Reviving Growth: Delhi Economics Conclave
- Part 2 -

Prof E. Bijoykumar Singh *

The theme of Prof Avinash Dixit's lecture was 'corruption, supply side and demand side solutions'. The theme subtly showed how the finance ministry was concerned about corruption- more so after expose after expose showed how vulnerable our system was. Though the UPA government, through number, managed to wriggle itself out its credibility had suffered and it is our democracy that has to bear the cross.

No doubt the system is exceptional but the managers have failed us. Prof Dixit is a game theoretician. Ever since I had stumbled over a small write-up by Prof Dixit on lawlessness and economic development in an IMF bulletin, the application of game theory in governance continued to fascinate me. Therefore in a way I was like a fan eagerly waiting to listen to what the icon had to say about corruption.

Corruption is multidimensional and this should not be an excuse for not doing anything. We should look at aspects amenable to policy intervention. Corruption is a tax. It differs from the conventional tax because its rules are ambiguous which render investment plans very difficult. While the conventional tax generates revenue for the state; corruption tax generates black money for the beneficiaries.

The authority receives the money for not doing its duty and the giver, knowing fully that he would not be penalised, underperforms. He undermines the system. There is no explicit rate for corruption tax. No one knows the reservation level of corruption or the optimal level of corruption if at all we consider it inevitable for the society to get going.

It means we do not know the amount of money just sufficient to make the authority oblige us. So what could have been done with Rs 1000 is done with Rs 10,000- an excess of Rs 9000. This eats into the profit margin and inevitably leads to a compromise in quality of the final outcome. Both china and Indonesia have taken up many anti corruption measures. We should follow them.

Prof Kaushik Basu had floated the idea of harassment bribe, a type of bribe paid for getting one's documents from government offices. He talked about penalising the taker, not the giver. Currently both giving and taking of bribe are illegal. There is no incentive for the giver to expose it since he is equally liable for punishment.

Under the scheme proposed by Prof Basu, the giver gets back his money and also goes scot free. The fear of expose and subsequent punishment will make any person think several times before demanding any bribe. To this demand side solution Dixit added supply side solutions. Businessmen pay bribe to get through the maze of red taps which fortunately have diminished.

Large scale corruption invariably involves businessmen and politicians. The occasional involvement of the bureaucrats mostly turned out to be actions taken under pressure of politicians. Businessmen supply and politicians demand bribe. Thus the business class has a very significant role in supply side management of corruption. Corruption, according to Prof Dixit, should be monitored by the business community itself. No other external agency can handle this as efficiently as the business community.

Nobel laureate Eleanor Ostrom had talked about the efficiency of collective management of common property resource. Most of the time this was more effective because local information was better than information at the top level. Such management has stable composition and clear rules. The business community should say no to bribes and anyone indulging in it should be ostracised as penalty.

If such collective actions are seriously implemented at least a major component of supply of corruption will be reduced. If businessmen do not pay any bribe and take stringent measures against any errant member people who give bribes may be less inclined to actually give it.It is not clear how a corrupt businessman can be identified.

The process of corruption has become very complex and as before is always one step ahead of the detecting agencies. It will be terribly wrong if every success is attributed to corruption. India has good structured associations with great communication system.CII, one of the sponsors of this conclave, has a reputation of looking beyond business.

Thus such ideas can be discussed across the country. Collective action and private contract enforcement are equally important.

The lecture was followed by a panel discussion chaired by Prof Kaushik Basu on 'Reforms, Politics and growth.' The participants were Prof Arvind Panagariya, Sunil Kant Munjal and Prof. Sunil Khilnani. Prof Panagariya opined that administrative and policy decisions were the cause of the current crisis. India should move faster in implementing reforms.

He pointed out the slow fall in poverty, slow transition of workers out of agriculture and slow growth of manufacturing sector. He was critical of the labour market rigidities. He felt that government was bent on redistributive programmes whose sustainability depended on growth. One cannot keep dividing a cake which has stopped growing and become better off. He argued for taking a hard look to current labour laws. Mr Munjal whom the chairperson described as a very dynamic industrialist was optimism personified.

His thesis was the importance of connectivity in economic growth. He reminded us the impact of railways on economic growth in the USA. He felt that our reforms were very sensitive to politics. While 94% of labour was self employed both labour and agriculture were highly regulated. Prof. Khilnani talked about transparency and accountability in governance. Because the working age group in India would keep on rising till 2034 he felt that the global distribution of hope was highly unbalanced. In the closing plenary lecture chaired by Y.V. Reddy, who has been appointed recently the chairman of the XIVth Finance Commission Pravin J. Gordhan talked about the challenges of inclusive growth.

He opined that there was no guarantee that economic growth would reduce inequality. He raised five points: does inclusivity matter? How adequate are current concepts to understand the crisis? How much do we understand of the nexus among politics, business and citizens? The experience of BRICS has led to the development of a new type of thinking in line with the shift in growth centre. Inclusive growth has made from the margin to centre. Now we talk of inclusive sustainable growth.

The second day started with an interaction with Tharman Shanmugaratnam, Pravin Gordhan and Sarath Amunugama with Raghuram Rajan as the moderator. According to Gordhan after the resurgence of Asia it would be Africa's turn. The Dark Continent is beginning to see the light of the day. With the huge improvement in governance, opportunities for investment in infrastructure Africa can catch up. It survived the recession. South Africa is the most stable African country. Africa's future has begun.

The most memorable part of the interaction was the reaction from Sarath on Sri Lanka- China relationship. He said "China is our friend. India is our relative". Sri Lanka has the responsibility of maintaining the peace after decades of war with the LTTE. He said that his government had taken up many development schemes for the Tamil dominated area to ensure their integration into the Sri Lankan Society.

The war had taken a heavy toll of the physical and social infrastructure in this country. Restoration of this would be possible only when growth revives across the world. The millennium development goals have been largely Growth of small countries depend largely on international demand. In a recessionary environment international demand would be less predictable.

Regarding corruption in Singapore, Shanmugratnam admitted that Singapore was once notorious for corruption. Lee Kuan mobilised the people against corruption and kept none above the law. Every year very powerful people were tried for corruption and stringent punishment meted out to them despite their position in the society.

Today Singapore is one of the least corrupt countries in the world. The moral is anyone, however erratic his behaviour may be, can be taught to behave properly. He talked about three C's- cities, clusters and capabilities. Capabilities do not mean the capability of a few but rather the capability of the average worker. Traditional factor advantage was fluid and one has to look for new types of advantages such as soft advantages.

To be Contd ...