At last, somebody has had the courage to talk sense about corruption. Deepak Parekh, chairman of HDFC, has been quoted as saying, "Corruption is not going to go away from our country... Your remarks won't endear you to the middle class, which has worked itself into a rage over corruption, but they needed saying. Parekh has uttered one plain truth about corruption.
There are a few others that are worth listing:

1. The link between corruption and economic growth is weak. Since we disapprove of corruption, we would like to believe that corruption must badly hurt the economy.

Alas, research does not establish conclusively that corruption drags down growth. Anecdotal evidence supports this hypothesis. Think China, where the fabulous wealth of party leaders is now coming to light, India and, in an earlier era, Korea, all fastgrowing economies.

2. Corruption does not necessarily involve violation of rules or laws. Many people assume that corruption has to do with violation of laws or rules. But corruption does not always involve such violations.

Very often, the politician or bureaucrat expects to be paid even when a contract is in conformity with rules and even for releasing payments on time. This is known as 'speed money' and it is meant to prevent harassment or delays. Corruption is not always about 'scams' or violations of laws and hence much of it can go undetected.

3. People in government can amass wealth by means that are legal even if it involves their using their privileged positions. Corruption involves a quid pro quo. However, people in government can amass wealth without any explicit quid pro quo in their dealings with businessmen.

A chief minister's son who starts a business will have orders pouring in, without the minister having to intervene. He will have advantages, in terms of getting approvals from authorities, that ordinary mortals cannot dream of.

Thus, those in power can make big money without indulging in corruption. In a paper in EPW (May 26, 2012) , Abhay Pethe and others show that politicians in the Mumbai region have accumulated assets through what they call 'honest graft', such as buying property in areas where they know major infrastructure projects will come up.

The idea that corruption is all about taking bribes for favours is mistaken. It is the more sophisticated forms of corruption that lead to greater riches in any society, and there is little recourse against these under the law. Petty corruption can be checked, not the sophisticated variety.

4. It is incorrect to suppose that corruption is best fought through investigation and punishment. Kejriwal and others believe that a strong Lok Pal is the answer to corruption. Our experience with law enforcement and the judiciary suggests otherwise.

Corruption is better addressed through transparency, clear rules for decisionmaking and e-governance. The RTI Act is probably a superior answer to corruption than the proposed Lok Pal.
November 9, 2012