A corrupt elite is slowing India

Standard and Poor's have downgraded India's credit rating from stable to negative. It has three complaints against India's management of the economy: high fiscal deficit, heavy debt burden and slow reforms. It wants reduction in subsidies, a national service tax and a liberal foreign exchange regime.

Considering that not long ago S&P and the other credit rating agencies failed to identify the international crisis with which many countries are still suffering from, we may or may not take its strictures or its recommendations seriously. However, the fact that it has downgraded India's outlook and the reversal of a long period of export growth should cause us concern.

Corruption is a main cause for India's poor showing. Mr Stephen Covey has shown that the lower the GDP, the higher the Corruption Index and that India's low GDP matches its high corruption.

Corruption in high places can be shameless or it can be due to misinterpretation. Recently, senior corporators in Bangalore would not remove garbage from the cricket stadium because they did not get complementary passes. Even on TV, they were brazen about it and it has been reported that they have hoisted cases against the cricket administration.

On the other hand, there is a reported move to raise the floor area ratio of buildings in the cities. That is probably because of the incorrect perception that the country is so overcrowded that there is no alternative. At the same time the move will feed high-level corruption by letting land to be sold by volume rather than by area, by letting property developers (and politicians) make pots and pots of unearned money.

Blame rbi, too

The Reserve Bank of India bears much of the responsibility for India's slowdown. Using the classic cure against inflation, it made the price of money high and hence, made it costly to acquire capital. It has barely cured inflation and instead penalised heavily honest savers in the country.

The RBI failed to see that the culprits were mainly property developers and politicians; it has punished everyone, the good ones and the bad ones alike and, thereby, has indirectly promoted corruption.

The true cost of corruption depends on where it occurs. A man can carry a backpack of 30 kg for miles, but will find it difficult to do so on his head even when it weighs appreciably less. He may carry in his hand a suitcase weighing no more than 20 kg for a short distance only, but will be hobbled when even a kg is strapped to his ankles.

With corruption, it is the other way around. A petty official can be a nuisance but may not retard the economy much, but those at the top can, and do, slow down the economy inexorably.

suggestions with caveats

We need to increase the levels of honesty of the rich and the powerful. We have to make life easier for the ordinary person. I suggest two solutions. One, the Government withdraw all economic subsidies and instead offer true public goods — roads, water supply, sanitation, education, (including training for employment), as also quality primary/secondary healthcare. Two, as I have said before, meet all legitimate expenses of politicians fully and generously; also pay them so well that they have no need to be corrupt.

These suggestions need to be combined with a caveat each. First, public goods should be offered only where they are most economical. That will not be in Delhi or Bengaluru or any of our larger cities.

It is not worthwhile subsidising flyovers and mass transport in crowded cities (and thereby inviting more people to migrate there); it will be far better to develop the thousands of much smaller tehsil towns which do not need expensive flyovers or metros and do not cost the earth for land.

No! I am not advocating prohibition. That is one principle on which I have no agreement with Mahatma Gandhi. Instead, I suggest that the RBI should have ordered that bank loans will be available only (or cheaply) where land prices are low. With little or no bank credit and zooming real estate prices in cities, investment would then have drifted towards smaller towns making them — and large cities, too — more liveable. Would not that have curbed inflation better with little or no loss to growth?

My second caveat is about the way parties select candidates for contesting elections. In every party that is by the privilege of the high command. Thus, we have leaders who select loyal supporters who, in turn, support the leaders that selected them. That may be cosy but it is not democratic.

I want the selection of candidates taken away from the high commands and handed over, as they are in the UK and the US, to local electors. How that selection is done is not so important so long as the high command has no authority to choose. However, I do not like the primary elections in parties in the US as they are far too expensive.

When candidates get selected on their own, they will have the opportunity and the moral strength to choose their own leader rather than endorse those that chose them.

I prefer Gandhiji's figure of Rs 500 of 1937 or even the Rs 1,200 that Bombay Presidency paid its ministers — sorry, not the legislators — to which Gandhiji did not take umbrage.

That comes to around Rs 15-30 lakh a month and is enough to wean away any but the most criminal mind from mischief, particularly when the entire cost of elections is borne by the state.

(The author is a former Director, IIT, Madras. Responses to >indiresan@gmail.com and >blfeedback@thehindu.co.in )

This is 328th in the Vision 2020 series. The previous article appeared on April 21.

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