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Indian state “biggest culprit” for rampant corruption: think tank

Narayan Lakshman

Washington: “The biggest culprit” for rampant corruption in India, exemplified by recent cases such as the Commonwealth Games scandal and the 2G-spectrum auction, is the Indian state, according to a leading think tank in Washington.

In a report, the Heritage Foundation said that while long-standing issues such as tax evasion and corruption by the wealthy and by corporations still abound, it was the Indian government that was responsible for choking of growth by making it difficult for entrepreneurs to start businesses.

Black market

This fuelled the expansion of the black market, now said to be 40-50 per cent of India's Gross Domestic Product, “in the neighbourhood of $600 billion.”

Pointing out that India ranked “an awful 165th out of 183 countries in the World Bank's measure of the difficulty of starting a business,” the Heritage Foundation report said that many ordinary Indians baulked at the thought of endless delays and high costs, preferring instead to proceed without the necessary authorisation and hiding their businesses from official scrutiny.

“This black market activity is due to a predatory State, which seeks to control Indian entrepreneurship,” the report said, highlighting a recent headline that described how India had lost over $450 billion in illegal capital flows. This money was illegally earned and ideally would never have existed in the first place if the Indian government had not tried to restrict capital movement, the report said.

Touching upon some potential solutions, the report's author, Derek Scissors, told The Hindu, “Capital account liberalisation can be technical but the Reserve Bank of India should immediately commit to a schedule of capital account liberalisation to be implemented over the next three years, including limited amnesty.”

He added that the mere prospect of short-term liberalisation and some amnesty would lead to far more by way of declaration of capital flows. Further, just like the U.S., India would do well to cut its budget deficit, “not by a one-time telecom windfall as this year but as a long-term structural matter.” Dr. Scissors said to The Hindu that the “perceived ability to spend more money than you have leads inevitably to corruption.”

Citing the example of the Commonwealth Games as illustrating the “government's guilt,” the report noted that they were plagued by overspending, due to lack of transparency and competition in State contract awards. State-run financials have also made loans in exchange for bribes, a problem which would be eased if the State did not dominate the banking system, the report added.

The report also discussed the recent telecom industry scandal, noting that there was “no telecom failure or betrayal here, quite the opposite,” that is, a failure and betrayal of federal coffers, with the “unwarranted cheapness of 2G spectrum (contributing) to a far more dynamic industry and thus led directly to the government's windfall at this year's 3G spectrum auction.”

Asked about the potential of policies such as the Universal ID Number and the Right to Information law to make a difference, Dr. Scissors said, “Yes, these help at the micro level. It will be more difficult to violate the rights of individual citizens for the sake of graft and there should be more transparency, which always inhibits corruption”.

Overall, the Heritage Foundation report argued, “the answer is plain: deal a decisive blow against State interference in the economy.”

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