iOS app Android app More

Cleo Paskal

GET UPDATES FROM Cleo Paskal
 

Roots of Corruption in India

Posted: 11/02/11 03:49 PM ET

There is a revolution in India.

Individual by individual, an anti-corruption wave is growing within Indian civil society. In recent months, people from all sectors of Indian society have said 'enough is enough' and, each in their own way, are doing something about it. Some are taking to the streets, others are online, some are using the courts, others have turned to the media. The swelling wave has already washed away one government minister and is lapping at the ankles of some of the country's biggest players.

The implications are global. As the West and India work more closely together, corruption in India risks spilling over into partner systems. By cleaning up India, Indians are not only reclaiming their own country, they are making the world a more stable place. For anyone interested in lasting global security, it's important to understand how India has ended up where it is today, and what Indian civil society is fighting for.

Origins of Corruption in Modern India include:

  1. Public sector pay and powers
  2. The tax collecting system
  3. Campaign financing

1. Public Sector Pay and Powers.
When the British took over large sections of what is now India from the East India Company, the British government acknowledged that, given the vast discretionary powers of the administrators, there could be the temptation to skim from the booty. So, they put in place a system that ensured that British officials posted to India would be very well paid -- and punished for dishonesty -- in order to mitigate the urge to dip into the coffers.

When India gained Independence in 1947, Prime Minister Nehru retained the extensive powers of the British colonial administration -- including laws that gave officials the right to intervene in almost any aspect of daily life. However, at the same time, he also dramatically reduced salaries in the public sector.

The result was a system in which an enormous number of poorly paid public employees had wide-ranging opportunities to 'make a bit on the side' through administrative coercion. It was almost inevitable that corruption would start to infect the system.

For example, the average Indian policeman is paid so poorly that taking bribes is almost part of the salary structure. In 2009, the housing allowance for the head of a police station in Mumbai, one of the most expensive cities in the world, was $45 a month. To be able to afford to house themselves and their family, it is not surprising if some have resorted to taking bribes. Usually the informal 'income supplement' is limited to relatively minor cases, like a small pay-off to get out of a traffic stop, but once the rot sets in, it can spread fast and deep.

Similarly, the Indian legal system is staffed by underpaid law clerks, prosecutors and lawyers, and moves at the lethargic, erratic pace of a drunken slug. Wealthy accused can give bribes for bail or for stay orders that can last for decades or a lifetime, if necessary. As a result, the Indian legal system is a weak deterrent to crime.

The problems with the system were so obvious that when Lee Kwan Yew set up his administration in Singapore, he was careful not to replicate India's mistakes. He ensured that officials were well paid (and harshly punished for indiscretions). Currently, in Singapore, the Prime Minister earns over five times the salary of President Obama and top ministers are paid around $1million a year. Corruption is extremely low.

2. Taxation.
In India, the situation grew even worse with Nehru's introduction of a tax scheme designed in large part by Hungarian Nicholas Kaldor. By the 1970s, the highest earners were required to pay 93.5 percent in tax. And, in some cases, the combined wealth and income taxes exceeded actual income. In many cases, it was simply not possible to survive if you paid the tax that was legally required. Combine this with the enormous discretionary powers of the tax collectors and, again, it was inevitable that tax evasion through corruption began on a massive scale.

3. Campaign financing.
Simultaneously, a range of profitable sectors were heavily restricted by the government, including some foreign trade and the sale of liquor. The result was that by the 1960s, as in the United States during prohibition, mafia elements took control of the sectors, generating huge amounts of black money.

That illegal money started to slosh around the system, contaminating all it touched, including campaign financing. While the cost of running for office in India is astronomically high, legal spending limits for campaigns are unrealistically low. This means that many potential candidates start their political careers by having to engage in illegal activities such as forging campaign documents, securing funding from dodgy sources and owing debts to various mafias.

Once elected, this has the twin effect of leaving the newly elected politicians open to blackmail and also of having to repay the money borrowed to get into office. Through blackmail, they may be pressured into enacting legislation that favors the illegal sectors. In order to repay debts, they may use their position to extract bribes and provide favors.

Additionally, officially, politics pays very poorly and, as the politicians might only be in office for a single term, they only have those 4 years or so to secure their family's fortune and set up connections that will serve them well out of office or ensure their reelection.

If so inclined, and they use their position to generate cash, they might also use hawala networks and the like to stash their illegal money in safe havens, which then makes the politicians vulnerable not only to domestic blackmail but to the influence of international terrorist networks, as well (for more on this click here).

As a result of all these factors and more, India is now caught in a situation where many sectors are steeped in endemic corruption, including those charged with controlling the corruption itself: from the politicians who write the laws to the police charged with enforcing it. Recently the amount of Indian black money in offshore accounts was estimated to be about $1.4 trillion.

This is Part One of a two part series on the roots of corruption in India, and what is being done to weed it out. This first part looks at causes of corruption in modern India. The second part looks at how the battle against corruption in India is being waged, and why winning that fight is critical not just for India, but also for global security. Part Two will look at the growing role of Indian civil society in fighting corruption, and why it's crucial for the West to understand the importance of the monumental struggle now unfolding in India -- a critical ally in the fight for worldwide democracy, prosperity and secularism.

 

Follow Cleo Paskal on Twitter: www.twitter.com/cleopaskal