of these stages to deal with those in the other stages and to enforce explicit and implicit contracts with one another. But participants in each stage know that they are dealing with others who are unscrupulous. What this means is that no counterparty can access the courts of law and other legitimate contract enforcement institutions to derive the most from specialisation.

Counterparties involved in the economic chain and in the race to the bottom will necessarily have to depend on `honour among thieves'. But `honour' has significant limitations when each counterparty knows that the other will practice some unscrupulousness and will not comply with some components of the covenants. It is difficult for the unscrupulous too to deal with the unscrupulous. This difficulty limits the scope for specialisation through division of labour. This difficulty leads to the decline in the aggregate productivity of all who comprise the sowing, harvesting, storing, processing and retailing stages.

Embracing poverty

The race to the bottom in the context of scruples and creativity has had a serious effect on the per capita income of Indians. The low per capita income is an inevitable result of the diminished scope for the scrupulous to deal with the scrupulous and of the diminished scope for the promotion of specialisation and efficiency.

The losses resulting from the promotion and proliferation of unscrupulousness are better understood by examining the upshot of the fake stamp paper case. The government has decided to legitimate and recognise transactions that have used fake stamp papers. But the governments have lost revenues of Rs 30,000 crore or more. But, more important, the benefits of investments and useful expenditure have been withheld from millions of citizens. Only a handful gain when unscrupulousness dominates scrupulousness. The massive poverty of India's citizens is the unsurprising result.

Dispirited young

It is indeed a happy occurrence that the cases involving fake stamp papers and leaked question papers have not remained concealed for long. But the first and the last of the four inferences comprehensively overshadow the significance of the unearthing of the two cases. The cases of the fake stamp papers and the leaked question papers should be evaluated along with the recent allegations that a young cricket player had offered to pay bribes to some selectors so that he could be selected. It is most disturbing that cheating by the young has become a necessity for earning high incomes. Also, that aspirants pursuing top-drawer careers that lead to high incomes in global companies and from modern professions will choose to cheat early in their lives. If young people have to cheat to get ahead, and if young people will choose to cheat to get ahead, then India's reputation in the world may have taken an irreversible beating.

The recent surge in the world's confidence in India and its regard for India's composite talents is primarily the result of the demonstration of competence, competitive skills, hard work and diligence by young Indians. If some of them would indulge in cheating through an organised racket that can spirit away the question paper set for the CAT, then the spirit sags.

(The author is a financial analyst. Feedback may be sent to indiagrow@sify.com)

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