OPEN FORUM

New Delhi, 29 August 2011

Governance, Corruption & Growth

EXTRAORDINARY CORRELATION

By Col. (Dr.) P. K. Vasudeva (Retd)

India has just celebrated the 64th anniversary of its independence and is struggling to achieve double-digit economic growth through good governance and also reduce corruption, which is advancing like ‘cancer’. In his address from the ramparts of the Red Fort, Prime Minister Dr Manmohan Singh, spoke about reforms but gave no time frame for their implementation. It is worth reminding him, however, that it was in his first speech from on August 15, 2004, that he had promised administrative reforms but nothing more has been heard of how far these have been implemented. The end result is that it has resulted in high-level corruption in the country due to poor governance.

Interestingly, economic growth, corruption, and governance have moved in opposite directions. It is a fact that when governance has been good, growth and corruption has been low. Today, with growth and corruption being high, governance has sunk to an all-time low. The first 50 years after independence showed that while good governance was necessary, growth and corruption was comparatively low. The question that the Prime Minister needs to ask is whether a further decline in governance will eventually result in lower growth and lower corruption? Should that happen, India would have the worst of both worlds!

The Reserve bank of India has cautioned that the Indian economy needs to brace up for a difficult year ahead. Inflation now nearing the two digit figure continues to be a macroeconomic challenge due to weak supply response, the Central bank stated in its Annual Report for 2010-11 released this August 25. If global financial problems caused due to high corruption and poor governance amplify and slows down global growth markedly, the RBI may have to lower its 8 per cent growth projection. 

According to the World Bank, corruption has a direct impact on the size of the informal economy. It increases the cost of creating new businesses and staying in business within the formal economy - unofficial payments and unpredictability of their size and frequency drive the costs and risks so high that the entrepreneurs prefer to move their businesses underground to avoid bribes that they have to pay for services such as registration, licensing, permits and so on. Corruption in social services makes them less affordable and leads to creation of alternative services in the informal sector. 

Weaknesses in governance – governance being defined as the way in which public institutions perform their functions in a country – are strongly correlated with deficiencies in growth. Bad governance is associated with corruption, distortion of Government budgets, inequitable growth, social exclusion, and lack of trust in authorities. Inefficiency of formal governance institutions leads to creation of informal institutions that substitute for the functions that the formal ones are unable to perform.

The World Bank has described two broad types of institutional measures available for large samples of countries: evaluative and descriptive measures. Performance measures provide assessments of the quality of governance. For example, governments are rated with respect to corruption levels, or predictability of policy making. Process measures describe the institutional "inputs" that produce governance outcomes. Unlike performance measures, process measures have no normative content. One example of a process measure is the average pay of civil servants (relative to the private sector or to per capita income); whether or not the election of national legislators is governed by proportional representation (PR) is a second example.

Given that there is a real correlation between governance, growth and corruption, three institutions can be reformed to promote good governance. These are: the State, the private sector and civil society. However, amongst various cultures, the need and demand for reform can vary depending on the priorities of that country's society. A variety of country level initiatives and international movements put emphasis on various types of governance reforms. Each movement for reform establishes criteria for what they consider good governance based on their own needs and agendas.

In India what is good governance for one class can prove to be bad for the other. The cases of land acquisition and job reservation are two conspicuous examples to illustrate this dogma.

Successive governments have forgotten the key operating principle of good governance, which requires two simple things: speed and fairness. India’s institutions of governance have become so inward looking that they have not only lost sight of the citizens but also the objectives. This is the central problem of governance systems in the country. The process is put before the outcome. This makes reform of any sort impossible because procedures have become an end to the means. In that case the growth has gone high and so has corruption.

The two most essential ingredients of good governance speed and fairness have thus become victims of mere rituals. In such a situation short cuts involving bribes, lead to corruption with a few exceptions. The exception is also a part of the procedure.

There is plenty that is frightening in the Indian scenario: The unending series of scams; the high percentage of elected politicians facing criminal charges; the intolerably rowdy behaviour of MPs and MLAs inside and outside the legislatures; the rising tide of riots and loot, often morphing into insurgency and Maoism; the utter lack of accountability, transparency and probity in every field of activity; and the explosive mix of corruption and callousness crushing the aam aadmi.

On the other hand, every Indian citizen may take legitimate pride in the firm measures to counter political defections, the Constitutional amendment which has brought about a silent revolution by strengthening panchayati raj, the bold move to unshackle the economy from the crippling clutches of Statism, and the immense benefits that will increasingly accrue from the rights to education, employment and information.

However, in the matter of corruption and black money, the tremendous forces unleashed by the people are at work, pushing the Government towards the desired goal. The recent crusade against corruption by Anna Hazare is a step in the right direction to curb corruption in the country.

Anna’s fight against corruption through a Jan Lokpal Bill would help the country towards its goal of good governance but to eliminate corruption totally and raise growth, the Government will have to bring in second-generation reforms.  This apart, Anna’s brand of peaceful agitation through non-violence can prove to be historical guidance for future generations in achieving their goals. It is time the Government finds the right mix and ensures good governance.   --- INFA

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