When Crime Pays

by Milan Vaishnav

  Figure 2.7. Trends in public employment in India, 1971–2012. (Data from Economic Survey of India, various years)

  Sovereign Failures

  The combination of excessive proceduralism and human capital shortfalls hampers the Indian state’s ability to perform even its most essential sovereign functions. Taxation, for instance, is one of the most vital functions of the modern nation-state since it provides the resource base upon which all else is built. Despite the government’s desperate need to raise revenues to cover the costs of an expanding welfare state, just over 32 million people in a country of 1.2 billion pay income tax.77 Ironically, alongside a burdensome tax regulatory regime (India ranks 157th in the world when it comes to the ease of paying taxes, according to the World Bank) sits a dramatic shortage in the number of government tax collectors. In 2012 the Income Tax Department disclosed that it faced a shortfall of nearly 20,000 personnel.78

  Similar problems plague the state’s ability to provide basic public goods, like health or education. According to a 2014 study, India’s density of allopathic doctors, nurses, and midwives (11.9 per 10,000 residents) is roughly half the benchmark set by the World Health Organization (WHO) of 25.4 workers per 10,000 residents. Once one factors in quality (based on medical qualifications), Indian health worker coverage drops to just one-quarter of the WHO standard. Furthermore, there are great disparities in coverage based on geography; for instance, the density of health care providers is nearly ten times larger in urban than rural settings.79

  Protecting Indians from foreign and domestic security threats is another area where there is a human resources crisis. Despite major internal security concerns—from Maoist violence to religious extremism and organized criminal activity—the domestic-oriented Intelligence Bureau struggled with more than 8,000 vacancies (as of March 2013), equivalent to 30 percent of its sanctioned strength.80 When terrorists launched a series of coordinated, simultaneous attacks on Mumbai on November 26, 2008, the response of local security forces was hampered by the fact that many of the bulletproof vests officers were outfitted with were of poor quality, the end result of a shoddy procurement deal.81 When a terrorist’s bombs went off in West Bengal in 2014, officers from the National Investigative Agency, India’s premier counterterrorism bureau, had to hail cabs to the scene of the crime because they lacked enough cars.82

  The entire spectrum of India’s rule of law institutions—from the police to the courts and prisons—are desperate for renewed investment. India has the lowest rate of police officers per capita—122.5 per 100,000 people—of any G20 member state, and the police vacancy rate stands at 25 percent.83 In the United States, there are 108 judges per million citizens, compared with a mere 12 per million in India. Here too, many positions that are officially sanctioned are not filled; more than one-third of the higher judiciary and one-quarter of judges on subordinate courts are simply not in place due to unfilled vacancies (as of mid-2015) (figure 2.8). The result is a mind-boggling backlog of 31.2 million cases facing the courts.84

  Figure 2.8. Vacancies in India’s judiciary, 2015. (Data from the Supreme Court of India as of September 30, 2015, for the Supreme Court, and June 30, 2015, for district/subordinate courts)

  In many instances, human resource shortfalls are compounded by failures of allocation. For instance, despite India’s woeful police-to-population ratio and widespread enforcement failures, the police force it does have is preoccupied with nonessential activities. In the wake of the horrific 2012 Delhi gang rape, it came to light that of the roughly 84,000 police officers working in Delhi, only about 39,000 actually do routine police work. The remaining 45,000 officers are tasked with “VIP security” duty or mundane office work.85

  GOVERNANCE DEFICIT

  Thus, over time, a gap has opened up between the rapid political, social, and economic change and stagnant quality of India’s institutional firmament. After growing at a modest clip for much of its post-independence history, economic growth surged in the last quarter century. Politics became significantly more fragmented and decentralized, and new groups found political voice. Just in the last two decades, India added more people than its entire population at the time of independence. Even reasonably decent state institutions would have come under considerable stress thanks to the rapid changes underfoot. With decaying institutions, however, India’s governance deficit painted an even more striking contrast to the dramatic changes underfoot. This contrast is not altogether unfamiliar.

  In his 1968 book, Political Order in Changing Societies, political scientist Samuel Huntington warned of the negative repercussions for countries that found themselves burdened with a state unable to keep up with the pressures of modernization. Huntington was writing at a time of considerable turmoil in the developing world, when the frequency of military coups, prolonged insurgencies, and civil strife were on the uptick. His diagnosis was remarkably simple but compelling: “The primary problem of politics is the lag in the development of political institutions behind social and economic change.”86 One of the by-products of this mismatch Huntington points to, not surprisingly, is corruption. While elements of Huntington’s account fit India’s dilemma quite well, the dynamics of India’s institutional shortcomings also shape the corruption environment in very distinctive ways.

  Weak Institutions and Corruption

  Three things link India’s institutional stasis and corruption.

  First, the rampant bureaucratic proceduralism that has survived the supposed dismantling of the License Raj has provided bureaucrats—and, crucially, the politicians who oversee them—with ample leverage to manipulate the thicket of state controls in the service of narrow private interests. State actors have wide discretionary authorities that they can use and abuse with impunity. The discretion available to those in power increases the financial rewards to holding (and retaining) office, thus increasing the costs individuals are willing to endure to achieve power. Hence, the excessive regulatory intensity of the Indian state gives political incumbents a great many levers to manipulate policy in exchange for private benefits.

  Second, the relative incapacity of the state, due to shortages in the quantity and quality of government personnel, has left the public sector severely outmatched in its oversight function. The understaffed and underfunded government is incapable of adequately regulating the vastly more complicated and diverse economic environment it faces following the country’s economic takeoff. This limits the state’s ability to control rent-seeking and, in conjunction with stifling regulation, allows actors who want to fleece the state to get away with it.

  Third, excessive proceduralism and gaps in capacity interact to inhibit the state’s ability to provide the basic public goods necessary to meet the demands of a growing, increasingly aspirational population. This shortcoming creates political space for private actors to perform these functions, but these private actors do not always act with the general welfare in mind. The very failure of the Indian state to deploy its authority ends up further contributing to governance failures.

  Modernization and Corruption

  Modernization—and this is where Huntington’s insights are germane to India’s current predicament—compounds the problems emanating from this institutional misalignment.87 Indeed, one should not underestimate the profound changes rapid rates of social and economic development can have on a country’s domestic fabric.

  For starters, modernization creates new sources of wealth and power in society, and the owners of that wealth often try to use this money to achieve greater political power. Conversely, groups situated closer to the bottom rungs of society—awakened by a realization of the potential for social and economic mobility—begin clamoring for more recognition. In many instances, the historical record suggests that such groups will trade their mobilizing potential for material incentives.88

  Moreover, modernization multiplies the functions any government must undertake. Rapid economic growth requires the creation of new infrastructure (e.g., ports, roa
d, and railways), a larger social safety net, and an enhanced role for the state in regulating economic activity. This expansion of the state’s role creates a new set of interactions between the state and society—which themselves create the potential for engaging in malfeasance.89

  Lastly, modernization entails multiple processes of dynamic economic growth—urbanization, increasing literacy, and so on—which involve a reordering of values in society. Modern societies, in contrast to feudal ones, begin to create separation between one’s “public role and private interest,” in Huntington’s words. New norms are established, and then diffused, about what is right and what is wrong in the political sphere.90

  Modernization and Corruption, Indian Style

  The set of conditions Huntington identifies to describe the interplay between modernization and corruption in a context of weak institutions describes, with a few modifications, the facts of the India case pretty well.

  First, there has been substantial wealth creation in India, especially after economic activity began to pick up in the 1980s and 1990s, leading to truly rapid growth in the decade of the 2000s. The growth in the ultra-rich during this time has also been phenomenal. According to an analysis by Michael Walton and Aditi Gandhi, in the mid-1990s India was home to only two billionaires, worth a combined $3.2 billion. By 2012, India boasted 46 billionaires worth more than $175 billion. As a share of GDP, the wealth belonging to India’s billionaires blossomed from just 1 percent in the mid-1990s to as high as 22 percent in 2008 before falling to 10 percent in 2012 following the global financial crisis.91 In 2014, for the first time ever, India’s 100 richest individuals were all billionaires, collectively worth around $346 billion.92 This class of high net worth individuals, and the corporations they represent, have skillfully used their financial clout to shape policy on a range of matters—from influencing regulatory policy to limiting foreign competition—and sectors, from telecommunications to petrochemicals.93

  While this period of India’s development has been associated with a rise in income inequality, those at the bottom of the pyramid have also considerably improved their lot, although there is still a long way to go. In 1993–94, the government of India estimated that 45.3 percent of Indians were living below the poverty line, accounting for slightly more than 400 million people. By 2011–12, the share of poor had declined to just under 22 percent, or 270 million Indians.94

  In line with Huntington’s argument, the desire for economic fulfillment has created opportunities for patronage and clientelism, which allows for the transfer of material benefits from the elites to the masses. Democratic and social transformations have also raised the expectations of ordinary voters, whose aspirations are often thwarted by political institutions that are unable to deliver. The search for credible governance has opened the door for ordinary Indians to seek out representatives who will look out for their interests, even if they short-circuit the official system to get things done. Thus, the corrupt politician becomes “the crutch that helps the poor navigate a system that gives them so little access” in the first place.95

  Second, the process of rapid economic growth has provided greater scope for rent-seeking, as Huntington rightly observed.96 As University of Chicago economist turned governor of the Reserve Bank of India Raghuram Rajan has argued, Indians have not necessarily become more corrupt, but rather “the opportunities for corruption have increased due to higher growth.”97

  As societies industrialize, the economic pie expands considerably; governments grow in line with the demands on them and the focus of development moves from agriculture to commerce and industry. The latter typically require large government contracts or permissions to build modern infrastructure, creating processes that are vulnerable to corruption. As India’s poorest states have moved along this spectrum, they have become hotbeds for more, not less, corruption. As political scientist Pratap Bhanu Mehta once remarked about the poor Indian state of Bihar, which has long had a reputation for widespread corruption: “There is a cruel joke that has an element of truth in it: Bihar’s problem was not too much corruption, it was too little corruption.”98

  Third, while the conceptual separation between the public and private sphere is not all that new in India, there is now a much greater awareness of the private actions of public servants and elected officials. As independent India has evolved, the availability of information on the behavior of public officials has greatly improved, thanks to rising incomes and improved literacy, a more competitive media marketplace, and legal reforms such as the Right to Information (RTI) Act (under which any citizen can petition the state for information deemed to be in the public interest). Now, more than ever before, there is greater reporting on corruption; after all, where there is more sunlight one is likely to see more dirt.99

  The growth of the media is an important component of this changed environment. In 2006, according to one estimate, 296 million Indians were newspaper readers. That number grew to 340 million in 2012.100 The growth in television news outlets has been even more striking, from just nine stations in 2000 to 122 in 2010.101 Of course, increasingly in India, as in many parts of the world, the primary conveyor belts of information are not “old media” like newspapers and television but “new media” that can be accessed via the Internet. In a comparative sense, Internet connections are still something of a rarity in India: by December 2014, approximately 270 million Indians had an Internet subscription. This implies a rate of 21.6 subscribers per 100 residents (the comparable figure in Brazil for 2013 was 51.6).102 While this number remains small, it is growing fast—but nowhere as fast as the growth of mobile phones. India went from having zero mobile phone subscribers in 1994 to 975 million a little more than a decade later, in June 2015 (figure 2.9).103 This information environment has no doubt brought more corruption allegations and suspected transgressions to the forefront.

  Figure 2.9. Mobile phone subscriptions in India, January 1995–June 2015. (Data from World Development Indicators, 2014; Telecom Regulatory Authority of India, 2015)

  Huntington’s framework, which rings true in so many ways, does have at least one clear shortcoming, and it is one other scholars have focused on as well. The idea that a misalignment between modernization and institutional quality leads to negative developmental outcomes (such as corruption) comes across as overly deterministic; in such a model, even the most idealistic, reform-oriented politicians would be ultimately frustrated by a political system unable to change or adapt.

  Yet any country’s struggles—India’s included—are fundamentally about the choices individuals make.104 Structural arguments leave very little room for human agency. This is an important caveat to Huntington’s thesis, but it does not mean that structural factors do not matter; rather, it is best to think of them as providing the larger opportunity structure for corruption to thrive (or not). The later discussion on India’s marketplace for criminality will bring into sharp focus the role human agency plays.

  GRAND POSSIBILITIES FOR GRAND CORRUPTION

  Of course, corruption is far from a recent phenomenon in India. After all, as far back as the fourth century BC the philosopher Kautilya famously wrote, “Just as it is impossible not to taste 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 at least a bit of the King’s revenue.”105 Entire libraries could be filled with treatises on the causes and consequences of corruption in modern India (or indeed in many other countries).

  But while corruption is hardly new, the nature of corruption has changed in recent years. “Petty” or low-level administrative corruption has long been endemic in India—but as India has progressed, the scope for “grand” corruption has increased. “Grand corruption” refers to corruption that involves high-level elected officials and can have systemic effects on economic and political outcomes.106 Examples include vested interests paying for large-scale regulatory or legal favors, the payment of kickbacks for lucrative licenses, or the exertion
of influence through illicit political finance.

  “Petty corruption,” by contrast, typically involves a low-level functionary soliciting a bribe from a citizen or taking payment for allowing illegal access to public benefits. It is grand corruption that has received a particular boost from the failure of India’s institutions to keep up with the pace of political, economic, and social change, and it is manifested by three types of rents: regulatory, extractive, and political.107

  Regulatory Rents

  In the years following India’s path-breaking economic reforms of 1991, reform proponents argued that liberalization would substantially address India’s corruption affliction. After all, liberal reforms were meant to get the government out of the way, unburden the private sector, and harness the “animal spirits” of free-market capitalism. Despite reformers’ best intentions, corruption has actually thrived in the wake of reform.

  But it is not the reforms per se that are to blame for the rise in corruption. To the contrary, corruption has mainly thrived in those areas where the state still plays a domineering role or where the state has opened up the sector but failed to institute sound regulatory institutions in the wake of liberalization. This has led some to suggest that what India suffers from is more akin to “crony socialism” than “crony capitalism.”108

  The economic reforms India managed to carry out freed businesses from some of the worst excesses of the License Raj era, such as industrial licensing, but three problems arose from the liberalization push. First, many key sectors of the economy remained essentially unreformed. In sectors ranging from higher education to power and mining, the state remained the dominant player and private participation was minimal or nonexistent. As Raghuram Rajan put it, the reforms left the public sector occupying the “commanding heights.”109 In these areas, the state was able to abuse its virtual monopoly to engage in rent-seeking for the benefit of the political class and free of competitive pressures.