The Economics and Politics of Corruption in India

By Anjum Altaf

Is there an alternative to taking sides on the Anna Hazare controversy? Could one step back and gainfully employ an historical and institutional perspective to understand it better? Would it help to argue that the mismatch in speeds at which economic and political institutions have rooted themselves in Indian society is contributing to a disorienting disconnect between modern ends and pre-modern means?

The supply and demand of goods and services is mediated through the economic market and Indians have been dragged into it whether they liked it or not; they had no choice. The theory of perfect and imperfect economic markets is well known. In brief, markets can exhibit friction, they can fail, and they can exclude large segments of the population without effective demand. In all such cases, the state has to step in thereby creating the interface between economics and politics.

Corruption is a phenomenon with a bearing on all aspects of the economic market. In its most benign form, it is seen as a lubricant that reduces market friction except that it creates the perverse incentive to simultaneously increase friction in order to maximize rents. In simple economies this is accepted as a part of the culture, a way of life, the price of doing business. When complex markets fail, they need political fixes; corruption increases because alternative fixes can generate very different distributions of costs and benefits. And when economies are growing rapidly, market rules can be altered to yield windfall gains setting the stage for relentless manipulation of those entrusted with rule-making.

India has passed the stage from a simple economy to a very rapidly growing one and the corruption associated with the manipulation of rules has acquired an in-your-face character. The recent repeated exposure of its blatant nature and its casual acceptance by rule-makers has coalesced all the pent-up irritation against small-time corruption into a snowballing movement of protest. While everyone may have paid a bribe to get things done at one point or another, no one has enjoyed the experience or stopped wishing for an environment where it was not needed.

Political interventions to fix market failures or abuses, the analogous supply and demand of economic rules, are supposed to be mediated through the modern institutions of representative democracy. Here we can see the crucial difference between economic and political institutions. While there are strong incentives to expand the domain of the market because there is money to be made, there are equally strong disincentives to expand the effectiveness of representative democracy in order to preserve the power of the representatives. All major political changes in history have been the outcomes of protracted social struggles.

Remarkable enough as they are the institutions of political governance in India have their peculiarities. Sunil Khilnani has written that “Constitutional democracy based on universal suffrage did not emerge from popular pressure for it within Indian society, it was not wrested by the people from the state; it was given to them by the political choice of an intellectual elite.” It was an institution alien to most: Khilnani quotes a nationalist member of the Constituent Assembly lamenting ‘We wanted music of Veena and Sitar but here we have the music of an English band.’ Ramachandra Guha has mentioned how elections have been internalized in Indian life as “a festival with its own unique set of rituals, enacted every five years.”

The proof of the pudding is, as always, in the eating. The deeply entrenched dynastic nature of politics in India, indeed in all of South Asia, says it all. Discussing the degeneration of Indian politics, Guha notes that “When Lalu Prasad Yadav was forced to resign as chief minister of Bihar (after a corruption scandal), his wife Rabri Devi was chosen to replace him, although her previous experience was limited to home and kitchen. The practice has been extended down the system, so that if a sitting member of Parliament dies, his son or daughter is likely to be nominated in his place.” The more noteworthy aspect is a different one: that Rabri Devi was perfectly acceptable as a replacement to the electorate. This highlights an important systemic attribute of civic attitudes to governance.

It is not that these issues were unknown to those who made the institutional choices. Dr. Ambedkar’s caveat expressed at the outset is well-known: “Constitutional morality is not a natural sentiment. It has to be cultivated. We must realize that our people have yet to learn it. Democracy in India is only a top-dressing on an Indian soil, which is essentially undemocratic.” This is no different in spirit from the hope expressed in 1835 by Macaulay in the part of his infamous comment that is almost always left out of discussion: “We must at present do our best to form a class who may be interpreters between us and the millions whom we govern – a class of persons Indian in blood and colour, but English in tastes, in opinions, in morals and in intellect. To that class we may leave it to refine the vernacular dialects of the country, to enrich those dialects with terms of science borrowed from western nomenclature, and to render them by degrees fit vehicles for conveying knowledge to the great mass of the population.” (Emphasis added.)

The problem in both cases is one of very weak incentives for a ruling class to voluntarily extend to the majority either the ability to challenge the status quo or to represent effectively to alter it. Given these two glaring shortcomings, it is little surprise that citizen protests in India take the route they used to before the advent of modern institutions.

Barbra Metcalfe has described the western-educated world of meetings, pamphlets, petitions, and addresses as the “newly emerging framework of public life in the late nineteenth century.” Before 1857, people lived in another world, one of real monarchy, princely states, and colonial rule against which a very different form of protest was effective. This world, in the words of Khilnani, “was held together by a moral ideal or conception of virtue” and relied for the redress of grievances on moral suasion and the power of shame as blackmail. The precedents go back at least as far as Buddha, if not earlier, continue through Gandhi, and still find resonance today.

It needs to be reiterated that this phenomenon recurs even in well-developed democracies when the political system proves unresponsive, for whatever reason, to citizen demands. The enactment of civil rights legislation in the US as recently as the 1960s under the explicitly Gandhi-inspired leadership of Martin Luther King is a case in point.

The place of the individual who does penance and acts as the medium for the voice of the people is well-established in the Indian tradition and modern political institutions have not been effective enough to render it anachronistic. The modern media can amplify such a phenomenon; it cannot create it. Such movements can also be initiated by charlatans, be hijacked by rogues, or be infiltrated by hypocrites but that comes with the territory of this form of a protest movement.

Once again, the proof of the pudding is in the eating: the present anti-corruption movement has forced the Indian government to pay heed to the issue like no other attempt internal to the political institutions themselves. What needs to be acknowledged is that corruption is a felt issue that has emerged as a major demand for systemic change; that the existing political mechanisms do not facilitate an effective channeling of this demand; and that pre-modern methods continue to resonate with the population.

There is little doubt that the pre-modern methods are open to all the problems mentioned above. But the alternative is not to hide behind the facade of a mythical constitutional and democratic process that remains impervious to citizen demands. Nor is it useful to discredit the movement by pointing to dubious characters that might have scrambled abroad for the ride or to imply that it lacks moral credibility because most participants might be corrupt themselves.

Both the economic problem and the political demand are real. The weakness of modern political institutions has forced the movement for change into adopting more effective pre-modern forms. Beyond the imperative of dealing with the immediate crisis, there is need to think of the institutional changes needed to make the democratic system responsive to citizen demands. An Ombudsman is not the most critical of these changes. While citizens require protection, the greater need is of measures that empower and convince them that their voice can be made to matter. In this perspective, provisions for single-issue referenda and recall of individual public officials can offer a useful point of departure.

There is an added dimension that needs to be acknowledged in this quest, the fact that the capitalist economy has outgrown the political institutions that historically emerged in parallel with it. Dr. Ambedkar recognized the pre-modern aspect of the disjunction between politics and economics in India: “In politics we will be recognizing the principle of one man one vote and one vote one value. In our social and economic life, we shall, by reason of our social and economic structure, continue to deny the principle of one man one value. How long shall we continue to live this life of contradictions?”

This remains still a yawning gap in India but in the meantime a post-modern disconnect has made its appearance. We are no longer living in the world of one man one vote; rather, we are faced with the reality of one Rupee one vote. The reason is not hard to fathom: the system of representative governance was born at a time when the economy was populated by small owner-operated firms none of which could dominate the system. Today we live in the world of mega-, too-big-to-fail-corporations giving rise to what has been termed the ‘Corporatocracy’.

Dealing with the influence of money in such an economy is conceptually a task of a different order. It is unlikely that authoritarian or draconian measures would prove successful. If the example of the US is anything to go by, the best that might be possible, short of breaking up the corporations, would be to legalize the use of money through the evolution of transparent rules governing campaign contributions and lobbying of legislators. Kaushik Basu’s recent suggestions to legalize the giving of bribes acknowledge the need to explore unorthodox methods for a problem that is progressively becoming more entrenched and more complex.

At the very least, this should serve as a warning that pre-modern solutions to modern problems would be unlikely to withstand the power of big money. The need to disaggregate the problem of corruption and to address it intelligently is greater than ever before. Small-time corruption, one that occurs when ordinary citizens interface with organs of the state, is the cause of the maximum irritation and loss of time and productivity; its scale is beyond the oversight of an ombudsman but it is amenable to better rules and increased choice. In any case, it is a self-limiting phenomenon because it declines as the compensation of low-level public employees increases with the development of the economy. Big-time corruption, on the other hand, distorts economic trajectories, leads to gross injustice, and grows with the growth of the economy if left unchecked. It is the control of this corruption in which big players on all sides are hand-in-glove that needs the support and urgent attention of civil society. Such attention would benefit from an historical and institutional perspective.


Khilnani, Sunil. 1997. The Idea of India. New York: Farrar, Strauss and Giroux.
Guha, Ramachandra. 2007. India after Gandhi: The History of the World’s Largest Democracy. New York: Harper-Collins.
Metcalf, Barbara. 2009. Husain Ahmad Madani. Oxford: Oneworld.
Altaf, Anjum. January 2010. Macaulay’s Stepchildren. Himal Southasian Magazine.
Altaf, Anjum. 1984. The Strategic Implications of Varying Environments: Aspects of Decision-Making under Instability. Stanford: Unpublished PhD dissertation.
SouthAsian. 2008. The Degeneration of Politics. The South Asian Idea Weblog.

Related Post: Corruption and Democracy: Disputing Neera Chandhoke


  • mazHur
    Posted at 11:39h, 27 August Reply

    Corruption has always been there but even the corrupt ones in the past would do it covertly without publicizing and would feel guilty conscience and ashamed if caught. Today this scenario has changed altogether: the more corrupt and publicized a rogue is unashamedly the happier he is and taller he stands in society!!

  • Vikram
    Posted at 05:21h, 28 August Reply

    If I understand correctly, your thesis here is that political institutions of India (in terms of both credibility and structure) have failed to keep up with rapid economic growth.

    I would like to propose two elaborations on this reasoning. One, the tremendous expansion of media, especially Indian language media in the last ten years, driven in part by the economic growth. There is a lot more information available to the average Indian now. This might explain the tremendous support from working class Indians, who in the end gave the movement its teeth. Indian politicians appear to be uncomfortable with such an informed electorate. Lalu Yadav, for example, came across as quite hostile in the debate today.

    The other reason might be the fact that the middle class has reached a critical mass in urban India. There might be a post modern middle class emergent in urban India, which all though small in number becomes somewhat of a mass due to the internet. From what I have seen of the IAC rank and file, they almost all seem to be urban, middle class Indians. Perhaps, these are folks that having realized the full potential of capitalist growth in their lives found the time to create and run a movement like the IAC, which has broader aims.

    • Anjum Altaf
      Posted at 15:49h, 28 August Reply

      Vikram: Yes, that is the thesis I have proposed: that the political institutions that manage and direct economic growth are lagging; they extract rents either by stifling growth as they did before 1989 or by letting it run wild as they did after 1989. In either case, it is some crisis that forces a correction. One of the reasons for this disconnect is what you have mentioned: those who benefit from the status quo are reluctant to change it unless they are forced to.

      The importance of the middle class cannot be discounted. It is either the core of the movement or in the lead of a movement. Even those opposing movements belong to the middle class. But it is not the case that movements in India have not occurred when the middle class was much smaller or the media much less pervasive. One can go back to Periyar’s Self-Respect Movement against Hindi as an example.

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    Posted at 20:16h, 29 August Reply

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  • SouthAsian
    Posted at 04:09h, 14 April Reply

    Here is an interesting perspective on corruption in India from Professor Andre Beteille:

    “It is good to be watchful where the rules are ambiguous and flexible and where public misconduct is widespread. But when the concern about corruption turns into an obsession, it makes the running of public institutions more difficult and not easier.”

  • SouthAsian
    Posted at 06:43h, 27 November Reply

    A set of op-eds raise issues about the intersections between corruption, law, and the nature of democracy in South Asia:

    “On the one hand, there are greedy politicians grabbing public money in truckloads and, on the other, there are 10 crore families below the poverty line who do not have sufficient food, drinking water, shelter or clothes to cover their bodies. It is strange that these unfortunate fellow countrymen continue to look to our leaders for ameliorating their living conditions.

    Anna Hazare tries to awaken the people against corruption. But he was talking to dead mutton. Can one man eradicate corruption in India? Unless people rise in revolt against this demon and punish the corrupt by refusing to vote for them, a time will come (if it has not already) when we get used to the debased public life.”

  • SouthAsian
    Posted at 05:45h, 15 January Reply

    An important statement that democracy as practiced in India is the problem not the solution. This reality is slowly beginning to sink in and should promote a discussion of the reforms that are called for to arrest the drift.

    Also, an useful distinction between two variants of corruption – bribery and extortion – and why it matters.

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