[Economy] High GDP and High Corruption: Cause or Consequence?

Economy, Economy: Miscellaneous & Outdated articles35 Comments


Not really an article, just some fodder/food for thought.

  1. High GDP= High Corruption= Bright Future!
  2. Land Grabbing = Universal phenomenon
  3. High GDP => High corruption
  4. The Incentive structure
  5. High level corruption
  6. High corruption => High GDP!

High GDP= High Corruption= Bright Future

Mark Twain coined a term “America’s Gilded Age”. It has been used to describe, roughly, the last four decades of the 19th century. During that time situation in America was as grim as India’s current political and economic situation.

  1. During that time, majority of American population was involved in agriculture and allied activities (just like Indian population right now)
  2. During that time, USA’s GDP growth rate was 7% per year (similar case in India right now.)
  3. And during that time, USA  too had high-level of political corruption and scandals. (Just like India)
  4. By the end of this Gilded Age, USA became an urban majority society And went on to become the superpower, supercop, judge, jury, executioner, leader, financer and  top innovator of the world.

So one can be optimistic that the situation in India today, is just normal and expected-sign of good things to come, just like the labor pain before a child delivery.

Land Grabbing = Universal phenomenon

  • Today, India has four times as many people as the US, but only a third as much land.
  • It means Land in India, is very scarce.
  • Therefore, India’s politicians and businessmen end up buying land wherever they can, however they can and then bribe get the government to convert its use from agricultural to commercial.
  • Such transformation of land-use raises the value of land by 10 to 20 times.

China and S.Korea

  • A roughly similar process of land-grabbing and political corruption is under way in a high-growth China.
  • But because of strict internet and media censorship, we don’t see/hear about anti-corruption protests (dharnaa-pradarshan) in Beijing, like we hear in Jantar Mantar of Delhi.
  • Similarly, during South Korea’s rapid transformation in the 1970s and ’80s it also faced the same situation like we are facing right now.

In short, the corruption problem is universal and not related with Indian morality or lack of it. Rather, high economic growth brings with it a set of virtues and vices. But How?

High GDP => High corruption

  • If GDP of a country is growing at an average of 8% per year then some sectors are likely to grow at 15-18 per cent. (service sector, telecom, mining, industries for example)
  • Rapid GDP growth makes overnight millionaires, even overnight billionaires, possible in those sectors.
  • So, if government regulations and permissions are required in such sectors, then a government-business nexus is very likely to emerge. (as it did, in 2G and coal mining)
  • Thus, high growth creates enormous opportunities for corruption.

Does it means High GDP growth itself is responsible for corruption? No, not the GDP but the incentive structure.

The Incentive structure

If Government of India makes a new policy that every Government Primary school teacher’s salary will be directly proportional to number of students passing from his class. Sounds good? Well think of the consequences.

  1. Now the teacher has incentive to personally look after every student and see that he/she is learning every lesson.
  2. Now the teacher has incentive to setup very easy question paper so that every student passes in the exam.
  3. Now the teacher has incentive to evaluate the answersheets in very liberal manner so that every student passes in the exam.
  4. Hell, now the teacher has incentive to leak the damn question paper one week before the actual exam or simply dictate  answers in the examhall!

Yes, there will be some good teachers, opting for option (a) and there will be some good students who will study seriously, irrespective of the cheap tricks used by their teacher to up the passing rate. But by and large, most teachers would opt for the option b, c or d.

Then Government makes excuse “Our policy is good but implementation is bad”, “we send money from Delhi but State Governments are not doing enough!”
But can a policy be good if it has not taken precautions to prevent bad things @implementation level, in States and Districts?

  • An Economy/country/society works because people respond to incentives.
  • Therefore job of the Government is to create laws and policies in such manner that good people have incentives to do good things and bad people have incentives not to do bad things.
  • If Raja and Kalmadi can walk out jail and walk into parliament again- Then something is wrong with this incentive structure.
  • At the same time, Society too has a role to play in it. If we keep attending and admiring the lavish wedding reception parties held by corrupt people -our neighbor and relatives, then we too are creating incentives for them to accept bribes to finance their expensive wedding.

Mr. Vijay Kharadi (IAS, Gujarat cadre), recently got married. Ofcourse, we’d expect this ought to be an expensive wedding ceremony.
But it wasn’t. He married in a simple mass-wedding ceremony.
His words, “Spending on extravagant weddings is a complete waste. I am a tribal, and I know my community lives on the fringes. We need to spend on health and education, not weddings. I want to set an example by getting married in the simplest way.

  • In 2011, Erode (TN) District Collector Mr.R. Anandakumar admitted his daughter in Government primary school. His decision has surprised many parents in the district, which has a number of well-known private schools.
  • Now The Collector will be making sure that Government schools are working nicely, they has sufficient funds, teachers and infrastructure. It will encourage more parents to admit their children in government schools and feel safe about their future.

Ofcourse the cynics can brush off both Vijay Kharadi and Anandakumar that “you cannot change the mindsets of thousands by doing such acts of symbolism.” But for them Andrew Jackson had said, “One man with courage makes a majority.”

  • In TV Debates, politicians often cite these one man with courage, as a good excuse to suggest that “by and large majority of our ministers and bureaucrats are honest, only a few bad fishes. Otherwise aal ij well”.
  • But “aal ij not well”, otherwise we wouldn’t be hearing about a new scam every week- India as a nation, has not done enough thinking about what kind of laws and policies are necessary to change the incentive structures, reducing temptations for bribes and making politics and bureaucracy much more cleaner.

High level corruption: Solutions?

  • the Use of technology like Aadhaar-UID will reduce lower-level corruption, @district, tehsil, PDS ration shops, but what about the upper-level, high level, “white collar” corruption?
  • How about a debate on the reform of election and party financing?
  • Can we really clean up the businessmen-politician nexus without reforming how political parties are funded in India during election campaigns?

Anyways upto this point, the argument was “corruption follows High GDP” .

Now how about the reverse Argument? High GDP follows corruption!

High corruption => High GDP!

  • The bribe money in India either goes to tax heavens abroad (Switzerland etc) or gets invested in gold and real-estate (buildings, farm houses, properties)
  • So, if bribe money does not go into tax heavens abroad, it creates employment in India and improves our GDP!
  • Around 2 crore people are employed directly or indirectly in real estate & construction sector = employment = more demand (because they’re employed so they’ll buy more stuff)= more production =higher GDP!
  • If the corrupt person hosts a lavish wedding reception party = more employment for cooks and catering wallas.
  • if he decides to spend vacation in any tourist resort of India = again GDP boosted.
Is/Can/should GDP alone be the criteria to measure the Aukaat of a Country? And Can “end-goal” justify the “means” used to achieve it?
If yes, then
  • How about cut down all trees, make furniture and export it to USA?
  • How about kill all tigers, sell their hides and bones to China and Thailand?
  • How about legalizing gambling and cricket betting?


  1. Ashutosh Varshney, http://www.indianexpress.com/news/growth-and-graft/1022031/0
  2. Navendu Mahodaya, http://rivr.sulekha.com/carry-on-tamasha-28_594824_blog?c=2263181
  3. http://www.indianexpress.com/news/gujarat-ias-officer-to-tie-knot-in-mass-wedding/940786
  4. http://www.thehindu.com/news/cities/Coimbatore/article2109347.ece

So far 35 Comments posted

  1. vijayravisrikanth

    corruption and gdp r closely linked. thats why GOI shared DTAA with Marishus and other tax hevens.
    the same s responsible for not leaking the known names of swiss black money holders’ list out. but it doesnt mean that growth is more dependent on corruption. it s possible despite no corruption. otherwise on longrun it leads to the creation of large amount of parallel economy with monopolies under corruptive criminals. then the govts can not tackle with both the criminals and economy. the first because of criminalization of politics(corruption on with high gdp with inefficient control encourages it). and the second as a result of ever growing size of parallel economy (money earned via corruption s to b spent on illegal purpose, it means it s self propagative. as govt’s regulating policies can control legal econy only(commonly). so though the corruption accelerates the growth of our gdp wr have to curb it with proper institutions like lokpal and others with comprehensive strategy.

    1. Mrunal

      …. on longrun it leads to the creation of large amount of parallel economy with monopolies under corrupt criminals……


      1. vijay ravi srikanth

        we know that many of the tax heavens do not have any natural resources to offer. they are not technologically advanced. they do not have any other special features. take the case of one of our highest fdi investors…. Mauritius…. it has nothing to offer(in economic terms) to us. but again its tax laws are not transparent with very less corporate taxes. it does not want to offer its tax information with any other country. so any one can easily expect the source of such a huge amounts of investment. our government is also aware that many of Indians are running many shell companies there. if our government does not want to allow any illegal activities it can easily take action on those indirect Indian investors. but instead of doing that it has shared Double TAX AVOIDANCE agreement. if every thing goes legally then that agreement with Mauritius will be a loss making one. but we have made that agreement.we have many international agreements of such kinds. take the case of black money account holders….though the names are known to the govt it couldn’t leak the names out despite the supreme court’s directions. and chidambaram had explained to the Court that it would impact adversely. in response to that event our Supreme Court has constituted a SIT on black money issue, midst heavy criticism. take the case of havala incident, only the mediator(hussain ali khan) is arrested but not even a single name of money holders are released. we have many more examples to mention…..

        all this secrecy is maintained just to not to let our GDP to fall any further a midst high amount of CAD and Fiscal deficit.(please note, along with these, we are aware of the nexus between politicians and business men). so what i conclude is even our Government is also accepting the practical implications of weeding out of the corruption as it knows that corruption is aiding the growth of our GDP. thats why sudden weeding out of corruption is more dangerous. but its phasing out is a mandatory for long term welfare of any society.

        1. Govardhan km

          Mr vijay , foremostly i must tq 4 above information and effective interaction. but 1 thing i want 2 differ with u dat as u said corruption is indirection helps in gdp hike . it may help but its neglegible .as u said bribed money has to be invested in ileegal markets only, it’s absolutely ri8 (reference gali janardhan (coal illegal mining)). so the amount got through the corruption and investment of those are distinguishable. more money vested in foreign banks and stocks. so we can not say corruption gonna help in gdp rise. so mi8 be 30 % of total corruption may not left indian boarders. ne way dont mind . i juz wanted 2 exhibit my point of view t. after all tnx for sharing ur views :)

  2. Abhishek Singh

    nice article sir, written in simple and easy manner …all the best sir :) .. may God bless u with lot of success :) ..

  3. Varadha

    Not one of his best finished articles, but it does have ample points to learn from, like the history of corruption in the US, and the comparison between India and China, Korea etc. Thank you.

    The last point from ” Let’s strech this argument further- ” wasn’t an appropriate example.

  4. karthik

    Sir can you please provide this link “[Economy] LIST of All Articles published by me to clear the basic concepts of Economy for any recruitment exam or interview « Mrunal” as I am unable to access it

  5. Divya Prakash

    Very good article. You might have mentioned social justice as an
    indicator of the well being of the society and country.

  6. IITBHU_Anand


    बुलंदशहर, जागरण संवाददाता। कानून व्यवस्था को लेकर निशाने पर रहने वाली यूपी पुलिस अब एक नए विवाद में फंसती नजर आ रही है। विभाग के ही डिप्टी एसपी रैंक के एक अधिकारी ने डीजीपी सहित तमाम अफसरों पर रिश्वत लेकर ट्रांसफर-पोस्टिंग करने का सनसनीखेज आरोप लगाया है।
    अलीगढ़ पीएसी में उप सेनानायक के पद पर तैनात इस पुलिस अधिकारी ने यहां तक कह डाला कि प्रदेश में आइपीएस अधिकारी सपा के बड़े नेताओं के पैर छूकर नौकरी कर रहे हैं। ये संगीन आरोप लगाने वाले पुलिस अधिकारी वीके शर्मा गत वर्ष दिसंबर में बुलंदशहर से पदोन्नत होकर सीओ फतेहगढ़ बनकर गए थे। बीते ग्यारह महीनों में वह फतेहगढ़ से पीएसी अलीगढ़, गाजीपुर, एटा से होते हुए इस समय अलीगढ़ पीएसी में हैं। नोएडा में आयोजित फार्मूला वन कार रेस की ड्यूटी के बाद सोमवार को सीओ वीके शर्मा बुलंदशहर में थे। मीडिया से बातचीत में शर्मा के दिल का गुबार बाहर आ गया।
    उन्होंने सवालिया लहजे में कहा कि जब सुप्रीम कोर्ट के नियमानुसार दो साल से पहले तबादले पर रोक है तो किस आधार पर उन्हें 11 महीने में पांच तबादले दिए गए। उनका तबादला बार-बार इसलिए किया गया, क्योंकि डीजीपी समेत तमाम आला पुलिस अधिकारी अच्छी पोस्टिंग के लिए उनसे रिश्वत चाहते हैं। हालांकि यह नहीं बताया कि कितनी रिश्वत मांगी।
    रिटायरमेंट के करीब पहुंच चुके शर्मा ने आरोप लगाया कि पुलिस महकमा भ्रष्टाचार में आकंठ डूबा है। बड़े-बड़े आइपीएस अफसर भी सपा नेताओं के पैर छूकर नौकरी कर रहे हैं। आरोपों की कड़ी में उन्होंने एसपी एटा अजय मोहन शर्मा को भी लपेटा। आरोप लगाया कि एटा में तैनाती के दौरान एसपी एटा ने दहेज हत्या जैसे संगीन मामले में आरोपियों के नाम निकालने के लिए उन पर दबाव डाला। मना किया तो प्रताड़ित किया गया। यहां तक कि मुझसे गाड़ी, गनर और फालोवर तक छीन लिए गए। इसकी शिकायत आइजी से लेकर डीजीपी तक से की, लेकिन कोई सुनवाई नहीं हुई। अलबत्ता मेरा ट्रांसफर जरूर कर दिया गया।

  7. manoj

    we keep blaming everyone except ourselves for the country’s ills.This is what keeping us down,we are our officials our rulers and our leaders,we can not shift blame to others while we are doing nothing against, it in that sense we are corrupt also.this is true for any society

  8. Ashok

    Sir one request..Please Put some question in the last of every artice if it is possible..i know it will take 5 min for you make it but will helps a lot so that We can think and discuss on that..I liked that you put some question on Fiscal Deficit Article.But i request Pls put question in every Article.love to read Your Article.Thanks

  9. Saiteja

    And thats why many intellectuals(dont ask me names, see some articles) are shouting that “India developement does not only depends high GDP, but also through optimum GDP + improving quality of lives (especially of BPLs)”( eg: proper MGNREGA).

  10. sameer

    the problem so called parallel economy or in Indian sense a corruption based economy does that it widens the gaps between haves and have nots.. true some jobs are created mostly in the unorganised sector.. but they are usuallly seasonal & those resources which belong to everyone in general & Nation in particular are cornered by few wealthy.. thus creating an Oligarchic State and Economy…. Mrunal sir, not only does India have similarities with psst in US but also present socio-economic conditions with high levels of Inflation and ever raising unemployment rater… If we are simply gona dilute state machinery in names of Liberalisation(Reforms) we will soon be doomed

  11. nikhil

    mrunal you are gifted with the art of making difficult things simpler,really enjoy ur articles..

    one question:petrol/diesel prices have a strong dependence on tax,instead of funding these bogus schemes can common people be directly benefitted by lowering tax..

  12. Abhimanyu

    The bribe money in India either goes to tax heavens abroad (Switzerland etc) or gets invested in gold and real-estate (buildings, farm houses, properties)

    Well this Black Money ( Money not accounted for) is the sole reason for Irrational prices of Real estate properties .
    & although the unaccounted money is invested or spent it is a major contributor towards general price rise or INFLATION.
    So it is not necessary that the people who are employed can actually be able to buy the food items whose prices had increased owing to this increased money supply .( More Black Money = More INFLATION= More mIsery).

    So More Corruption = More GDP …..I’m not finding this argument very convincing
    Although i’m sure that
    More Corruption= More Inflation= More Economic Disparities & social Injustice = More MISERY= More DISCONTENT= MORE Naxalism & riots = More state & central expenditure= More Fiscal Deficit= Less Growth= Less GDP= Less Jobs

    1. Occam

      Growth is not about economic disparities, social justice, misery or discontent among people. Growth is only about increased output. Wo kaise bhi ho! Growth does not take into account the inequality in the economy. So if billionaires become zillionaires and poor become poorer, we might still be growing.
      More corruption may lead to a higher growth in the form of increased investments. Inflation will take place, as it always does with higher growth (hence the growth-inflation dilemma for the RBI).
      Some economists argue that, existence of the parallel economy acted as a cushion for the country against the 2008 global crisis, since the corporates etc. used their hidden stashes.

  13. XY

    I like to put some of my argument………… In your comparison of India and USA, Korea or else with India projects vague figure as India is highly complex in diversity say culture, costume, etc….So corrupt politians will hardly think for other racial groups, high discrimination etc..and so it is doubtful that these politicians will spent it optimally means probably most of the corrupts will think why give? someone..if my own people are self sufficient(…Remember Drain of Wealth during British rule…even copied by politicians of India today)..so Black money creation or…money goes to saving…no product generation…low GDP growth… while in Country like US even if money is siphoned away it is likely to be utilised for the well being of the people because of racial closeness. while US becoming super power cannot be matched with India conditions as time factors and opportunity at those time….Thanks
    ….@Mrunal I’m little confuse with your stand…I think you wrote as it happen..very optimistic view…like it…But nice reading your article.

    1. Amruth

      HI XY, u r wrong i guess.. how abt US they got different races, ethinicity, native americans, whites, blacks and asians.. so how can you say that racial closeness… just think mate.. no offence just giving clearity… let me know if i am wrong

  14. pradeep

    The article is too good.. Very simple to understand common man… Thanks for the good work..:) God bless You

  15. ABC

    Hello Sir,

    I started reading your articles today, found really interesting, knowledgeable, simple.
    I want to know your thoughts on Marxist Philosophy of Economics and do you think that it is a failed philosophy. Or it is an alternate option at which most of them are not looking at.

  16. deepak n gowda

    sir your website too good ….can u provide articles about basic physical geography and public administration thinkers .it will help rural side students like me ….

  17. Pramod

    hi mrunal,
    l am new to your blog & i have a question in todays newspaper jaipal reddy has said that “anyone who holds oil min will be frustrated because india imports 75% of the oil and not even god can explain why and who is increasing oil prices when there is no disconnect between demand and supply”
    please help on this though i l know that when dollar becomes expensive oil pices go up but still i need a thorough details on this topic.

  18. Jazz & Liquor

    two comments from the original article(copy-paste)

    It is the other way round
    Reply | Forward
    Vivek | 26-Oct-2012

    Dear Varshney, I think you are putting the cart before the horse. It is the other way round. Corruption and loot provides a chance for greedy rapacious businessmen to grab resources and public funds and generate easy unproductive non-innovative income which results in fast growth. So public loot results in fast growth and not the other way round. But this is not the sort of growth which one should be aiming for in which enormous multi-generational wealth gets robbed in weeks and months. Accounting-wise on paper this shows up as huge income growth for the robber business barons but in actual non-accounting terms this leaves the public that much poorer.
    Reply | Forward
    Shankar | 26-Oct-2012

    Exactly. The problem with Varshney and such analysts is that they ignore everything except a numerical quantity – GDP growth. But this is just a statistic. What matters is how that growth is generated. In practice, India’s “growth” has been driven by expropriation, profiteering and corruption, and hence it is not surprising that it has not achieved any of the goals of poverty reduction etc. that Varshney holds out as its supposed necessary consequences. Such upside down analyses fill our media today.

  19. saurabh

    I agree that money which is earned by corrupt politician are either shifted to tax heavens or spent lavishly on real estate and luxury stuff. it will boost up the certain sectors but will create inequality in the economy where poor will be more pooreer and ric will be more richer.

  20. salman

    unable to digest that even the black money helps Indian GDP growth.
    anything which is not covered under the laws (company act,income tax act etc..)will be counted as black money and when this money comes into legal practices it again converted to white money so black money in no way boost any sector it is only waste of the proper utilization of resources. for instance if a minister or bureaucrat takes a bribe he will never pay tax over it so it is black money but once he invest this money in a real estate company which is following the Indian laws then that money will no more be a black money it is now be considered as a white money which is contributing in the Indian GDP.
    black money can never boost an economy the way white money can do

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