Institutional Flaws and Corruption Incentives in India

India has achieved a respectable rate of economic growth in an environment that is quite permissive of corrupt practices to the extent that acts of corruption, if sufficiently clever, are not scorned but praised. Despite the coexistence of corruption and unprecedented economic growth we argue that there is unrealised potential for further growth that is held back by the institutions of administration and associated corruption. With growth as substantial as it has been there is less pressure on those at the top to restrain corruption. There is still significant room for the Indian economy to accelerate its growth through steps to reduce corruption particularly as it impacts businesses and individuals in their day-to-day economic pursuits. A simple framework is sketched to describe the transactions that lead to grand, systemic and petty or retail corruption. The focus of this paper is on the institutions of administration that foster corruption at all levels and the consequences of petty corruption on the poor, particularly in urban areas. Our argument is that it is difficult for India to achieve its economic potential when a large portion of the population cannot mobilise what capital it possesses and continually finds interactions with authority met with requests for bribes and other forms of harassment. However, actual and perceived corruption in a vigorous democracy like India is also an integral part of the political process. Accusations of illegal behaviour are often a routine part of the election process and campaign finance.