From the Permit Raj to the Billionaire Raj: Corruption, Liberalization, and Income Inequality in India

For over a year, tens of thousands of Indian farmers camped on the highways of New Delhi in protest of three new agricultural laws heralded by Prime Minister Narendra Modi. Those laws proposed a national framework for liberalizing the country’s heavily-regulated agricultural markets, allowing farmers to sell their crop yields on the private market rather than selling at fixed prices in government-regulated wholesale markets. While Modi and other proponents of the laws argued that these regulated markets failed to improve farmers’ livelihoods and were rife with corruptionopponents feared that the laws would create an unregulated free market dominated by large, exploitative corporations. On September 5, the protests against the laws culminated in a mass rally of over half a million farmers. Two months later, Modi announced that he would be repealing the laws, a stunning public reversal that few had expected from the ordinarily unyielding Prime Minister. 

To put these most recent developments in a broader context, the dispute over the farm laws showcases a debate over liberalization and deregulation in India that has been raging for more than half a century. It is a story not only of competing visions for the country’s economy, but also of the deep interrelation between corruption and income inequality. As the agriculture fight demonstrates, liberalization has been offered as a mechanism to solve both problems. But a closer look at India’s experience with liberalization complicates this theory. Liberalization may have helped fuel the country’s precipitous economic rise, but it only further exacerbated income inequality while further entrenching the systems of corruption that favor the country’s wealthy elite. At best, unchecked liberalization in India has simply repackaged corruption in new forms; at worst, it has allowed corruption to flourish.

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Keep the Dogmatic Privatization Argument Out of Style

It used to be trendy to talk about privatization as the solution for corruption. The World Bank, for example, declared back in 1997 that “any reform that increases the competitiveness of the economy will reduce incentives for corrupt behavior. Thus policies that lower controls on foreign trade, remove entry barriers to private industry, and privatize state firms in a way that ensures competition will all support the fight [against corruption].” (See also here, here, and here.) Although this theory declined rapidly after its peak in the 1990s, anticorruption policy ideas, like fashion, seem to be cyclical. Even as the privatization dogma has become démodé in Western anticorruption circles, it has gained new life elsewhere. As “privatization as a solution to corruption” debates reemerge in India and the Philippines, it’s worth reexamining the flaws in such policy proposals that made them fall out of favor twenty years ago.

The logic behind the idea that privatization inherently(or at least usually)decreases corruption is the notion that private shareholders are more interested than government bureaucrats in the efficient usage of whatever resources they control, and are therefore more likely to crack down on corruption. Relatedly, competition in the private market should favor those entities that can provide a service most efficiently—and if graft is inefficient, as many believe, market competition should drive corruption down. On top of this, private organizations also reduce corruption by offering more competitive wages, which means that employees aren’t forced to turn to corrupt means to supplement their incomes.

That’s the theory. The problem is that it isn’t supported by empirical evidence. Starting in the early 2000s and continuing well into the present, scholarship examining the aftermath of the privatization wave of the 1990s has repeatedly found that privatization has been largely unhelpful, and in some cases outright detrimental, to efforts to bring corruption under control (see here, here, here, here, here and here, to cite but a few sources). Why is this? Three main problems stand out:

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New Podcast Episode, Featuring Fernanda Odilla and Anwesha Chakraborty

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this week’s episode, my colleague Nils Köbis interviews Fernanda Odilla and Anwesha Chakraborty, two researchers studying how technology can be used to assist bottom-up anticorruption efforts–particularly, though not exclusively, in Brazil and India. The interview covers a range of initiatives in this category, discussing their strengths, limitations, and future possibilities. You can also find both this episode and an archive of prior episodes at the following locations: KickBack is a collaborative effort between GAB and the ICRN. If you like it, please subscribe/follow, and tell all your friends! And if you have suggestions for voices you’d like to hear on the podcast, just send me a message and let me know.

Why Paying the Media to Uncover Corruption Would Work in India

Jennifer Kline’s recent post on this blog proposed a novel way to support and encourage investigative journalism that exposes corruption: When such exposés result in legal actions that impose substantial monetary penalties on wrongdoers, the responsible media outlet should receive a percentage of the penalty as a reward—comparable to how some countries have programs that pay whistleblowers a percentage of any monetary recoveries that result from the original information that the whistleblowers supplied. While Jennifer’s discussion of this idea was fairly general, and seemed to have in mind implementation in countries like the United States, her proposal may be especially suitable for a country like India. 

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Corruption at the Heart of India’s Coronavirus Crisis? Prime Minister Modi Must Answer for the PM Cares Fund

India’s unfathomable Covid tragedy has left the country gasping for breath, and no oxygen can be found. Hospitals are overrun, and are often unable to help even those lucky enough to be admitted. Desperate relatives are turning to social media and the black market for help, as beleaguered crematoriums shift from unprecedented 24/7 hours to the horrors of mass cremation to keep up with demand. In the midst of this appalling tragedy looms the question: Why was the government so unprepared? And, more specifically, whatever happened to the billions of dollars raised last year through the Prime Minister’s Citizen Assistance and Relief in Emergency Situations (known as the “PM Cares Fund”)? 

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India’s Agriculture Reform Bills May Not Be Perfect, But They Can Help Fight Rampant Corruption

India’s farmers are up in arms, and have been for several months. In the midst of a cold Delhi winter, tens of thousands are braving tear gas, batons, and water cannons to protest a set of three new agricultural bills passed by the Modi government late last year. The government promises that these bills will bring about much needed reform in India’s agricultural sector, eliminating corruption in the state-run system and increasing the payout to farmers. Unfortunately, in its usual fashion, the Modi government opted to set aside federalist principles and run roughshod over democracy in introducing the reforms, contributing to the barrage of protests it now faces. And farmers have good reason to complain: the reforms signal an eventual, although not immediate, end to the government’s price floors (the “minimum support price” or MSP) for select crops. While India’s MSP system needs reform, the new bills offer insufficient protections and oversight, thus potentially enabling big business and middlemen, working with corrupt officials, to drive prices so low as to make small-scale farming impossible.

Despite these genuine and serious problems, the main reforms at the heart of these bills would do a lot of good—not least because these reforms would make major strides in addressing corruption as it exists now. And while the Modi government’s high-handed rollout of the bills has already done a great deal of damage, in terms of substance, a few key modifications to the bills could address the most serious concerns about the corrupt exploitation of farmers that the bill might otherwise foster. 

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Fast-Tracking Justice: India’s New(ish) Strategy to Curb Corruption

How do you deal with the problem of more than 6,000 corruption cases and nearly 5,000 criminal cases pending against politicians, some dating back almost 40 years? The answer, according to India’s Supreme Court: put a one-year time limit on cases involving politicians.

This decision, which was issued this past September in a “public interest litigation” case, seeks to increase public confidence in the judicial process and to make the legal system more effective in addressing India’s pervasive political corruption. Corrupt politicians in India are typically able to slow down legitimate prosecutions, for example by exploiting India’s complex court filing procedures, leading the cases to drag on for years or even decades. This delay increases the chances that key evidence will be lost or obscured—a process that corrupt defendants can and do help along by bribing, threatening, or even killing witnesses. By preventing cases from ending in conviction, corrupt politicians have created a de facto culture of impunity. The problem is particularly acute in the current parliament, where 43% of new members elected in 2019 had pending criminal charges. The Supreme Court’s order seeks to address this and other problems.

This isn’t the first time that the Supreme Court has ordered fast-tracking. The Supreme Court previously called for time-bound trials against politicians back in 2011, during the tenure of the corruption-riddled Congress Party, yet the case backlog remained. There is reason to believe, though, that this time is different. The current ruling Bharatiya Janata Party (BJP) swept into power in part by making anticorruption efforts a priority, and there are signs that the BJP’s general commitment to anticorruption may be having a meaningful impact in the context of the one-year order. Following the Supreme Court’s ruling, the highest courts in (most) states submitted action plans for dispatching cases, and India’s Solicitor General said that he is “100% serious” about completing trials within a year. Despite certain serious challenges to effective implementation of this new fast-tracking program, India’s renewed commitment to moving the wheels of justice more quickly could prove powerful in holding corrupt politicians accountable and restoring public confidence in the judiciary.

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Unholy Alliance: How and Why India’s Politicians Protect India’s Corrupt Godmen

In my last post, I explained how loopholes in India’s legal system have enabled self-proclaimed “godmen” to amass fortunes by facilitating money laundering. But these corrupt godmen could not build their illicit empires without protection from politicians. After all, the government could crack down on godmen’s activities by changing the laws, or even by ensuring adequate enforcement of the flawed laws that currently exist. The government has not done so in part because of a corrupt relationship between godmen and politicians. The politicians provide the godmen with political favors, special privileges (including sweetheart deals for the godmen’s business ventures), patronage appointments, and, perhaps most importantly, the preservation of the system of legal loopholes and minimal oversight that enables the godmen to amass their fortunes. In return, godmen provide politicians with a number of services. These services include the same money laundering services that godmen provide to businessmen. But the godmen also provide politicians with three other services in exchange for the politicians’ complicity.

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Godmen or Conmen? How India’s Religious Trust Laws Facilitate Money Laundering Empires

In the past two decades, India has witnessed the rise of so-called “godmen” (and “godwomen”), charismatic religious leaders who have amassed enormous fortunes. To take just a few of the most eye-popping examples: when the godman Sathya Sai Baba died in 2011, his holdings were valued at more than $9 billion. Another godman, Asaram Bapu, has a trust with an annual turnover of $49 million—which may seem like a lot, but pales in comparison to the over $1.6 billion in annual revenue earned by a company called Patanjali, controlled by yet another godman, Baba Ramdev. It would not be hard to supply many other examples. The godmen and their supporters will tell you that these empires are built on a combination of legitimate contributions and business savvy, and that the funds are used to support spiritual and charitable activities. But in fact there is ample evidence that the fortunes of these supposedly religious figures are tainted by extensive corruptiontax evasion, and money laundering.

One of the most common functions that godmen perform in the illicit economy is the conversion of so-called “black money” (unaccounted off-book money, often from illegal sources) into “white money” (or goods or services), in exchange for a hefty fee. Godmen are able to get away with this due to unfortunate features of India’s religious trust laws, which are opaque and riddled with loopholes, and leave religious trusts largely unchecked and unsupervised. Here’s how some of the godmen’s illicit schemes work:

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An Anticorruption Success Story: India’s Aam Aadmi Party Has Made Delhi Politics Much Cleaner

In 2011, India witnessed the largest anticorruption uprising in its history, as hundreds of thousands of people mobilized to protest against entrenched corruption and to push for the passage of national anticorruption legislation that had been stuck in parliament for decades. The movement failed to achieve that objective, but out of its ashes was born a new political party, the Aam Aadmi Party (AAP). The AAP, founded in 2013, made anticorruption its main focus, choosing as its symbol a broom to represent its goal of cleaning up Indian government. The AAP achieved its first major victory in 2015, when it won a landslide victory in the state elections in Delhi, India’s capital city. Many inside and outside of India naturally wondered: Would the AAP achieve its goals? Could it effectively govern a city of 19 million people, and succeed in curtailing entrenched corruption? After all, the challenges are enormous, and the international track record of anticorruption parties is rather mixed.

The AAP’s journey wasn’t smooth, and its first few months in office were marked by significant infighting and a general perception of dysfunction. But the AAP managed to turn things around, and in the February 2020 elections, the AAP won handily, gaining a decisive majority for the next five years. The AAP’s success is partly due to its popular policies on things like increasing spending on education and reducing the cost of electricity and water. But the AAP also succeeded in the polls because it followed through on its anticorruption agenda. Although it’s always hard to gauge the success of anticorruption efforts, there are two major pieces of evidence that indicate that the AAP really has taken major steps to clean up politics: 

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