A pro-business anti-corruption programme can only have a short-run perspective. Over time, as it leads to inequity, slowdown in the economy, and social discontent, the rulers will have to turn authoritarian

The Aam Aadmi Party (AAP) has announced its intention to fight against corrupt leaders from all parties in the coming general election. So, anti-corruption seems to be its main plank since it has not yet announced anything else. Its success in the recent Delhi Assembly election was largely on an anti-corruption plank. Even the promises of cheaper/free water and electricity to the electorate were based on ending corruption in the provision of these services. Beyond these and a few other issues, the AAP’s vision regarding India has yet to emerge. Given the pent-up anger of the electorate against inflation and corruption, a limited agenda was enough in Delhi. Would a purely anti-corruption plank also work at the national level for the same reason?

Other political parties have been forced to adopt an anti-corruption stance. Clearly, the AAP has succeeded in changing the political discourse in the country. The rapid adoption of the Lokpal Bill, the promise of passing other pending anti-corruption bills and the buzz around selecting clean candidates points in that direction.

Corruption has become a key issue since it results in daily hardships for the aam aadmi — whether it concerns employment, prices, education, drinking water, electricity, dealing with the police, the bureaucracy, the judiciary and so on. The nation faces crucial problems both at the macro and the microeconomic levels. Tackling these problems requires addressing their wider economic, political, social and institutional contexts and not just corruption. Another impression being created is that problems can be resolved by bureaucratic or political fiat.

Implications of black economy

To tackle corruption, its cause needs to be correctly identified. The basis of corruption is the growing black economy propelled by widespread illegality in a variety of economic activities and the disruption of the democratic institutions. It has grown from four-five per cent of GDP in 1955-56 to more than 50 per cent of GDP now. As an offshoot, corruption has become rampant. Given its all-pervasive character, the black economy has become “systematic and systemic” and that is why it has widespread macroeconomic, social, political and institutional implications. These cannot be tackled only by checking corruption.

The macroeconomic aspects of the black economy result in wider inefficiencies of the system. It leads to poor quality of goods and services and higher costs. It causes wastage so as to create shortages so that higher profits can be generated through speculation. It reduces the rate of growth of the economy much below its potential, leading to missed development. “Expenditures do not lead to outcomes” and targets are not fulfilled in say, education. It leads to a flight of capital so that a poor country faces a shortage of capital.

In India, businesses have formed a nexus with politicians and the executive to generate black incomes. This triad has turned politics on its head. It manipulates policies to suit favoured businessmen who make extra profits and share it with the other two. The gains of this small group are at the expense of all others and this aggravates disparities. Representation has lost much of its meaning since the elections have largely thrown up those who take the vote of the people but after winning, work for vested interests and against the interests of the people they represent. Even the leaders of the most deprived sections have quickly turned corrupt after coming to power. No wonder people have lost hope in the system’s capacity to deliver to them and become more and more sectarian and divided along caste, community and regional lines. Today, hope has revived and people are looking for new, clean leaders. Corruption is associated with the public sector while the private sector is portrayed as its victim. So, less of government is suggested for reducing corruption. Businesses support such a policy since it gets them greater freedom in the market which translates into a higher degree of monopoly, a capacity to fix prices and boost profits. The flip side of such a policy is that the aam aadmi has to depend more on the markets. While this may be welcomed by those who gain from the markets, it is detrimental for the poor who are marginal to it, like, women, Dalits and Muslims.

Businesses and anti-corruption

The markets often cannot cater to the basic needs of the poor (not just those below the poverty line) because of their low incomes relative to the prices. Today, 23 years after the largely market-based policies were introduced after 1991, the marginalised face shortage of work, low wages because of massive underemployment, reduced subsidies resulting in higher prices and increasing costs of education and health. Further, advertising is resulting in changing tastes and demand for newer products thus causing the poverty line to rise. There is the paradox of increasing poverty in spite of rising incomes.

In brief, a business-led anti-corruption agenda would benefit the aam aadmi incidentally; to the extent of reduction of waste. But, because of a tilt of policies towards businesses, they would lose much more and in the net, would be worse off in spite of the reduction in corruption. For example, most government schools today provide indifferent education. If an anti-corruption regime privatises these schools which will charge higher fees, the poor would not be able to afford them and would be worse off. Even the somewhat better off “middle class” would lose since it also has limited purchasing power and confronts a situation similar to the poor. The issues of the marginals may get marginalised.

Why are businessmen in India, who have gained through crony capitalism and pro-business policies, interested in an anti-corruption plank? They want to safeguard the massive amount of capital they have accumulated in the last two decades. They have rapidly invested their surpluses into land (say, SEZs), other natural resources like mines, forests, spectrum and so on.

Since 2010, exposés of big scams threatens these investments. Movements have sprung up against large projects, from POSCO to Kutch and Kudankulam to Haryana. So, businesses want to legitimise their gains and launder their image by distancing themselves from those who have been caught in the scams. Further, they want efficient capitalism to multiply their capital rapidly. Hence, a section of businessmen support the anti-corruption movement. They also see an opportunity in the present anti-corruption mood of the public to legitimise capitalism by diverting attention to corruption in government — they do not want reformed capitalism or a welfare state. But, can there be efficient capitalism without tackling the black economy of which businessmen are the dominant part? So, the fight against corruption alone can only be a limited one.

A pro-business anti-corruption programme can only have a short-run perspective. Over time, as it leads to greater inequity, a slowdown in the economy and social discontent, the rulers would have to turn authoritarian to quell rising social and political discontent. What is the alternative?

Tackling the black economy through a pro aam aadmi programme would make the government functional rather than minimal. It would lead to a positive sum game and be neither pro- nor anti-business. It would lead to an appropriate mix of state and market-led development which would cater to the marginalised sections of society without promoting sectarianism. Tackling the black economy would also help overcome the deep macroeconomic imbalances — current account deficit, fiscal deficit, inflation, slow growth, stagnating industry and so on.

Flight of capital would decline, turning the current account deficit into a surplus. The fiscal deficit would turn into a fiscal surplus, generating enough resources in the budget for improving social and physical infrastructure — education, power and so on. It would lead to reduction in costs (as overinvoicing declines) and a fall in inflation. As more direct taxes are collected, less of indirect taxes would be required and this would lead to lower prices. Also, as the fiscal deficit falls, government borrowing would fall thereby reducing its interest burden, the largest single item of expenditure. Finally, as policies begin to work, inequity declines and the investment productivity rises, the rate of growth of the economy would rise. Thus, tackling the black economy would be a long term and equitable solution. To check the growing black economy requires political will to cut the triad, make institutions functional and promote movements for greater democratisation.

There are then two paths for checking corruption. A short run limited microeconomic and ahistorical plank which would be a zero sum game that would marginalise the poor. The other would be a democratic path and positive sum game along which the black economy would be tackled and many of India’s macro and microeconomic problems resolved.

(Arun Kumar is Sukhamoy Chakrvarty Chair Professor, Centre for Economic Studies and Planning, School of Social Sciences, JNU, Delhi.)

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