India: The Wilting Lily

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INDIA: THE WILTING LILY
ESSAYS IN GOVERNANCE &
ACCOUNTABILITY
SHANTANU BASU
I-1705, CR PARK, NEW DELHI 110 019
TEL: +91-11-26273387/8486041123/9999769350

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Where the mind is without fear and the head is held high
Where knowledge is free
Where the world has not been broken up into fragments
By narrow domestic walls
Where words come out from the depth of truth
Where tireless striving stretches its arms towards perfection
Where the clear stream of reason has not lost its way
Into the dreary desert sand of dead habit
Where the mind is led forward by thee
Into ever-widening thought and action
Into that heaven of freedom, my Father, let my country awake.
Rabindranath Tagore
Gitanjali (Naibedya Prarthana)

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INDIA: THE WILTING LILY
ESSAYS IN GOVERNANCE &
ACCOUNTABILITY
SHANTANU BASU
I-1705, CR PARK, NEW DELHI 110 019
TEL: +91-11-26273387/8486041123/9999769350

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About the Author
Born in New Delhi on 5th Aug, 1959, Shantanu Basu attended Delhi’s
prestigious St. Columba’s School and completed his graduation with Honors in History
from St. Stephen’s College, University of Delhi in 1979. He has an MBA degree from
the University of Queensland, Australia, and attended the PhD program in Public
Administration in North Carolina State University, USA from 2006-09. He has served
the Indian Audit and Accounts Service (IA&AS) under the Comptroller & Auditor
General of India since 1984 and is presently serving in the grade of an Additional
Secretary to Government of India as the Principal Accountant General (A&E) of
Assam, based in Guwahati. Before joining the IA&AS, he briefly served as a trainee
journalist with the Times of India group. In his three decade long professional career,
the author has worked with several Union Ministries in key sectors and has several
articles in major national newspapers to his credit. He welcomes readers’ mail at
shantanu_leo@hotmail.com or leo.shantanu@gmail.com.

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Contents
FOREWORD ........................................................................................................................................ 10
I. INTRODUCING CORRUPTION IN GOVERNANCE ............................................................... 21
II. BRIEF HISTORY OF CORRUPTION ........................................................................................ 23
III. TYPOLOGY OF CORRUPTION ................................................................................................ 37
IV. CAUSES & CONSEQUENCES OF CORRUPTION ................................................................. 45
V. MAGNITUDE OF CORRUPTION IN INDIA ............................................................................. 62
VI. INSTITUTIONAL ANTI-CORRUPTION FRAMEWORK ..................................................... 74
VII. UNCERTAINTIES IN PILLARS OF NIS ................................................................................. 83
LEGISLATURES & ELECTION FUNDING ............................................................................................... 86
THE SUPREME COURT ........................................................................................................................ 92
CENTRAL VIGILANCE COMMISSION & CENTRAL BUREAU OF INVESTIGATION ................................. 112
COMPTROLLER & AUDITOR GENERAL OF INDIA .............................................................................. 120
THE MEDIA ...................................................................................................................................... 139
CIVIL SERVICES ................................................................................................................................ 146
JUDICIAL SERVICES .......................................................................................................................... 162
POLICE SERVICES ............................................................................................................................. 168
VIII. MANIFESTATION OF UNCERTAINTY ............................................................................. 175
ANTIQUATED LEGISLATION: LAW OF ADULTERY ............................................................................. 178
SENIOR CIVIL SERVICE ..................................................................................................................... 194
EDUCATION ...................................................................................................................................... 202
PUBLIC PROJECT OPERATION & MAINTENANCE............................................................................... 221
QUALITY OF GOVERNMENT REVENUES AND EXPENDITURES ........................................................... 229
ADMINISTERING NATIONAL RESOURCES .......................................................................................... 241
CONTRAST IN FINANCIAL GOVERNANCE: ASSAM V. GUJARAT ......................................................... 252
IX. CHANGING DEMOGRAPHICS AND POPULAR EXPECTATIONS ................................. 288
X. SUGGESTIONS TO IMPROVE NATIONAL GOVERNANCE ............................................. 299
CIVIL SERVICES ................................................................................................................................ 299
ELECTORAL FUNDING ...................................................................................................................... 307
JUDICIAL SERVICES .......................................................................................................................... 313
POLICE SERVICES ............................................................................................................................. 315
MUNICIPAL SERVICES ...................................................................................................................... 318
HEALTHCARE ................................................................................................................................... 319
EDUCATIONAL SERVICES ................................................................................................................. 320
INFORMATION TECHNOLOGY ........................................................................................................... 323
PUBLIC WORKS ................................................................................................................................ 328
CITIZENS’ PARTICIPATION IN GOVERNMENT ..................................................................................... 330
SOME MORE SUGGESTIONS OUTLINED ............................................................................................. 335
XI. WHITHER ASSONANCE? ........................................................................................................ 339
BIBLIOGRAPHY .............................................................................................................................. 343

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Foreword
US President Thomas Jefferson once famously asserted that, “Experience has
shown that even under the best forms of government those entrusted with power have,
in time, and by slow operations, perverted it into tyranny.” The debate over
transparency and accountability in governance inspired an anti-corruption movement
in India that may, at best, be described as amorphous and leaderless. People took to the
streets, effigies and vehicles were torched and policemen assaulted, all against an
amorphous monster called corruption by rulers. Most protestors had faced a bribe-ridden
system in the form of school principals, sarpanches, traffic policemen, municipal
personnel, et al, and the lowest level of corruption by street level bureaucrats. General
Colin Powell aptly said, “Poverty arises and persists where corruption is endemic and
enterprise is stifled, where basic fairness provided by the rule of law is absent. In such
circumstances, poverty is an assault against human dignity, and in that assault lies the
natural seed of human anger.” Few, if any, had any idea what the corruption
phenomenon implied, its causes and consequences, its roots within our economy, polity
and society. Neither did the vast majority of protestors understand the corruption
phenomenon nor did many articulate television panelists for whom corruption remained
only an amorphous plank, provide any leadership on the ground, instead preferring the
safety of media studios and their homes. The few that did come out only added to the
rapidly rising levels of angst and vituperative against an amorphous ‘system’, an unseen
enemy.
I have been working on corruption and governance, both as an academic and as
an administrator, mainly in India and the US, over the last 7-8 years, but have never
chosen to publish my findings and perspectives this far. However, as I watched session-

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long legislative disruption, rampaging protestors on Delhi’s streets and an evident
decline in governance and morality unfold in the media, I realized that this was the
opportune moment to publish the body of my work in this compendium and create a
unique body of literature on this emotive, indeed explosive, subject. My three decades
of serving India’s covenanted civil services would provide the practitioner’s
perspective to my theoretical construct. Further, I also observed over 80,000 visitors to
my web page on www.slideshare.net/shantanu_leo. I agreed with Anatole France when
he said, “The law, in its majestic equality, forbids the rich as well as the poor, to sleep
under bridges, to beg in the streets and to steal bread.” Therefore, this book is addressed
to academic researchers, students, civil servants, private sector executives, the self-employed,
unemployed, opinion makers, journalists, teachers, public policy makers,
and many more, that would educate people and provide leadership to the presently
amorphous anti-corruption movement and clamor for accountability. It would also
cause readers to identify major built-in structural infirmities in our systems that
encourage corruption and empower citizens to demand what is their right from their
rulers. Last, but not the least, I hope my simple and direct language would make the
content easily discernible to all readers.
For my analysis, I adopted Transparency International’s institutional framework
– the National Integrity System (NIS) – analyzed and selected some institutions and
areas where structural and/or environmental factors caused dissonance between
government and governance. Such dissonance resulted in probable and/or proven
corruption for goods and services that government institutions ought to have delivered
to citizens without resorting to malfeasance.
The underlying theme of this book - its theoretical construct - is that corruption,
which is the most prominent manifestation of poor governance, stems from the primary

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structural failure of pillars of our National Integrity System (NIS) – a theme that has
excited the common man as much as it has caused anxiety to India’s private and foreign
investors and international credit rating agencies. Such failure – dissonance - owes to
environmental (political, social, etc.) and resource contingencies (finances, human
resources, etc.) injected from outside into the internal structure of a pillar that negatively
alter and reshape the internal structure of the pillar and may cause it to malfunction
and/or orient its functioning to the demands made upon it by the environment and
resources, with few exceptions like India’s Central Information Commission, Central
Election Commission and the Registrar General of India. Collectively applied to the
universe of governance, dissonance of all or some pillars causes government not to
deliver governance with the optimal levels of efficiency, economy and effectiveness as
the contents of my study proves. In turn, such dissonance creates economic
opportunities for corruption, such as rent-seeking.
Conversely, assonance describes a situation in which all pillars of the NIS are
empowered and autonomous and government is willing and able to synchronize their
collective activities into popular governance, minimizing economic opportunities for
corruption. Assonance is also in keeping with the constitutional separation of powers
that, unfortunately, has declined to dictatorial dissonance without much gain to the
public interest as events of the last six decades in India show. In the final analysis,
governments must remain slave to popular, as distinct from populist, governance that
is the ultimate culmination of the social contract between the rulers and the ruled in any
established liberal democracy. I also provide broad contours of reform of such systems
in the hope that some of these would be debated and many more added. I may also
clarify that the universe of ‘accountability’ encompasses anti-corruption
instrumentalities of the State only as a key supplement, to check aberrant behavior, not

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as substitutes for accountability in governance that is the primary responsibility of the
other pillars.
The introductory chapter commences with quotations from the debate between
Lord Dalberg-Acton and Bishop Creighton with regard to exempting men in authority
from any scrutiny. Lord Acton’s opposition to Bishop Creighton’s suggestion was
contained in his celebrated remark, “Power corrupts and absolute power corrupts
absolutely.” Transposing this debate to the contemporary debate in India, it is apparent
that corruption is a malaise of governance and not an end in itself. Corruption arises
when institutions suffer from dysfunction that reduces accountability, in turn, promotes
corruption. Unless governance improves and strengthens accountability institutions,
corruption would remain endemic to governance in India. The second chapter delves
into the depths of history of corruption and finds this phenomenon is as old as Aristotle
and Kautilya. Yet corruption was seen even in history as a result of aberrations in
governance and failure of institutions rather than a standalone problem. Therefore the
global explosion of corruption in recent years is not entirely surprising. Indeed, recent
statements by new maverick politicians and their political parties that view anti-corruption
as the end objective of governance is no more than an excuse for disability
to govern that only reduces governance to a farce and gives rise to even greater levels
of corruption.
This chapter also reviews the academic debate in its twin organizational and
economic perspectives. While the economic theorists on corruption attribute corruption
to economic factors such as taxation levels and economic organization, organizational
perspective views the failure of institutions to resist corruption owing to adversities in
their operating environment. Placed together, neither perspective is exclusive of the
other. Rather it is a combination of economic factors and institutional failure that

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promote aberrations in governance, corruption being major fallout. Owing to the twin
perspectives, it is often difficult to segregate the types of behavior and/or circumstances
that engender corruption, something that this book attempts to segregate. Likewise, the
twin perspectives also cause a duality of opinion on the types of corruption that this
chapter seeks to segregate. Corruption is also variously measured, both by economists
and organization theorists, a brief overview of which this chapter attempts to provide.
Having identified the typology of corruption and its measurement, the fourth
chapter attempts to provide an overview of the causes and consequences of the
phenomenon of corruption in its economic, political and social dimensions. Two
alternative frameworks dominate research and practice on corruption. The first is an
economic perspective that focuses on the roles of rational self-interest, efficiency
pressures, and explicit, formal regulative structures in explaining and combating
corruption. By its neglect of the role that normative and cognitive structures play in the
development, perpetuation, and remediation of corruption, this approach has had
limited success in remedying corruption. The second framework primarily grounded in
organizational behavior literature, focuses on the normative and cognitive aspects of
corrupt behavior however, within organizations and instead of on the wider institutional
orders that also influence the behavior of individuals and organizations. Of late, newer
perspectives on corruption have emerged that include determinants such as the legal
system, religious traditions, political systems, etc. This chapter reviews academic
literature and briefly critiques both perspectives. It then proceeds to review literature
on the consequences of corruption over eight parameters, viz. as driver or retardant of
economic growth, cause inflation, retards growth of the private sector, impairs
creditworthiness, endangers public safety, alters perceptions of political systems,
affects national defense and promotes iniquity.

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Having defined the phenomenon of corruption with its history, typology, causes
and consequences in the previous chapters, the fifth chapter reviews Transparency
International’s (TI) indices of corruption in India to gauge the size of the corruption
industry in India. In effect, this chapter anchors the global corruption debate into its
Indian context. Extensive use of online databases of TI, World Bank, etc. bring out a
near collapse of governance in India and relate rising levels of corruption to declining
levels of governance. India’s corruption perception is lower than many smaller
developing nations as my study proves. Academic literature in support of the NIS is
briefly reviewed from both organizational and economic perspectives. The chapter
concludes that poor response from many key components of the NIS in India
undermines governance, weakens accountability institutions and promotes greater
corruption. These are related to essays in the seventh and eighth chapters. The sixth
chapter is devoted to identifying the pillars of India’s NIS.
The seventh chapter analyzes nine major pillars of the NIS and the uncertainty
they face, viz. Legislatures, the Supreme Court, Central Vigilance Commission (CVC)
and Central Bureau of Investigation, Comptroller & Auditor General of India (CAG),
the media, civil, police and judicial services. Lack of transparency embedded in the
selection process of senior civil servants promotes dissonance between governance and
government and provides incentives for corruption. Likewise, the CVC is a victim of
its own laws of creation that hobbles its effectiveness and reduces it to the peculiar
standing of a statutory body but with only advisory jurisdiction. In the same way, the
CAG of India’s vast jurisdiction is not matched by this institution’s law of creation and
the Constitution. This is a case of another pillar of the NIS that also believes that lack
of transparency in its own functioning is a virtue. This is when other departments of the
govt. are subject, including other pillars like High and Supreme Courts, legislatures,

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etc. to CAG’s audit. The creation of the Lok Pal only added another layer to the pillars
of the NIS even when all other pillars of accountability existed in the same universe
that suffered from structural infirmities and environmental pressures such as
dependence on government grants and appointment of Chief/Vigilance Commissioners,
etc. Although the media has taken up cudgels on many issues in a positive manner, in
host of others, particularly relating to governance, played partisan. In many cases the
media’s misrepresentation of fact, willingness to play surrogate to politicians and civil
servants has given rise to perceptions of ‘paid news’. The media has also not behaved
responsibly when it has come to reporting on national defense and cast aspersions on
the defense services. Trial by the twin fires of media and anti-corruption agencies have
adversely affected govt. spending in key sectors such as national defense and internal
security even when a third of the nation is under Maoist control. The media has, by its
selective reporting, also interfered in the operation of justice such as in the 2G and Coal
scams. Evidently, a major pillar of the NIS like the media is partly dysfunctional and,
in many ways, party to dissonance that has the unintended effect of encouraging
corruption.
The chapter also devotes itself to the contrast in the Supreme Court’s
championing of the rule of law, preserving the basic structure of the Constitution and
its activist role in extending the scope of Art. 21 of the Constitution. I outline these
debates and then analyze how the Court has extended its activist reach and created law
where none existed. In fact, the Court has even assumed the executive garb and assumed
several regulatory powers, especially with regard to the environment. Although it has
stood out as the knight in shining armor as India’s strongest NIS pillar, yet there is
criticism that may eventually question the legitimacy of many of the Court’s orders.

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This chapter also discusses causes of corruption within the Indian civil services
accused majorly of being the most corrupt NIS pillar. The causes - historical, societal,
economic and service conditions - are analyzed in the backdrop of academic literature
on this subject. I conclude that a civil service mirrors the societal environment of any
country which also becomes its biggest negativity. Complacency arising from excessive
insulation by a maze of antiquated rules, regulations and laws, high levels of illiteracy
in the population, a non-participatory monolithic administrative organization vested
with unwritten discretion, regional and caste loyalties – all these and more serve to
make the Indian bureaucracy expensive and expansive, inefficient and corrupt apart
from engendering mediocrity.
In the eighth chapter I discuss the fallout of uncertainty on the NIS pillars as
manifest in seven key areas of concern. I start with the legal system and analyze an
evidently archaic law, viz. adultery. The IPC, when it took form in 1860, was silent on
the punishment for adultery with Lord Macaulay observing, "There are some
peculiarities in the state of society in this country which may well lead a humane man
to pause before he determines to punish the infidelity of wives." The existing gender
discriminatory penal law of adultery, against this backdrop, deserves a serious relook
and revision to the effect that a person, male or female, who, being married, has sexual
intercourse with a female or a male (as the case may be) not his or her spouses without
the consent or connivance of such spouses be made criminally responsible. Similarly,
the spouse of the errant spouse should be allowed not only to seek divorce from the
other life partner but also to initiate legal proceedings with a view to fixing criminal
liability of the "outsider" for wrecking the marriage. I also analyze other fields like
education, particularly higher education, and argue that islands of excellence, albeit
with foreign collaboration, need to be carved out of the existing university system. Such

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carving would give an impetus to fundamental research. Many suggestions for
improving the higher education system after critiquing it are made. Similar effort has
been made for police and judicial services.
I analyze the pernicious Plan and non-Plan divide in government budgets that
has deprived public projects of funds for operation and maintenance. In the absence of
adequate running funds, such projects are neglected and often cease to live their full
planned lives. The intent of this chapter is to highlight the deficit in financial
governance in India that continues with an omnibus essay on the quality of government
revenue and expenditure and the foray of the Private Public Partnership mode. I contend
that neither have government revenues kept pace with rising income levels nor is the
quality of government expenditure even partly productive. The role of politicians in
framing budgets is also indirectly commented upon. This chapter then proceeds to deal
with two of the most compelling natural resources disposal in India’s history, viz. 2G
spectrum and coal. Here too, the role of several pillars of NIS are brought out with
several fundamental questions remaining unanswered by them and doubts arising upon
the bona fides of accountability institutions as also that of government. I also comment
on the hollowness of the government’s austerity measures that would show that moneys
for development are being gobbled up to sustain government, not for the public welfare.
Further, this chapter analyzes the quality of financial governance in two States,
one ruled by the Congress, the other by the Bharatiya Janata Party (BJP), viz. Assam
and Gujarat. Govt. revenues and expenditure patterns are closely analyzed and
conclusions drawn without any politically jaundiced eye. Notwithstanding huge
amounts of Central fiscal assistance to Assam in the last decade of UPA rule and a
Congress-led govt. in power, the State’s indices of human development are among the
lowest in India. Instead, there are clear signals that not all moneys intended for public

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welfare are reaching beneficiaries in Assam. Gujarat’s finances are much healthier
while its achievements on most human development counts are among the highest in
India. In the ninth chapter, I analyze demographic and allied data to bring out the rising
expectations of electors, increasing female literacy, subaltern classes rising to vote, et
al.
Lest I be accused of presenting the phenomenon of corruption, without probable
solutions, in the tenth chapter, I outline some random suggestions to improve
governance that would promote greater accountability and reduce the levels of
corruption. For this purpose I briefly cover ten key sectors, viz. civil services, electoral
funding, judicial, police, municipal and healthcare services, use of information
technology in governance, new norms for executing public works, etc. I also encourage
citizens’ participation in government. I close with the eleventh chapter with the
optimism recent election results have demonstrated in the direction of accountability in
governance and vote for performance.
While I have sought to present a holistic picture of the phenomenon of
corruption and its Indian context, it is quite likely that I have not addressed on several
contemporary more, given their bewildering frequency and my concern in ensuring the
readability and size of this book. These, I hope, will surface in subsequent debates on
governance and accountability and add to the extensive materiel that I have presented
to my readers. As always, my views expressed in this mainly academic study, do not
purport to denigrate/defame any individual or institution, State policy and government,
and remain entirely personal to me.
New Delhi, India Shantanu Basu
Date: , 2014

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I. Introducing Corruption in Governance
In his letter of April 5, 1887, Lord Dalberg-Acton set out the basis of his
disagreements with Bishop Creighton’s interpretation of the Reformation. One
disagreement concerned men in authority. Acton opposed Creighton’s view that
‘people in authority are not [to] be snubbed or sneezed at from our pinnacle of conscious
rectitude’. He questioned whether Creighton exempted them because of their success
and power, or their rank, or their date. Acton did not accept Creighton’s canon:
…that we are to judge Pope and King unlike other men, with a favorable
presumption that they did no wrong. If there is any presumption, it is the
other way against holders of power, increasing as the power increases.
Historic responsibility has to make up for the want of legal
responsibility. Power tends to corrupt and absolute power corrupts
absolutely
He held the view that “If the thing be criminal, then the authority committing it bears
the guilt”. Since corruption is a declared offense under the law, indeed, as Alexander
Pope says, “Satan is wiser now than before, and tempts by making rich instead of poor.”
Transposing this debate from its ecclesiastical context to the contemporary
quality of governance implies that absolute authority vested in political and
administrative bureaucracies worldwide and dissonance between them and their
external environments are the major cause of corruption in national governance. Lord
Acton’s misgivings, although in an ecclesiastical context, are evident in growing public
awareness of corruption in governance and its pernicious influence on economy, polity
and society. However, the deliberate skewing of power structures in countries by

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politicians and bureaucrats questions the institutional power sharing Montesquieu
fervently preached.
In countries like India that inherited a developed structure of governance from
its British colonial masters, corruption has grown in tandem with such skewing of the
governance structure that has concentrated absolute authority in the hands of the
political and bureaucratic organs of state by the debilitating action of legislation, rules
and regulations that favor these segments of government. While government has
spawned a large network of accountability organizations in India, such organizations
remain negatively tied by legislation, rules and regulations that impose irrelevance on
such structures while pandering to popular demands for accountability of the governors
of the nation. Institutional failure does not therefore arise only from within the
organizations but more from their external environment that also dictates the efficacy
of their internal structures. Acton’s conclusion that:
Great men are almost always bad men, even when they exercise
influence and not authority: still more when you superadd the tendency
or the certainty of corruption by authority. There is no worse heresy
than that the office sanctifies the holder of it. That is the point at
which...the end learns to justify the means
applies in the contemporary context of steadily declining accountability of a nation’s
governors. Institutional failure, arising from the external environment, exacerbated by
internal structure and resource dependence, are the main causative factors for the
persistence of corruption as a prime manifestation of governance below par.

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II. Brief History of Corruption
John Noonan defines bribery as “… an inducement improperly influencing the
performance of a public function … ” and traces the concept back to roughly 3000 BCE.
The concept of corruption goes back to the republican thought of ancient Greece and
Rome and their preoccupation with assuring liberty and justice while resisting
corruptioni. Kautilya, statesman and chief minister of ancient Indian Emperor
Chandragupta Maurya (c. 300 BCE) stated:
Just as it is impossible not to take the honey (or the poison) that finds itself
at the tip of the tongue, so it is impossible for a government servant not to
eat up at least a bit of the King’s revenue. Just as fish moving under water
cannot possibly be found out either as drinking or not drinking water, so
government servants employed in the government cannot be found out
(while) taking money (for themselves).
Penal codes of various ancient civilizations show that bribery was a serious
problem among the Jews, the Chinese, the Japanese, the Greeks, the Romans as well as
the Aztecs of the New World. In ancient India large-scale corruption dominated public
life. Indeed, “corruption prevailed on a larger scale in India during the ancient period
and the ones that followed.” Extortion of perquisites and presents was a major evil in
medieval administration in India. Corruption was evident during the British rule in India
and here was an underlying belief among officials of "making hay while the sun of
British Raj shone." The ancient Chinese historical treatise The Chou c.1050-256 BC
statedii:

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This is the “decree” or “mandate” of heaven. If the emperor or king, having
fallen into selfishness and corruption, fails to see to the welfare of the
people, heaven withdraws its mandate and invests it in another. The only
way to know that the mandate has passed is the overthrow of the king or
emperor; if usurpation succeeds, then the mandate has passed to another,
but if it fails, then the mandate still resides with the king.
Aristotle classifies three kinds of constitution - kingship, aristocracy, and polity –
but notes the ways in which each can be corrupted. Peter Brassis rightly states that
Aristotle’s “discussion of kingship is particularly relevant because what constitutes the
corruption of kinship into tyranny is the disregard the tyrant has for his subjects, he
rules only to further his own ‘interests’. Corruption was also a topic central to Niccolo
Machiavelli’s (1469–1527 AD) discourses on the need for virtu in republican
government. Jean-Jacques Rousseau (1712–1778 AD) embraced the idea that
government officials, selected by the people to manage society’s business, must carry
out their duties in a manner transcending personal interestsiii. Klitgaardiv refers to the
writing, some 2300 years ago, of Kautilya listing “at least forty ways” of embezzling
money from the government in India and the practice in ancient China of giving an
extra allowance to government officials called Yang-lien, meaning “nourish
incorruptness” (the practice apparently often failed to prevent corruption). Abdul
Rahman Ibn Khaldun’s writings in the 14th century asserting that the root of corruption
was “the passion for luxurious living within the ruling group” and Plato’s discussion of
bribery in The Laws:
The servants of the nation are to render their services without any taking of
presents. … To form your judgment and then abide by it is no easy task, and

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it’s a man’s surest course to give loyal obedience to the law which
commands, ‘Do no service for a present.’
Echoing popular sentiment, the Austrian satirist Karl Kraus (1874-1936) said,
“Corruption is worse than prostitution. The latter might endanger the morals of an
individual the former invariably endangers the morals of the entire country.” Sara
Shumerv notes that central to Machiavelli’s discussion of corruption is the idea of the
subversion of the public by the private:
One dimension of political corruption is the privatization both of the average
citizen and those in office. In the corrupt state, men locate their values wholly
within the private sphere and they use the public sphere to promote private
interests.
Yet corruption down the centuries referred mostly to dissonance between governance
and government rather than possessing only financial attributes. Hirschmann says:
In the writings of Machiavelli, who took the term from Polybius, corruzione
stood for deterioration in the quality of government, no matter for what reason
it may occur. The term was still used with this inclusive meaning in eighteenth-century
England, although it became also identified with bribery at that time.
Eventually the monetary meaning drove the nonmonetary one out almost
completely (Hirschman 1977, 40).
Brassis agrees with Hirschmann when he says:
In the traditional understanding of corruption, there was a strong imagery of
decay and regression, of something becoming less and less capable, potent or
virtuous. The idea that through disease, old age, the influence of vice, or any

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other reason, the ability to seek the good and virtuous is decreased/destroyed.
Here, we have the corruption of the mind, morals and the will.
As an arrester barrier to such deterioration, Adam Smith attached a significant role
to the administration of justice as a prerequisite to economic growth in The Wealth of
Nationsvi. Smith wrote:
Commerce and manufactures can seldom flourish long in any state which does
not enjoy a regular administration of justice, in which the people do not feel
themselves secure in the possession of their property, in which the faith of
contracts is not supported by law, and in which the authority of the state is not
supposed to be regularly employed in enforcing the payment of debts from all
those who are able to pay. Commerce and manufactures, in short, can seldom
flourish in any state in which there is not a certain degree of confidence in the
justice of government
Kautilya believed that honesty of law enforcers was a prerequisite for effective law
enforcement. He asserted, “Thus, the king shall first reform the administration, by
punishing appropriately those officers who deal in wealth; they, duly corrected, shall
use the right punishments to ensure the good conduct of the people of the towns and the
countryside.” He pointed out:
There are thirteen types of undesirable persons who amass wealth secretly by
causing injury to the population. [These are: corrupt judges and magistrates,
heads of villages or departments who extort money from the public, perjurers
and procurers of perjury, those who practice witchcraft, black magic or
sorcery, poisoners, narcotic dealers, counterfeiters and adulterators of
precious metals.] When they are exposed by secret agents, they shall either be

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exiled or made to pay adequate compensation proportionate to the gravity of
the offense.
He called them “anti-social elements”, including judges, while recommending their
elimination of such “undesirable persons.”
The 1990s have witnessed what Moisés Naímvii calls a global “corruption
eruption” that have touched every region of the world, regardless of cultural
background, economic system or level of development. However, as Huntington says,
“Corruption obviously exists in all societies, but it is also obviously more common in
some societies than in others and more common at some times in the evolution of a
society than at other times.”viii Brazil and Venezuela impeached their democratically
elected Presidents following accusations of corruption. Three Ministers in India
accused of corruption resigned in disgrace. A Japanese Prime Minister resigned
following charges that he had mismanaged public funds. An Italian Prime Minister
resigned after a corruption investigation conducted by a group of prosecutors who were
subsequently investigated for similar improprietiesix . In March 1999, the 20-member
European Commission, including President Jacques Santer, resigned en masse, stung
by a report by independent experts that accused the Commissioners of chronic cronyism
and corruption. In more recent times, India has blacklisted many major defense
equipment suppliers such as Rolls Royce and Augusta Westland for allegedly paying
bribes to obtain lucrative government contracts. Likewise, major corruption is allegedly
involved in leasing of natural resources such as telecommunication spectrum, coal
mines, energy supply, natural gas, airports, toll roads, etc. in India alleged to be worth
several hundred billion dollars in recent times. Writing over 4000 years ago,
Hammurabi stated:

28
In future time, through all coming generations, let the king, who may be in the
land, observe the words of righteousness which I have written on my
monument………..let him rule his subjects accordingly, speak justice to them,
give right decisions, root out the miscreants and criminals from this land, and
grant prosperity to his subjects.
Unfortunately, human avarice has obscured the distinction between the private and the
public interests.
There have been a number of different attempts at defining corruption. While
some have provided formal comprehensive definitions, others define corrupt activity
per se to isolate those activities that are the subject of the authors’ concern. The problem
is also compounded by the fact of corruption as a public-sector phenomenon although
it is also an important facet of life in the private sectors of both developed and
developing countriesx. The Oxford Unabridged Dictionary defines corruption as
“perversion or destruction of integrity in the discharge of public duties by bribery or
favor.” The Merriam Webster’s Collegiate Dictionary defines it as “inducement to
wrong by improper or unlawful means (as bribery).” Although a wide variety of
definitions have been discussed above, Robert C. Brooks’ century old definition of
corruption appears to sum up the consensus opinion, “intentional misperformance or
neglect of a recognized duty, or the unwarranted exercise of power with the motive of
gaining some advantage more or less directly personalxi.”
Corruption involves behavior on the part of officials in the public and private
sectors, in which they improperly and unlawfully enrich themselves and/or those close
to them, or induce others to do so, by misusing their position. Transparency
International (TI), the leading NGO in the global anticorruption effort defines
corruption as:

29
Behavior on the part of officials in the public sector, whether politicians or civil
servants, in which they improperly and unlawfully enrich themselves, or those
close to them, by the misuse of the public power entrusted to themxii.
Transparency International (TI)xiii the leading NGO in the global anticorruption
effort defines corruption as:
…….behavior on the part of officials in the public sector, whether
politicians or civil servants, in which they improperly and unlawfully enrich
themselves, or those close to them, by the misuse of the public power
entrusted to them.
Another possible definition of public-sector corruption is that proposed by Pranab
Bardhanxiv as “the use of public office for private gains”. Rose-Ackerman agrees with
Bardhan when she states, “Corruption is dishonest behavior that violates the trust placed
in a public official. It involves the use of a public position for private gain.”xv However,
this does not differentiate corruption from patronage politics or favoritism for electoral
reasons, since the basic assumption underlying political economy work, in general, is
that officials use their office not to maximize social welfare, but to serve their individual
interests. One approach to addressing this problem is to suggest that there are two
different types of corruption: firstly, administrative or bureaucratic corruption which
involves the use of public office for pecuniary gain and, secondly, political corruption
involving the use of public office by politicians both for pecuniary gain and for
purposes of remaining in officexvi. This distinction, however, does not separate out
standard interest group or patronage politics from corruption.
An alternative definition which does help separate these two phenomena is that
proposed by Shleifer and Vishnyxvii – “the sale by government officials of government

30
property for personal gain” – where personal gain is restricted to the direct financial
benefit accruing to government officials or politicians. This definition may be extended
to include the purchase of government goods from the private sector. Cases where
government goods are distributed or policy choices to maximize political support, or
where policy choices are made to maximize political support, would not be seen as
corruption according to this definition. Shleifer and Vishny distinguish further between
“corruption without theft” and “corruption with theft”. The former occurs when an
official demands a bribe but passes on the regular payment to the government. This
could happen if an official charged a bribe in addition to an import license fee, but then
passed the license fee on to the state treasury. Corruption with theft involves instances
where the government does not receive regular payment. For instance, when customs
officials let goods enter the country without paying a duty in exchange for a bribe. As
India’s Committee on Prevention of Corruption stated, "In its widest connotation,
corruption includes improper and selfish exercise of power and influence attached to a
public office or to the special position one occupies in public life."
Corruption disrupts and even prevents orderly competition and weakens
institutions. Klitgaardxviii has explained this with the following schematic equation:
Corruption = Monopoly + Discretion – Accountability
In his view, corruption thrives where officials have exclusive control over
valuable goods and can use their discretion in farming these out without having to
answer to anyone. Monopoly plus discretion undermines competitive participation
while discretion minus accountability weakens official institutions and creates illicit
ones. Citizens seeking redress through established channels against such entrenched
corruption may be reasonably expected to adopt what Alamxix calls evasive ways. Such

31
ways may include dropping out of politics or the mainstream economy, foregoing
economic benefits or even use corrupt links of their own. In fact they can swell the
ranks of corrupt interests.
For some time viewed as an agent for promoting economic growth by creating
informal markets and price systems and integrating political systemsxx corruption is
today viewed as a major source of economic and political retardation of nations keeping
in view its long-term effectsxxi. In the process of replacing fair competition by illegal
payments, corruption severely undermines entrepreneurial activity from productive
action into rent seeking. Ironically, corruption also is seen as an aid to augmenting
efficiencyxxii - efficiency of extortion. Decline in investments for human development
also leads to a corresponding decline in the quality of public servicesxxiii. The value and
positive inclination of prospective investors too takes a hit as corruption becomes a tax
on such investmentxxiv.
Corruption also fosters crime. Corrupt businesses are sheltered from
competition with legitimate businesses by their illegality. In corrupt systems they also
operate without fear of prosecution by paying off the police and politicians or by
incorporating them, directly or indirectly, into their businesses. The danger for
economic development arises when organized criminal groups begin to dominate
otherwise legal business, e.g. control over petrol bunks or coal transport contracts in
India. Profits from such illegal business are diverted to legitimate businesses often
undermining them in the process of obtaining public contractsxxv. Such criminality can
generate financial resources at usurious rates by threatening violence in a scarce capital
scenario in certain industriesxxvi, e.g. the Bombay film industry which was, to a large
extent, financed by the underworld.

32
Corruption distorts political development. The essence of a welfare state is
defeated when patronage networks come into being for the sole purpose of controlling
citizens and resources rather than for improving the quality of human life. Politicized
use of divisible incentivesxxvii degenerates into a disorganized scramble for spoilsxxviii
culminating in corrupt elites consuming as much as possible within a limited timexxix.
Such aberrations notwithstanding, democracies are however, unlikely to lose their basic
character given the presence of independent regulators, law enforcement agencies and
popular will.
Corruption ultimately affects the poor and causes the gap between the rich and
poor to increase. The poor will invariably receive a lower level of social services. Use
of illegal price systems to distribute pensions, public housing, education and health will
disadvantage those unable to pay. Secondly, investment in infrastructure will be biased
against anti-poverty projects. Small and simple community projects and indigenous
small-scale enterprises that would not contribute substantially to bribery would be
placed on the back burner. Thirdly, the poor not being able to face the taxation system
without bribes may proceed to the underground economy. Consequently, the state
would not be able to provide them the requisite social services once faced with a fiscal
crunch from falling tax revenues.
Joseph S. Nyexxx therefore posits a comprehensive definition of corruption:
Corruption is behavior, which deviates from the formal duties of a public
role because of private-regarding (family, close family, private clique)
pecuniary or status gains; or violates rules against the exercise of certain
types of private-regarding influence. This includes such behavior as
bribery; use of a reward to pervert the judgment of a person in a position of
trust; nepotism (bestowal of patronage by reason of ascriptive relationship

33
rather than merit); and misappropriation (illegal appropriation of public
resources for private-regarding uses).
In continuation of Nye’s definition, Mushtaq Khanxxxi defines corruption as
“behavior that deviates from the formal rules of private-regarding motives such as
wealth, power, or status”. Corruption is “an issue of first order importance” for
governments around the world, especially in developing states. Yet, there is little that
we understand about policies that can reduce corruption. Corruption is a concept with
variegated definitions. Corruption can occur in either the public or private sector but
typically characterized as the use of public office for private gain. The actions of public
officials considered corrupt vary across cultures and across timexxxii. Complicating the
definition of corruption is the fact that scholars have identified numerous causes of
corruption. Economists claim that levels of corruption may depend on discretionary
power, economic rents, and oversight and weak enforcement institutionsxxxiii&xxxiv.
Corruption may also vary according to the scope of supervision and the number of
hierarchical levels in an organizationxxxv. Corruption is therefore both a political and an
economic problem, such that changing a culture of corruption within a government is
often more difficult than building roads or bridgesxxxvi. It slows economic growth and
increases political instabilityxxxvii. Corruption harms government efficiency and reduces
private investmentxxxviii. Corruption thus limits the success of development efforts and
limits development and economic growth overallxxxix (Kiltgaard, 1997). Corruption also
affects the design and implementation of regulations governing access to natural
resourcesxl.
That corruption in various forms is endemic to all nations is a universally
acknowledged fact. It only differs in content and direction. The following instances
would show the extent of corruption worldwidexli:

34
 Some estimates calculate that as much as $30 billion in aid for Africa has ended
up in foreign bank accounts. This amount is twice the annual gross domestic
product (GDP) of Ghana, Kenya, and Uganda combined;
 Over the last 20 years, one East Asian country is estimated to have lost $48
billion due to corruption, surpassing its entire foreign debt of $40.6 billion;
 An internal report of another Asian government found that over the past decade,
state assets have fallen by more than $50 billion, primarily because corrupt
officials have deliberately undervalued them in trading off big property stakes
to private interests or to international investors in return for payoffs;
 In one South Asian country, recent government reports indicate that $50 million
daily is misappropriated due to mismanagement and corruption. The Prime
Minister stated publicly recently that the majority of bureaucrats and the
administrative machinery from top to bottom are corrupt;
 In one North American city, businesses were able to cut $330 million from an
annual waste disposal bill of $1.5 billion by ridding the garbage industry of
Mafia domination. A particular problem was the permeation of regulatory
bodies by organized crime;
 Studies of the impact of corruption upon government procurement policies in
several Asian countries reveal that these governments have paid from 20% to
100% more for goods and services than they would have otherwise;
 Corruption can cost many governments as much as 50% of their tax revenues.
When customs officials in a Latin American country were allowed to receive a
percentage of what they collected, there was a 60% increase in customs
revenues within one year;

35
 Some estimates of the role of corruption in a European country concluded that
it has inflated this country's total outstanding government debt by as much as
15 per cent or $200 billion. In one city, anticorruption initiatives have reduced
the cost of infrastructure outlays by 35-40 per cent, allowing the city to
significantly increase its outlays for the maintenance of schools, roads, street
lamps, and social services.
Academicians over the decades have provided various classifications of corruption.
Amundsenxlii provides a useful classification. The basic level of corruption is grand and
petty corruption that plagues the political leadership and the bureaucracy. This can be
further sub-classified into private and collective (institutionalized) corruption and
redistributive (from below) and extractive (from above) corruption. While private
corruption is normally limited to an individual or a small set of individuals, collective
corruption is a societal phenomenon with more pronounced negative economic effect
by extortion/extraction in collusion between groups/classes of individuals for their
respective group/class benefit. Similarly, while extractive corruption is limited to
extraction by select ruling elite (such as the Duvaliers of Haiti 1957-86 or Mobutu of
Zaire 1965-97), redistributive corruption stems from powerful interest groups based on
caste, community, tribes, etc. that corner certain strategic benefits for themselves. In
the final analysis, the State and its regulating capacity remains the ultimate sufferer.
Rose-Ackermanxliii has correctly related the bargaining power of the state vis-à-vis
those of non-governmental or private actors. She has argued that the nature of
corruption depends on the organization of government as well as that of non-governmental
actors and the final advantage is derived from monopoly power of the
respective parties in their dealings.

36
Another classification of corruption made by the World Bankxliv, particularly in
emerging nations, is between state capture and administrative corruption. “State
capture refers to the acts of individuals, groups or firms both in the public and private
sectors to influence the formation of laws, regulations, decrees, and other government
policies to their own advantage as a result of the illicit and non-transparent provision of
private benefits to public officials”. In this group would fall “the legislature, executive,
judiciary and regulatory agencies. This form of corruption is generally prevalent in an
economy where economic power is highly concentrated, countervailing social interests
are weak, and the formal channels of political influence and interest intermediation are
underdeveloped”. On the other hand administrative corruption refers to “the intentional
imposition of distortions in the prescribed implementation of existing laws, rules and
regulations to provide advantages to either state or non-state actors as a result of the
illicit and non-transparent provision of private gains to public officials”. However, the
World Bank’s classification is in tune with various other similar classifications
attempted.

37
III. Typology of Corruption
Given the wide variety of approaches and perceptions of corruption it seems
necessary to arrive at a consensus as to what exactly corruption connotes. An illustrative
List of Corrupt Behaviors published by the Asian Development Bank (2006)xlv includes
the following:
 The design or selection of uneconomical projects because of opportunities for
financial kickbacks and political patronage;
 Procurement fraud, including collusion, overcharging, or the selection of
contractors, suppliers, and consultants on criteria other than the lowest
evaluated substantially responsive bidder;
 Illicit payments of "speed money" to government officials to facilitate the timely
delivery of goods and services to which the public is rightfully entitled, such as
permits and licenses;
 Illicit payments to government officials to facilitate access to goods, services,
and/or information to which the public is not entitled, or to deny the public
access to goods and services to which it is legally entitled;
 Illicit payments to prevent the application of rules and regulations in a fair and
consistent manner, particularly in areas concerning public safety, law
enforcement, or revenue collection;
 Payments to government officials to foster or sustain monopolistic or
oligopolistic access to markets in the absence of a compelling economic
rationale for such restrictions;

38
 The misappropriation of confidential information for personal gain, such as
using knowledge about public transportation routings to invest in real estate that
is likely to appreciate;
 The deliberate disclosure of false or misleading information on the financial
status of corporations that would prevent potential investors from accurately
valuing their worth, such as the failure to disclose large contingent liabilities or
the undervaluing of assets in enterprises slated for privatization;
 The theft or embezzlement of public property and monies;
 The sale of official posts, positions, or promotions; nepotism; or other actions
that undermine the creation of a professional, meritocratic civil service;
 Extortion and the abuse of public office, such as using the threat of a tax audit
or legal sanctions to extract personal favors
 Obstruction of justice and interference in the duties of agencies tasked with
detecting, investigating, and prosecuting illicit behavior.
It is often useful to differentiate between grand corruption, which typically involves
senior officials, major decisions or contracts, and the exchange of large sums of money;
and petty corruption, which involves low-level officials, the provision of routine
services and goods, and small sums of moneyxlvi. It is also useful to differentiate
between systemic corruption, which permeates an entire government or ministry; and
individual corruption, which is more isolated and sporadic. Finally, it is useful to
distinguish between syndicated corruption in which elaborate systems are devised for
receiving and disseminating bribes, and non-syndicated corruption, in which individual
officials may seek or compete for bribes in an ad hoc and uncoordinated fashion. Some
types of corruption are internal, in that they interfere with the ability of a government

39
agency to recruit or manage its staff, make efficient use of its resources, or conduct
impartial in-house investigations. Others are external, in that they involve efforts to
manipulate or extort money from clients or suppliers, or to benefit from inside
information. Still others involve unwarranted interference in market operations, such as
the use of state power to artificially restrict competition and generate monopoly rents.
The World Bank labels this as administrative corruption and refers to it as the
“intentional imposition of distortions in the prescribed implementation of existing laws,
rules and regulations to provide advantages to either state or non-state actors as a result
of the illicit and non-transparent provision of private gains to public officials.”
Similarly, Carl Friedrich has argued that:
Corruption is a kind of behavior which deviates from the norm actually
prevalent or believed to prevail in a given context, such as the political.
It is deviant behavior associated with a particular motivation, namely
that of private gain at public expense. But whether this was the
motivation or not, it is the fact that private gain was secured at public
expense that matters. Such private gain may be a monetary one, and in
the minds of the general public it usually is, but it may take other
formsxlvii
Bardhan calls corruption “the use of public office for private gains.” In a
statistical study of 106 countries during the late 1970s and early 1980s, IMF economist
Paolo Mauroxlviii found that corruption “is strongly negatively associated with the
investment rate, regardless of the amount of red tape.” Mauro’s model indicates that a
one standard deviation improvement in the “corruption index” will translate into an
increase of 4 per cent in the investment rate and more than a 0.5 per cent increase in
the annual per capita rate of GDP growth. Thus “if Bangladesh (with a score of 4.7)

40
were to improve the integrity and efficiency of its bureaucracy to the level of that of
Uruguay (score 6.8), its investment rate would rise by almost five percentage points
and its yearly GDP growth rate would rise by over half a percentage point”xlix.
Measuring Corruption
Measuring corruption has invariably posed challenges and also accounts for the
diversity of definitions. To obviate the problem of locating the focus of corruption at
various levels, Arvind Jain divides corruption at three levels, viz. political (I),
legislative (II) and bureaucratic (III) as shown in the following diagram:
Electors
Political Leaders
Level II
Pass Laws
Level I
Make Policy
Level III
Appoint Bureaucrats
to provide services
Benefits for Electors
Level-I refers to grand corruption where political elites exploit their power to
make economic policies. Grand corruption, typically involves senior officials, major
decisions or contracts, and the exchange of large sums of money and petty corruption,
which involves low-level officials, the provision of routine services and goods, and
small sums of moneyl. Although leaders are supposed to make resource allocative

41
decisions in the best interest of their electors, yet such elites can alter policies to extract
benefit from them. This type of corruption is difficult to prove since not all public policy
can ever satisfy all stakeholders’ demands and thus arguments may be lost in the
labyrinth of discussions on public interest, particularly if proved that some segments of
the population stand to gain. Although this is the most serious type of corruption, yet
studies are limited primarily because of limited availability of measurement toolsli. This
level of corruption form part of my study that is limited only to Level III, i.e.
administrative corruption.
Level-II refers to legislative corruption by influencing voting behaviors of
legislators by interest groups, bureaucracy and others interested in re-electing a
candidatelii. Level-III refers to bureaucratic corruption either in dealings with the
political elite and/or the public. Economic models have sought to attribute a market-like
demand-supply pressure on such corruption. Such corruption takes the form of
payments by the political elite or by the public to overcome the delays of a bureaucratic
procedureliii.
Amundsen differentiates between systemic corruption, which permeates an
entire government or ministry; and individual corruption, which is more isolated and
sporadic. Finally, he distinguishes between syndicated corruption in which elaborate
systems are devised for receiving and disseminating bribes, and non-syndicated
corruption, in which individual officials may seek or compete for bribes in an ad hoc
and uncoordinated fashion. Some types of corruption are internal, in that they interfere
with the ability of a government agency to recruit or manage its staff, make efficient
use of its resources, or conduct impartial in-house investigations. Others are external,
in that they involve efforts to manipulate or extort money from clients or suppliers, or
to benefit from inside information. Still others involve unwarranted interference in

42
market operations, such as the use of state power to artificially restrict competition and
generate monopoly rents. The World Bank labels this as administrative corruption and
refers to it as the “intentional imposition of distortions in the prescribed implementation
of existing laws, rules and regulations to provide advantages to either state or non-state
actors as a result of the illicit and non-transparent provision of private gains to public
officials.”
Glossary of Typology of Corruption
Grand: Senior officials, major decisions or contracts, and the exchange of large
sums of money, e.g. 2G spectrum and Commonwealth Games, 2010
Petty: Low-level officials, the provision of routine services and goods, and
small sums of money, e.g. licensing & enforcement
Systemic: Permeates an entire government or ministry, e.g. Delhi Development
Authority and Municipal Corporations
Individual: Isolated and sporadic, e.g. traffic constable & sanitation inspector
Syndicated: Elaborate systems devised for receiving and disseminating bribes,
e.g. 2G spectrum, Bofors, establishment of new Nationalized Bank Branches
and large illegal imposts at state entry tax posts
Non-syndicated: Individual officials may seek or compete for bribes in an ad
hoc and uncoordinated fashion, e.g. pension sanction & bank loans
Internal: Interfere with the ability of a government agency to recruit or manage
its staff, make efficient use of its resources, or conduct impartial in-house
investigations, e.g. Enforcement Directorate (ED) & Central Bureau of
Investigation (CBI)

43
External: Efforts to manipulate or extort money from clients or suppliers, or to
benefit from inside information, e.g. Central Public Works Department and
Securities and Exchanges Board of India
Administrative: Unwarranted interference in market operations, such as the
use of state power to artificially restrict competition and generate monopoly
rents, e.g. public sector IPOs and land sales/lease to private sector
Illustrations of Corrupt Behavior
Design or selection of uneconomical projects because of opportunities for
financial kickbacks and political patronage, e.g. realigning rail/road track to
inflate cost
Procurement fraud, including collusion, overcharging, or the selection of
contractors, suppliers, and consultants on criteria other than the lowest
evaluated substantially responsive bidder, e.g. cartelization and pre-qualification
of vendors
Illicit payments of "speed money" to government officials to facilitate the timely
delivery of goods and services to which the public is rightfully entitled, such as
permits and licenses, e.g. transfer and/or change of end-use of govt. land
Illicit payments to government officials to facilitate access to goods, services,
and/or information to which the public is not entitled, or to deny the public
access to goods and services to which it is legally entitled, e.g. fire clearances
and change of land use
Illicit payments to prevent the application of rules and regulations in a fair and
consistent manner, particularly in areas concerning public safety, law

44
enforcement, or revenue collection, e.g. hafta (weekly protection money) and
income tax refund advices
Payments to government officials to foster or sustain monopolistic or
oligopolistic access to markets in the absence of a compelling economic
rationale for such restrictions, e.g. limiting construction of new airports
Unofficial ‘auction’ of official posts, positions, or promotions; nepotism; or
other actions that undermine the creation of a professional, meritocratic civil
service, e.g. Public Works, Roads & highways, govt. secretariats
Extortion and the abuse of public office, such as using the threat of a tax audit
or legal sanctions to extract personal favors, e.g. income tax notice & overstated
excise penalties
Obstruction of justice and interfering in the duties of agencies tasked with
detecting, investigating, and prosecuting illicit behavior, e.g. ED and CBI

45
IV. Causes & Consequences of Corruption
Causes of Corruption
Two alternative frameworks dominate research and practice on corruption. The
first is an economic perspective that focuses on the roles of rational self-interest,
efficiency pressures, and explicit, formal regulative structures in explaining and
combating corruption. By its neglect of the role that normative and cognitive structures
play in the development, perpetuation, and remediation of corruption, this approach has
had limited success in remedying corruption. The second framework primarily
grounded in organizational behavior literature, focuses on the normative and cognitive
aspects of corrupt behavior however, within organizations and instead of on the wider
institutional orders that also influence the behavior of individuals and organizations.
The economic perspective defines corruption as the misuse of a position of authority
for private or personal benefitliv in breach of legal normslv. Corruption therefore occurs
where:
 there is control over economic benefits and costs carrying the potential for
economic rents—profits (e.g., as a result of government regulation), and
 persons in positions of authority have discretion over the allocation of such
benefits and costslvi.
Corruption thus reflects rational, self-interested behavior by persons using their
discretion to direct allocations to themselves or to other social actors who offer rewards
in return for favorable discretionary treatmentlvii. Since it bases itself on the assumption
that corruption is a response to situations that present opportunities for gain and the

46
discretionary power to appropriate that gain it is best remedied by curtailing
discretionary power and/or incentiveslviii.
In sum, the economic perspective suggests that corruption is minimized by
fostering one or more of the disciplinary effects of market efficiency, government
regulatory structures requiring accountability and transparency, and enforcement of
punitive structures that make corruption illegallix. However, this approach does not
specify the best way(s) of rectifying a corrupt system. On the one hand, Tanzi’s view
that, “if we abolish the state, we abolish corruption”lx suggest the disciplining effects
of efficient product and capital markets on corrupt managerial behavior in the private
sector. Empirical evidence regarding this approach, however, is not encouraging. Mass
privatization in some ex-Soviet bloc countries has failed to eliminate corruption and
sometimes led to more, albeit different, corruptionlxi.
On the other hand, imposition of added regulative and punitive structures to
curb corruption has found favor at the other extremitylxii. Transition economies have
used Governmental “omnibus” programs containing an anticorruption law, a national
anticorruption program, ministerial commissions, specialized units or agencies
dedicated to corruption reform, implementation action plan; and a monitoring
mechanism to fight corruptionlxiii. Focusing on increasing transparency and
accountability and on strengthening and enforcing penal codes such compliance-oriented
regulative changes have had limited effect in curbing corruption. Although
there is evidence to suggest that regulative reforms may improve economic
performance (e.g., growth and investment)lxiv, there is little to suggest that these reforms
effectively reduce corruption. This may partly be due to corrupt organizations that
respond to regulative changes with “window-dressing” policieslxv.

47
Organizational behavior research on corruption and ethicslxvi does not deny the
relevance to corruption of rational self-interest, opportunities to exploit discretion for
gain, and the regulative institutional structures of an economy or society. It however,
focuses on controls occurring within organizations and on the normative and cognitive
impacts of the social situations that inform and influence behavior in organizations by
emphasizing the importance of the ways in which organizational settings generate
amoral reasoning and behavior, e.g. obediently carrying out one’s role in a particular
social situationlxvii. Corruption reflects the interaction of individual and situational
factors within organizations including violation of social and legal normslxviii and
becoming institutionalized as a “part and parcel of everyday organizational life”lxix. In
such situation, leaders might sanction or approve corrupt behaviors, explicitly or
implicitly, by imposing reward structures that promote corrupt practices or by
condoning or ignoring such practices when they occurlxx. Corrupt practices are therefore
embedded within the scripts associated with depersonalized organizational roles and
processes. As a result, corrupt practices become institutionally routinized and habitual
and, thus, institutionalized within the organization. Further, routinization makes them
normative and enacted automatically. Socialization processes, reward systems,
rationalizing ideologies, expectations to obey leaders, and presumptions that existing
practices are rational and legitimate ensure that an activity remains salient as corrupt
among new organization members.
The implications of organizational behavior research on corruption are at least
two-fold. On the one hand, is the prospect of reducing or eliminating corrupt or
unethical behavior in an organization by cultural change by formal (e.g., reward
systems, formal ethics initiatives) and informal elements (e.g., changed leader
behavior). This would cause organization members to identify with and commit to high

48
standards of behaviorlxxi. On the other hand, even exogenous shocks such as media
exposure or governmental intervention (e.g., the Sarbanes-Oxley Act in the United
States) — while making corrupt activities salient to participants— might not be
sufficient for curbing corruption and that corruption “is best handled through
prevention”lxxii.
The organizational behavior perspective indicates that situational factors
strongly influence corrupt behavior within organizations. Depersonalized roles that
become the reality of organizational lifelxxiii institutionalize corrupt actions in
situationally-defined role identities. Such identities strongly influence and motivate
behavior, including ethically significant behaviorlxxiv causing normally well-meaning
people to fall prey to corruption while fulfilling their organizational roles. Therefore,
curbing action needs to go beyond compliance-oriented remedies alone.
In contrast, economic approaches assume that people consciously partake in
acts (corrupt or otherwise) when it is in their self-interest to do so—self-interest based
on fixed and stable preferenceslxxv —and, thus, there is no room for roles or identity in
such accounts of behaviorlxxvi. In this view:
 corruption is a result of situational factors only to the extent that those
factors provide an opportunity for gain, and
 remedies for corruption involve structuring situations so that corrupt
behavior leads to losses, due either to market reactions (e.g., mass
privatization) or to coercive threats (e.g., rules, laws, and sanctions).
However, this focus limits the perspective’s ability to prescribe effective
remedies for reducing or stopping much corruption. Since such identities and role
definitions remained embedded in individuals and their social networks during the post-

49
Soviet yearslxxvii structural changes to the economic/regulative system did not cause
changes in corruption. It remained “rational” to steal from the state, given that the
conventional identities and roles (e.g., stealing to aid one’s family) did not change as
evidenced by the extremely common and similarly justified forms of stealing from the
state (e.g., extortion or bribery involving police and customs officials, tax evasion).
Unless corruption reform efforts change such deeply embedded identities, corruption
in some form is likely to persist.
In sum, the organizational behavior perspective on corruption offers a richer
portrait of the sources and cures of corruption than does a purely economic perspective
focusing on incentives, monitoring, and discipline. While the former approach assumes
individual behavior affected by regulative, normative, and cognitive structures, the
latter only considers regulative structures. However, the organizational behavior
approach is constrained by its focus on organizations as the context for action,
sometimes supplemented by attention to regulative institutional structures. Individuals
and organizations alike embedded within both organizational and wider institutional
environmentslxxviii are subject to not only formal but also informal pressures rooted in
their institutional environmentslxxix and cognitive communitieslxxx. Organizational
behavior accounts of corruption tend to ignore this embeddedness, e.g. the potential
intra-organizational impact of externally defined identities that license stealing from
the state. Although state-run enterprises replaced by privatized entities, the established
role identity of good provider remained largely intact, and large institutions and
organizations remain suspect or alien; the privatized entities of post-transition
economies easily could see “stealing from the company” replace “stealing from the
state.”

50
Alternative Perspectives on Causes of Corruption
Daniel Triesmanlxxxi analyzed several indexes of ‘perceived corruption’
compiled from business risk surveys for the 1980s and 1990s. Based on literature,
Triesman’s study centered on six variables, viz. colonial heritage, religious traditions,
stage of economic development, federal vs. unitary governance, length of exposure to
democracy and openness to trade, making for a mix of economic and organizational
variables. I briefly discuss colonial heritage and religious traditions and federal vs.
unitary governance as these are non-economic variables.
Legal systems differ in the degrees of protection they afford to private property
owners harmed by corrupt acts of officials. The common law tradition developed in
England as a part defense of parliament and property owners against the attempts by
the sovereign to regulate and expropriate their properties. Against this, civil law
systems in their Napoleonic, Bismarckian, or other forms developed more as
instruments used by the sovereign for state building and controlling economic lifelxxxii.
While common law developed from precedents established by judges, identified with
property-owning aristocracy against the Crown, civil law originated from codes drawn
by jurists at the sovereign’s bidding. Second, legal systems also differ also in prevailing
expectations and practices that govern how they are enforced —‘legal culture’. In
Britain and some of its former colonies, scholars observe an almost obsessive focus on
the procedural aspects of law. In contrast, for many other cultures social order is
associated not so much with adherence to procedures as with respect for hierarchy and
the authority of offices. Therefore, the willingness of judges to follow procedures even
when the results threaten hierarchy increases chances of exposure of official corruption.
Triesman’s analysis supports the greater efficacy of common law in curbing

51
corruptionlxxxiii. Although, principally Triesman’s finding of common law and colonial
heritage may stand to reason, they do not take cognizance of their actual
implementation or deficiency thereof in individual countries like India.
Religious traditions have often been related to cultural attitudes towards social
hierarchy. “Where more ‘hierarchical religions’ — Catholicism, Eastern Orthodoxy,
Islam — dominate, challenges to office-holders might be rarer than in cultures shaped
by more egalitarian or individualistic religions, such as Protestantism.”lxxxiv. Religion
might affect corruption levels by the historical relationship between church and state.
Therefore, in Protestant nations, institutions of the church may play a role in monitoring
and denouncing abuses by state officials while in an Islamic state such controls may be
relatively looserlxxxv. However, Triesman fails to conclusively prove the link between
religion and corruption. In any case, most British colonies were an amalgam of multiple
tribes and religions that came to power as independent states with different ruling elites
at different points in time. Such elites established their links based on superior
education ownership of land and other assets, caste/group status, etc. Thus, the link
between religion and corruption therefore may be more appropriate when applied in a
wider social context where it becomes one among many variables.
Democratic and open political systems foster freedom of association and of the
press and engender public interest groups to expose abuses. Competitors for office have
an incentive to discover and publicize the incumbent’s misuse of office whenever an
election beckonslxxxvi.
Some scholars argue that federal structure creates more honest and efficient
government by encouraging competition between sub-jurisdictions or even between
levels of government in the provision of public services for which officials could
demand illegal gratification. Susan Rose-Ackerman points out that: ‘‘A federal

52
structure in which each level has its own police force can reduce the vulnerability of
any one law enforcement agency’’lxxxvii. The contrasting view is that the relatively
balanced power of central and subnational officials over certain common pool resources
— the tax or ‘bribe’ base in a given region — leads to suboptimal over extractionlxxxviii.
According to James Q. Wilson, one cause of corruption in the US system is ‘‘the need
to exchange favors to overcome decentralized authority.’’lxxxix. Some economists have
suggested that corruption may be greater at the local level, perhaps because of the
greater intimacy and frequency of interactions between private individuals and officials
at more decentralized levelsxc. This would have more noticeable effects in countries
where a larger proportion of government is at sub-national levels. Here too Triesman
did not arrive at an conclusionxci Although Triesman’s pioneering effort may not have
established causal relations between highly complex sets of variables, yet the fact
remains that such confounding factors make quantitative analysis a perilous venture. It
is also a pointer to the diverse forces that institutions face externally and internally from
their history and heritage, which need factoring into any institution-based study.
Consequences of Corruption
As Driver or Retarder of Economic Growth
The debate on the consequences of corruption is long and varied, although the
explanations are primarily economic. As far back as four decades, Leff (1964) and
Huntington (1968)xcii argued that corruption might raise economic growth rates in two
ways. “Speed money” would speed up procedural delays in government by encouraging
civil servants to work harder for such “incentives” on a piece ratexciii. Against this view
stand those of Shleifer and Vishnyxciv for whom corruption lowers economic growth
and Rose-Ackermanxcv who warns of the difficulty in limiting corruption to areas where

53
it may be desirable. Paulo Mauro, the IMF economist analyzed this gap and attempted
to measure it in perhaps the first cross-country study that attempted to relate
bureaucratic efficiency and honesty to a country’s economic growth. Mauro found that
corruption lowered private investment and thereby economic growthxcvi. Citing the
example of Bangladesh, Mauro conservatively estimated that if that country were to
increase the level of integrity of its bureaucracy to that of Uruguay, Bangladesh’s
investment rate would rise by 5% and yearly GDP growth rate by 0.5%xcvii. Based on
nine institutional variables, Mauro devised a bureaucracy efficiency index, 1 being the
lowest grade and 10 the highest; India is listed along with Bangladesh in the second
lowest category with a score of 4.5-5.5 with neighboring Pakistan in the lowest category
of 1.5-4.5 while Sri Lanka is slotted in the next higher category of 6.5-7.5xcviii. Mauro
also found that a one standard deviation improvement in the bureaucracy efficiency rate
was associated with a 4.75% annual rise in GDP and a 1.03% rise in GDP per capitaxcix.
Mauro also analyzed how corruption affected government expenditure and
concluded that a one standard-deviation improvement in the corruption index leads
education expenditure to rise by over six percentage points of total government
consumption expenditurec. Corruption also affected government expenditure on health
servicesci.
Wedeman has however, criticized Mauro’s results on the ground that while the
correlation between corruption and the ratio of investment to GDP might be strong for
countries with little corruption, it is not an accurate predictor for countries with higher
levels of corruption. Therefore, certain types of corruption might be more significant
for investment decisions rather than the overall level of corruption. With a similar point
of view, the World Development Reportcii quotes an entrepreneur who contends that
"there are two kinds of corruption. The first is one where you pay the regular price and

54
you get what you want. The second is one where you pay what you have agreed to pay
and you go home and lie awake every night worrying whether you will get it or if
somebody is going to blackmail you instead." Campos, Lien and Pradhanciii, in their
study of 59 countries, concluded that low predictability and the overall level of
corruption, reduced the ratio of investment to GDP. The authors therefore rightly
concluded that the nature of corruption was also crucial to its economic effects.
Lambsdorffciv stated that as corruption increases, the risks associated with
making investments, e.g. by lowering the security of property rights, theory predicts
that corruption will have a clear negative impact on the ratio of investment to GDP.
However, if corruption affects the productivity of capital, an adverse impact on the ratio
of investment to GDP will result. This is because as the productivity of capital declines
GDP drops in relation to the capital stock; the ratio of investment to GDP will then
increase in reaction to corruption. As a result, studies on the ratio of investment to GDP
are likely to underestimate the total impact of corruption on investment.
Tanzi and Davoodicv added four new arguments to those of Mauro. First,
corruption retarded growth by increasing public investment while reducing its
productivitycvi. Since corruption reduced tax revenue, the relative increase in public
investment (i.e., its share of the total government budget) was likely to be higher than
the absolute increase in public investment. This agrees with the findings of Devarajan,
Swaroop and Zoucvii that higher public investment was associated with lower growth,
given other determinants of growth. Similarly, Tanzicviii found that the relation between
growth and investment was highly sensitive to the inclusion of some countries. Second,
corruption retards growth by increasing public investment not accompanied by its
recurrent current expenditure, i.e., adequate non-wage O&M expenditurescix. They
adduce evidence to show that higher corruption was associated with higher total

55
expenditure on wages and salaries. Wages and salaries that are a large component of
government consumption and higher government consumption has proved to be
unambiguously associated with lower growthcx. Third, corruption retards growth by
reducing the quality of the existing infrastructure in increasing the cost of doing
business for both government and private sector leading to lower output and growthcxi.
Finally, corruption lowers growth by lowering government revenue needed to finance
productive spending. It was not without reason that Borachio, in Shakespeare’s Much
Ado About Nothing, famously stated that, “Thou shouldst rather ask if it were possible
any villany should be so rich; for when rich villains have need of poor ones, poor ones
may make what price they will.”
Contributes to Inflation
Al-Marhubicxii stated that there were a number of reasons why inflation and
corruption may be linked. First, according to the theory of optimal taxation, faced with
rising tax evasion and tax collection costs in corrupt countries, governments sometimes
have a motive for creating inflation to generate seigniorage (difference between face
value and cost of circulation of a coin; also referred to as inflation tax in some countries)
as a source of government revenue. Second, corruption may force businesses
underground thereby increasing reliance on the inflation tax. Third, corruption may
cause capital flight shrinking taxable assets and income of those most able to meet
government revenue requirements. Finally, by reducing revenues and increasing public
spending, corruption may also contribute to larger fiscal deficits, which may have
inflationary consequences for countries with less developed financial markets. Basing
himself on based on cross-country data consisting of 41 countries for which data is
available on four alternative indices of corruption, Al-Marhubicxiii finds that countries

56
with more corruption experienced higher inflation Shakespeare perhaps hit the nail on
the head when, in King John, the Bastard stated:
“Well, whiles I am a beggar, I will rail,
And say there is no sin but to be rich;
And being rich, my virtue then shall be
To say there is no vice but beggary
Since kings break faith upon commodity,
Gain, be my lord, for I will worship thee.
Retards Growth of Private Sector
As part of an overall slowing down of economic growth, corruption also affects
growth of the private sector. Exploiting a unique data set containing information on the
estimated bribe payments of Ugandan firms, Fisman and Svenssoncxiv studied the
relationship between bribery payments, taxes and firm growth. They found a negative
correlation between the rate of taxation and bribery and firm growth. They concluded
that “a one-percentage point increase in the bribery rate was associated with a reduction
in firm growth of three percentage points, an effect that was about three times greater
than that of taxation.” William Vanderbilt only echoed industry’s sentiment thus,
“When I want to buy up any politician I always find the anti-monopolists the most
purchasable -- they don't come so high.”
Impairs Creditworthiness
Apart from direct theft, several authors have shown that higher levels of
corruption are associated with lower tax revenue, which would in turn lower the

57
government’s ability to repay loanscxv. For corporations, corruption may increase the
likelihood of arbitrary government actions that reduce profits and leave the firm unable
to repay loans. In addition, higher levels of corruption may lower the effectiveness of
government services, making it even more difficult for firms to realize profits.
Corruption may also reduce legal protection for bondholders. Controlling shareholders
may divert resources from the firm to their own private ends. Corruption reduces the
regulatory oversight against this at the expense of bondholderscxvi. Combining data on
bonds traded in the global market with survey data on corruption compiled by
Transparency International, Ciocchini et alcxvii showed that countries that were
perceived as more corrupt paid a higher risk premium when issuing bonds. An
improvement in the corruption score from the level of Lithuania to that of the Czech
Republic lowered the bond spread by about one-fifthcxviii. This is true even after
controlling for macroeconomic effects correlated with corruptioncxix. Corruption also
remains an important source of default risk. Higher corruption increases borrowing
costs on the international market for both government and firms in developing
countriescxx. Corrupt officials may confiscate loaned funds or other sources of
government income thereby limiting the government’s ability to meet debt obligations.
For example, in Russia more than US $4 billion in IMF loans apparently disappeared
shortly before Russia’s default in 1998cxxi. Surprisingly, corruption does not distinguish
between firm spreads and sovereign spreads to the same degree even though in theory
corruption should matter in very different ways for these two types of borrower.cxxii
Endangers Public Safety
Corruption also causes distortions in the implementation of state policy,
particularly where citizen services are concerned and without regard for public safety.

58
Bertrand et alcxxiii followed 822 applicants through the process of obtaining a driver’s
license in New Delhi, India. They concluded that the bureaucracy responded to
individual needs. Those who wanted their license faster and paid 20% higher rate of
“speed money” given a license in 40% less time although 69% of them failed the
independent driving test. Not surprisingly, those with superior driving skills were far
less likely to be given a license (29% less than the above group). The study found that
bureaucrats arbitrarily failed drivers at a high rate during the driving exam, irrespective
of their ability to drive, encouraging individuals to pay informal “agents” to bribe the
bureaucrat and avoid taking the exam altogether. Needless to add, this study also
highlights the insensitivity of agents’ pricing to driving skills. Thus, corruption disables
regulation even where safety of human life is involved.
Alters Perceptions of Political Systems
Using surveys conducted in sixteen mature and newly established democracies
around the globe, Anderson and Tverdovacxxiv studied the effect of corruption on
people’s attitudes toward government. Their findings showed that citizens in countries
with higher levels of corruption had negative evaluations of the performance of the
political system and showed lower levels of trust in civil servants. However, such
negativism did not extend to supporters of the parties in power.
Affects National Defense
No discussion on the consequences of corruption would be complete without a
reference to defense spending. From 1980-2007, global arms imports have risen more
than twenty-fold from $40.58 billion to $ 819.04 billion at 1990 constant prices as
shown in Table 4cxxv (SIPRI, 2009). Tanzicxxvi has estimated that bribes account for as

59
much as 15% of the total spending on weapons acquisition. Therefore based on
purchases during 2007 may be as high as approximately $ 125 billion, i.e. about the
GDP of the UAE, New Zealand and Egypt each in 2007cxxvii.
Gupta, DeMello and Sharancxxviii stated that defense purchases have a large element
of corruption in them because of the following main reasons:
 Foreign suppliers may bribe the officials of countries importing arms and
military equipment facilitated by the tax code of arms-exporting countries, that
allow bribery as a business expense;
 Payment of bribes to foreign officials is typically not considered as a criminal
act in many recipient countries;
 Since the mid-1980s and the breakup of the former Soviet Union the defense
industry in Russia and the CIS had large idle capacities and huge fixed sunk
costs that prompted arms producers to scout aggressively for markets abroad;
 Regulations typically confer power on the officials in charge of authorizing
contracts;
 Limited competition among suppliers encourages rent seeking and provides
incentives for officials to engage in malfeasant behavior;
 The secrecy surrounding defense outlays gives rise to corruption. Defense
contracts are often excluded from freedom of information legislation, where
available;
 Administrative procedures in military spending are not be closely monitored by
tax and customs authorities and standard budget oversight like auditing and
legislative approval;

60
 The stock of defense assets—such as military-controlled land, hardware, testing
grounds, transport vehicles and facilities such as housing and training centers,
tends to be large and provides further opportunities for corruption;
 The military also engages in business operations in a number of countries,
ranging from producing arms, military equipment, and steel, to managing
airports and duty-free shops that limit entry of private firms and encourage
smuggling and commodity stockpiling.
Table 4
Country TI (CPI)
Ranking
2008
Purchases
($ billion)
in 2007
Country TI (CPI)
Ranking
2008
Purchases
($ billion)
in 2007
Greece 57 19.27 China 71 29.02
Mexico 72 1.74 Saudi Arabia 80 18.95
India 85 25.01 Egypt 115 16.60
Vietnam 121 2.00 Pakistan 134 9.57
Yemen 141 1.95 Venezuela 158 2.32
Myanmar 178 2.35
SIPRIcxxix estimated global military expenditure at $1339 billion in 2007—a real-term
increase of 6% over 2006 and 45 per cent since 1998. This corresponded to 2.5 per cent
of world gross domestic product (GDP) and $202 GDP per capitacxxx. SIPRI estimates
India’s share of global military hardware imports at 12%, against 6% by People’s
Republic of China, and signals India’s emergence as the world’s single largest importer
in 2008-12.cxxxi SIPRI data also shows India’s imported $343.08 billion of military
hardware from 1996-2012, against People’s Republic of China’s $345.85 billioncxxxii.
Evidently, the defense sector provides one of the single largest sources of corruption
worldwide.

India: The Wilting Lily

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