Context-

Honore de Balzac's adage, "Behind every great fortune there is a crime," while provocative, understates the systemic issue of income and wealth accumulation fueling broader criminal activity. Our analysis of the Gallup World Poll and CMIE data (2019-23) reveals a stark correlation between rising income inequality and corruption in India, particularly at the nexus of government and business.

Key Findings - 

• As we argue, based on an analysis of the Gallup World Poll (GWP) Survey for India (2019-23) and the Centre for Monitoring Indian Economy (CMIE)’s Consumer Pyramid Household Survey, income inequality breeds corruption in the intersection of government and business.  For example, in the approval of contracts by public officials of mega infrastructure projects (highways, bridges, ports) to be built by rich and influential private investors.
• Once rich, the greed for more wealth negates moral qualms in pursuing corrupt strategies. Indeed, wealth accumulation becomes easier too . For example, through share market manipulation, political lobbying to secure contracts for big infrastructure projects, and investments in off-shore funds.
• The period between 2014 and 2022 witnessed a dramatic escalation of wealth concentration in India, with the top 1% controlling over 40% of total wealth. This unprecedented inequality has fostered a climate where the pursuit of wealth often eclipses ethical considerations.
• Corruption has risen following globalisation as natural resources have become more valuable, and regulatory agencies licensing their allocation are more subservient to powerful business interests and corrupt public officials. Besides, success of the ‘Make in India’ scheme has been elusive so far as none of the macro-economic indicators such as manufacturing, FDI, exports, and employment have registered an increase. Worse, as argued in a Carnegie India essay (2023), hike in import tariffs and tax cuts have been distortionary.
• This means that there is a possibility of greater rent-seeking by rich and influential investors. Rent-seeking is defined as the use of resources to capture an unwarranted monetary gain from external elements, such as government/public agencies, be it directly or indirectly, without giving anything in return to them or society. An economic rent causes dissipation of resources that is potentially more serious than the waste associated with the rent itself. Groups struggling for the rents invest time and money in the transfer of wealth rather than in the creation of wealth.
• Since corruption in the intersection of government and business remained high between 2014 and 2022, it is not unlikely that rent-seeking persisted at a high level too. Without going into the merit of the allegations by Hindenburg of the involvement of the SEBI chair and her husband in the Adani Group off-shore fund, and the slowing of the SEBI probe, it may well be symptomatic of a larger and growing malaise.
• It find that income inequality was fuelled largely by speculative investments (such as mutual funds), while savings in FDs and post offices curbed it. Trust in the judiciary was driven by the conviction rate and moderated by its square, implying that trust rose but at a diminishing rate. We find that higher income inequality causes widespread corruption, while greater confidence in the judiciary curbs it.

Combating Corruption in India: A Multi-Pronged Approach

India has implemented several measures to enhance transparency and accountability in governance, thereby curbing corruption. These initiatives have been instrumental in empowering citizens and improving the efficiency of public services.  

• The Right to Information (RTI) Act of 2005 has empowered citizens to seek information from public authorities. By providing access to government data, the RTI has exposed numerous corruption scandals and fostered a culture of transparency. For instance, the 2011 exposé of the National Rural Health Mission (NRHM) scam in Uttar Pradesh is a prime example of the RTI's efficacy in combating corruption.  
• Digitization of government services has significantly reduced opportunities for corruption by minimizing human intervention. Initiatives like Digital India have promoted e-governance, digital literacy, and infrastructure development, leading to more efficient and transparent service delivery.  
• The Aadhaar card has played a crucial role in reducing corruption by establishing a unique identity for every Indian citizen. The Direct Benefit Transfer (DBT) scheme, linked to Aadhaar, has ensured that government subsidies reach the intended beneficiaries without leakages.  
• The Goods and Services Tax (GST) has simplified the taxation system and reduced the scope for corruption by introducing transparency and accountability in tax collection.  
• The Prevention of Money Laundering Act (PMLA) has been instrumental in combating corruption by preventing the laundering of ill-gotten gains.
• The Central Vigilance Commission (CVC) as India's anti-corruption watchdog has played a vital role in preventing corruption and promoting transparency in government departments.  

Conclusion

While the Budget missed the opportunity to tax the rich at a higher rate, greater transparency and accountability of regulatory agencies remains a chimera. Both a more competitive political system and private businesses are daunting challenges but their potential for a more prosperous India is hard to dispute. Higher income inequality causes more widespread corruption, while greater confidence in the judiciary curbs it.

Source- The Hindu