Opinion

Petty corruption is not small change

Pritam Banerjee | Updated on: Aug 09, 2018

It is as expensive to society as large scams and cannot be tolerated as a small price to grease the economic machine

After four years in power, one of the significant achievements of the Modi administration is the absence of any major corruption scandal. This is especially true when contrasted with the record of the previous UPA administration. Prime Minister Modi and his colleagues in government must also be credited for rapid implementation of transparency measures in governance — such as direct subsidy transfers, extending the expiration date of industrial licences, or e-courts project that would allow e-filing and e-payments, including app-based solutions related to court procedures.

These are a few examples from several such ‘doing business’ measures that are being implemented, or are being considered. However, the scourge of petty corruption — the acts of ‘fixing’ or ‘facilitating’ everyday transactions with government agencies, continues to be a bane. Large scams, while imposing a cost on society as a whole, and occupying public imagination, do not actually touch the lives of ordinary people and businesses, especially SMEs.

Hurts society

But the million acts of petty corruption is a reality that everyone in India lives with in their personal and professional lives. Consider this back-of-the-envelope calculation: if there are a million transactions with government everyday that require a small payment to get things done, and each such activity requires an average bribe of ₹1,000, that results in total bribe paid of ₹1,000 crore per day, and ₹ 3 lakh crore a year — assuming 300 working days.

In other words, petty corruption is as expensive to society as large scams and cannot be tolerated as small change used to grease the economic machine. I would argue that in some ways, such petty corruption is actually more expensive to society.

As a 2014 Transparency International paper points out, petty corruption typically afflicts those government processes or approvals that are deemed operationally critical and urgent. For example, clearance and movement of goods, dealing with fines, on-site inspections or approvals, access to utilities, submission of documents to courts and other statutory bodies.

Any hold-up of such activities can cause a paralysing delay to any business or individual. A million such acts of ‘paid facilitation’ are, therefore, actually the main cause of bottlenecks in our economic and social machine, imposing a huge cost in terms of efficiency and effectiveness of businesses and individuals.

Equally important is the personal cost it imposes. Imagine an individual, a small business owner, or even an employee of a large business having to negotiate this labyrinth.

Most Indians have some personal and negative experience to share in this context, and we know the loss of self-respect and feeling of lack of empowerment that such acts imposes on us. Therefore, in many cases, the actual work is ‘outsourced’ to touts or agents, some of whom have taken to calling themselves ‘consultants’, highlighting the widespread acceptability of such a system.

A result of such widespread acceptability is the moral ambivalence on petty corruption, which in turn breeds institutional morass and engenders a culture of rent-seeking, lack of service delivery and poor governance. A system that considers ‘petty payments’ a birthright and helps create an eco-system of agents and touts can never be transparent, efficient, and fair.

This has direct bearing on investor confidence, entrepreneurship and thus economic growth. Investment and expansion plans of foreign investors depend on grapevine information from the ground. These acts of petty corruption, therefore, act as ‘death by a thousand cuts’, as anecdotal experience shared by managers on the ground to their superiors is spread through the system.

That is one of the reasons why India typically fares poorly in all perception-based surveys of ‘doing business’; and perceptions play a key role in investment decisions.

Laws against corrupt practices which earlier tolerated facilitation payments and acts of petty corruption are increasingly closing the loop. The OECD called for a ban on facilitation payments for firms based in member-nations in 2009, and anti-corruption laws such as the US Foreign Corrupt Practices Act or the Canada’s Corruption of Foreign Public Officials Act are reducing the tolerated exceptions on such petty corruption. This means that firms from such industrialised nations would be increasingly reluctant to do business in countries where petty corruption is rampant.

Not only foreign investment, but domestic expansion plans, growth of dynamic SMEs into larger entities and entrepreneurship all suffer as talented potential entrepreneurs and investors are put off by a system that requires them to deal with regular unpleasantness or outsource it at a cost. Petty corruption also helps create a very strong eco-system of vested interests that resists and even trumps any move to reform the system.

The cottage industry of fixers, agents, and consultants earn significant revenues out of petty corruption. For firms and individuals these show up as extra costs and fees.

Reforms that disrupt the system are seen as a threat by such agents, and by firms who derive unfair advantage from such relationships. Thus, there is a huge pushback from such quarters who want to retain the status quo. Many of such ‘fixing’ entities exist in the guise of legitimate services providers such as lawyers, registered brokers for different activities, and consultancy services.

The higher echelons of government need to realise that large systemic reforms — for example, automation and IT enablement of taxation or customs processes, or making permit application online — alone cannot help address this micro-level transactional corruption. Area specific mission mode taskforces need to be set up to analyze every micro-transaction in every process. For example, individual taskforces dedicated to customs, transport, industrial licenses or Shops and Establishments Act etc. need to be formed, drawing membership from industry practitioners, regulatory experts and bureaucracy. These taskforces should be then asked to develop an implementation plan that closes or at least significantly reduces the rent-seeking loop peculiar to such procedures and transactions when they actually play out in the ground. This seems to be project for Niti Aayog since several such processes are responsibility of state administrations. Such a reform would truly be revolution from below representing the best ideals of ‘antodyaya’.

The author is an independent policy professional

Published on August 09, 2018
COMMENTS
This article is closed for comments.
Please Email the Editor

You May Also Like

Recommended for you