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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