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Uncompetitive Economy:WHO PAYS FOR EFFICIENCY & CORRUPTION?, by Dr. Vinod Mehta,15 May 2008 Print E-mail

Economic Highlights

New Delhi, 15 May 2008    

Uncompetitive Economy

WHO PAYS FOR EFFICIENCY & CORRUPTION?

By Dr. Vinod Mehta

(Former Director, Research, ICSSR)

As the economists say, nothing comes free in this world.  One has to pay for it.  But when a consumer pays for something he or she gets in return something tangible like bread or butter or intangible like the services of a lawyer or a doctor.  This is the positive aspect.  

There is also a negative aspect to costs in the sense that a consumer gets nothing tangible or intangible in return but increased cost.  This negative aspect of cost is reflected in higher prices, higher taxes etc., which in turn are nothing but costs of inefficiency and corruption at various levels inside and outside the government, within the organizations as also within the system itself. 

So far, no systematic study has been done to quantify the costs the individual or for that matter the country as a whole pays for the inefficiency and corruption.  However, one can bet that if any such study were to be done based on an appropriate methodology, the costs of inefficiency and corruption would run into thousands of crores of rupees every year. 

Let us take steel for instance.  India is rich in iron ore and many countries especially Japan buys large quantities of iron ore from India to turn it into steel and then make products like car, tractors etc. out of them.  It pays the freight charges for importing Indian iron ore as also pays relatively much higher wages to its steel workers, but still Japan is able to sell steel at a relatively competitive price than India.  Why is it so? 

In fact, public sector steel units are over-manned--  where one worker can do the job there are three or four employed.  The Indian labour laws are such that it becomes very difficult to lay off an inefficient worker or to re-deploy him elsewhere.  Those who are familiar with the recruitment practices of workers and employees for public sector undertakings (PSUs) would know that most of its workers and employees are recruited not on the basis of their skills or qualifications but on recommendations of politicians. 

Similarly, the top positions are also filled not on the basis of the qualification and the expertise of the person concerned, but on some other considerations like the political propinquity of the concerned person or bureaucratic lobby etc. 

The result is higher administered prices and higher taxes.  In a competitive environment most of these PSUs would have been closed down by now or taken over by healthier units. Since this is not possible in the existing circumstances, therefore, to keep the steel mills running or for that matter any PSU running, the government raises the prices to cover up a part of its losses, increases taxes to cover another part of the costs and raises the countervailing duty on imported steel to protect the steel industry. 

These relatively higher prices of steel and higher taxes are in fact, the costs of inefficiency, which the Indian consumer as well the Indian nation as a whole is forced to pay. (The government at the moment is asking the steel manufacturers to keep the prices down to help it tackle current level of inflation. It does not affect the larger argument that the steel prices are still administered to a very large extent).

In a chain reaction, with the price of steel being high, the cost of construction becomes high for the consumer, the cost of motor vehicle is high and we are unable to sell our steel goods abroad. So as a nation we also lose on exports. 

This is true of many of our industries. In the airlines business, we employ about five to 10 persons on a job, which is normally handled by just one person abroad.  In the hotel industry too, we employ more people than what are actually required.  This is also true of government employment.   

It needs to be noted that this was the state of affairs in the erstwhile USSR and for this reason its industry was totally inefficient and uncompetitive in the world market. Even today, 18 years after the breakdown of the USSR and the introduction of the market economy, the Russian industry is still uncompetitive. It is true that over- manning provides employment to more people, but in the long run it turns those surplus people into parasites. The over-manning of business and industry only signifies a stagnant economy--an economy which is not growing. 

A growing economy would generate more employment, which would be more productive.  This is what is lacking in this country. While no new jobs are being created, more and more people are being employed on same jobs.  All our attempts in the past, to raise the level of investment either through the domestic or foreign investment route have not succeeded.

Likewise, there is a cost to be paid for corruption, which is again reflected in higher prices and higher taxation. Over the years, corruption has entered our body politic to the extent that it has become somewhat a second nature with a majority of our people.  We seldom pause to think that this personal gain can have bad effects on the economy.

Take the case of electricity.  It has become normal practice to steal electricity in connivance with the electricity board officials; an employee gets monetary benefit, while the electric distribution unit does not recover the cost of its operations.  In many cases the bills remain unpaid for months together. Once the State Electricity Board runs into losses the situation is retrieved only by either raising the electricity charges or other taxes and this cycle carries on for years together.  Electricity charges have been raised umpteen times, but units never come out of losses! 

In fact, corruption is visible in almost every deal.  If somebody wants his tender to be accepted he has to pay a bribe.  The loan cannot be raised from a bank without greasing the palm of the concerned officer. You cannot get your child admitted in a particular school or a course without paying some kind of consideration, money euphemistically called ‘donation’ or ‘capitation fee’.  The inconvenient files can be made to disappear from offices by paying a bribe.  The engineers will not pass the bills of the contractors unless they pay them a bribe. It is so much so that the contractors now keep the necessary margin for a bribe while submitting their tenders. 

All those who have paid bribes and all the organizations which have lost money due to bribes automatically will resort to other means to recover their monies.  Those who have paid bribes would recover them by taking bribes or by doing other illegal acts like concealing their income etc. Organizations will jack up the prices of their products while the government would raise the administered prices as well as taxes.

The country must get out of this vicious circle of inefficiency and corruption at the earliest.  It is for the people to understand this vicious circle and come out openly against this inefficiency and corruption. As the citizens should ask political leaders what they have done in these past five decades to root out corruption and improve the efficiency in the country!--INFA    

 (Copyright, India News and Feature Alliance)

 

 

 

 

           

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