5. • The degree of attention now paid to
corruption leads naturally to the question of
why.
• Two factors that had impact on corruption
in recent years are the growth of
international trade and business and the
economic changes that have taken place in
many countries and especially in the
economies in transition.
5
6. Those Economic changes are:
(1) a large increase in the level of public
spending;
(2) a large increase in the level of taxation
in many countries and
(3) a large increase in regulations and
controls on economic activities on the part
of governments.
6
7. DE INIT
F ION
World Bank defines Corruption as “It is
the abuse of public power for private
benefit.”
One definition that has the virtue of
simplicity is “the act by which ‘insiders’
profit at the expense of ‘outsiders’ ”.
7
8. • Corruption is the misuse of office for unofficial
ends. (Klitgaard, 1998).
• It covers fraud (theft through
misrepresentation), embezzlement
(misappropriation of corporate or public funds)
and bribery (payments made in order to gain
an advantage or to avoid a disadvantage).
8
9. Forms of corruption
Bribes: payments to public officials to persuade
them to do something (quicker, smoother or more
favorably).
Collusion: secret agreement between contractors
to increase profit margin
Fraud: falsification of records, invoices etc.
Extortion: use of coercion or threats. E.g. a
payment to secure / protect ongoing service – (cf.
collusive corruption where both sides benefit)
Favoritism/ Nepotism in allocation of public office
Embezzlement: misappropriation of corporate or 9
10. T E OF CORRUP ION
YP S T
Acts of corruption can be classified in different categories.
Corruption can be
Bureaucratic (or "petty") or political (or "grand"); for
example, corruption by the bureaucracy or by the political
leadership;
Cost-reducing (to the briber) or benefit enhancing;
Briber-initiated or bribee-initiated;
Coercive or collusive;
Centralized or decentralized;
Predictable or arbitrary; and
Involving cash payments or not.
10
11. Riley categorizes corruption under
three headings.
Incidental corruption:
This is small-scale. It involves junior public officials,
such as policemen or customs officers; it
produces profound public alienation; it has little
macro-economic cost, but it is often hard to curb.
CONTD… 11
12. Systematic corruption:
This is corruption that affects, for example, a
whole government department or parastatal. It
may divert trade and/or development. It can
only be dealt with by sustained reform.
Systemic corruption:
That is, kleptocracy or government by theft. In
this situation honesty becomes irrational, and
there is a huge developmental impact. 12
13. Iron Triangle Of Corruption
Source: own illustration based on Misas
13
2005: 90-1
15. Factors Contributing to Corruption:
Regulations and Authorizations:
• In many countries, and especially in developing
countries, the role of the state is often carried
out through the use of numerous rules or
regulations.
• The existence of these regulations and
authorizations gives a kind of monopoly power
to the officials who must authorize or inspect
the activities.
• Thus, they can use their public power to
extract bribes from those who need the 15
authorizations or permits.
16. Taxation:
• Taxes based on clear laws and not requiring
contacts between taxpayers and tax inspectors
are much less likely to lead to acts of
corruption.
• However, when the following situations arise,
corruption is likely to be a major problem in tax
and customs administrations.
• The laws are difficult to understand and can be
interpreted differently so that taxpayers need
assistance in complying with them.
• The wages of the tax administrators are low.16
17. • Acts of corruption on the part of the tax
administrators are ignored.
• The administrative procedures (e.g., the criteria
for the selection of tax- payers for audits) lack
transparency.
• Tax administrators have discretion over
important decisions, such as those related to
the provision of tax incentives, determination of
tax liabilities, selection of audits, litigations, and
so on. 17
18. Provision of goods and services at below market
prices:
• In most countries, the government engages in the
provision of goods, services, and resources at below-
market prices. Sometimes, because of limited supply,
rationing or queuing becomes unavoidable.
• Excess demand is created and decisions have to be
made to apportion the limited supply. These decisions
are often made by public employees.
• Those who want these goods (the users) would be
18
willing to pay a bribe to get access (or a higher
19. Quality of the Bureaucracy:
Absence of politically motivated hiring, patronage, and
nepotism, and clear rules on promotions and hiring, all
contribute to the quality of a bureaucracy.
Level of Public Sector W ages:
• Over the years many observers have speculated that
the wages paid to civil servants are important in
determining the degree of corruption.
• One can speculate that there may be corruption due to
greed and corruption due to need.
19
20. Trade off between wage level and
corruption
In Figure 1, CC' represents the trade-off between the level of corruption
and the level of wages..
Vito,
20
1998
21. Penalty Systems:
• The penalty imposed plays an important role in
determining the probability that criminal or illegal acts
would take place.
• Higher the penalty the less will be corruption.
Institutional Controls:
• Honest and effective supervisors, good auditing offices,
and clear rules on ethical behavior should be able to
discourage or discover corrupt activities.
• Supervisors should be able to monitor the activities of
their subordinates and they should themselves be held
accountable for acts of corruption in their offices that go
21
unpunished.
22. Transparency of Rules, Laws, and Processes:
• In many countries, the lack of transparency in rules,
laws, and processes creates a fertile ground for
corruption.
• Rules are often confusing, the documents specifying
them are not publicly available, and, at times, the rules
are changed without properly publicized
announcements.
Examples by the Leadership:
• A final contributing factor is the example provided by
the leadership. When the top political leaders do not
provide the right example, either because they engage
in acts of corruption or, as is more often the case,
because they condone such acts on the part of 22
23. Effects of Corruption
Growth, Productivity, and Investments:
• Corruption negatively affects productivity. An indicator for
productivity is the ratio of a country’s GDP to its capital
stock.
• Estimations by Lambsdorff (2003) suggest that an increase
in corruption in the Corruption Perception Index by one
point lowers productivity by 4% of GDP.
• Corruption deters investments. One of the reasons for this
is because the effects of corruption are comparable to a tax
on investments. Mauro (1997) finds that if a country
improves on the BI corruption index by 2 points, 23
investments increase by 4 %.
24. Foreign Direct Investments (FDI) are also negatively
affected. In particular FDI involving sophisticated
technology suffer from corruption because investors
fear for the leakage of technological know-how to
opportunistic and corrupt local partners.
According to Mauro(1995), a one-standard
deviation improvement in the corruption index is
associated with an increase in the investment rate
by 2.9 % of GDP, controlled for red tape.
24
25. Education, Health and
Environment:
• Corrupt governments and corrupt political systems are
likely to allocate more to military purposes and arms
procurement and less to education and health.
• It is simply easier to extract corrupt gains from such
type of deals as from labour intensive projects in
schooling or hospitals..
• Mauro (1998) finds a very strong negative correlation
between corruption and government expenditures on
education.
• Life expectancy is of course closely related to public
health policies, and as mentioned before, corruption is
likely to diminish government spending on health.
25
26. • Child mortality rates in countries with high levels of
corruption are about one-third higher than in countries
with low corruption.
• Infant mortality rates and the share of low-birth-weight
babies are almost twice as high. And again, the poor
are disproportionably hurt by corruption.
• Environmental quality also suffers from corruption, and
corruption undermines effectiveness of environmental
policies.
• Indeed, pollution increases due to a less effective
environmental regulation which can be circumvented 26
through bribes.
27. Inequality and Poverty:
• Even if rich and poor would be equally confronted with
corruption (which is unlikely) the impact on the
individual budget of the poor as percentage of their
income would be much higher.
• 40% of all countries in the CPI 2007 that are scoring
less than 3 points are rated by the World Bank as "low
income" countries.
27
28. Democracy and Good Governance:
• A core function of a democratic state is the control over
public funds through the public finance system.
• Corruption can undermine this system in three ways.
• First of all, in most countries a social and political
consensus has been established that private wealth is
subject to a redistributive system to guarantee the
provision of public goods and to prevent excessive
social inequality. Therefore, income is taxed. Through
bribing tax officials or through tax evasion, corrupt
practices undermine the ability of the state to tax private
28
wealth and revenues.
29. • Second, public expenditure is agreed on in the budget
usually approved and controlled by parliament, by
central audit authorities and by civil society and media.
But, as already mentioned, corruption distorts the
budget towards expenditures offering the highest
corrupt opportunities, undermining thereby the
democratically wished use of resources favouring
narrow interests over public interest.
• Finally, corruption may also directly seek to influence
the policy making and the rules and regulations of a
society, thereby undermining democratic processes as
well as the legitimacy of the state.
29
30. M ASURE E OF CORRUP ION:
E M NT T
• The estimation of the unreported income in India goes back
to 1956 when Lord Kaldor, as a part of the Wanchoo
Committee, tried to estimate it from the national income
estimates, by subtracting the income assessed for income
tax.
• Acharya (1985) used modified Tanzi's method to estimate
the unrecorded economy in India.
30
31. • Estimates suggest that the 'hidden economy' associated
with the industrial sector is a better indicator to measure
the rate of change in corruptions in India.
• Corruption, in terms of bribes and kickbacks, is primarily
generated by firms due to regulatory conditions. To
recover the cost of bribery, firms hide their production
output which then remains unrecorded in the official
statistics. Hence, by estimating the unrecorded income
of the industrial sector, it is possible to examine the
growth of corruption.
31
33. A set of estimates following Bhattacharyy’s method
33
34. • The measurement of corruption increases the difficulty
of conducting any empirical study on it.
• All the available data are perception indexes provided
by private firms and international organizations based
on surveys of country citizens or business analysts.
• These values are far from being objective measures.
• These corruption perception indexes could give even
more distort information since the main aim of
institutions providing corruption data is to give some
country risk assessments to international investors. 34
35. • According to this view, simple corruption perception
indexes, produced by individual sources, like BI
(Business International), ICRG (International
country Risk Guide), WB (World Bank index), WCR
(World Competitiveness Report), should be less
reliable than aggregate corruption indicators, like
CPI (Corruption perception Index by Transparency
International) and Graft (by Kaufmann, Kraay and
Loido-Zobaton, 1999) that, being based on
corruption data coming from different sources,
include perceptions by citizens as well as by risk
analysts and experts.
35
36. Transparency International
Transparency International (TI):
• A non-governmental organization that monitors and
publicizes corporate and political corruption in international
development.
• It publishes an annual Corruption Perceptions Index, a
comparative listing of corruption worldwide.
• The headquarters is located in Berlin, Germany but
operates through more than 70 national chapters.
• TI was founded in May 1993 through the initiative of Peter
Eigen, a former regional director for the World Bank. 36
37. • In 1995, TI developed the Corruption Perceptions Index
(CPI).
• The CPI ranked nations on the prevalence of corruption
within each country, based upon surveys of business
people. The CPI was subsequently published annually. It
was criticized for poor methodology and unfair treatment of
developing nations, while also being praised for highlighting
corruption and embarrassing governments. 37
38. CP scoring in the year 2010
I
CPI SCORE NUMBER OF COUNTRIES
CPI SCORE 0-4 115
CPI SORE 4-7 41
CPI SCORE 7-10 22
TOTAL 178
Source: http://www.economywatch.com/economic-statistics/economic-
indicators/Corruption_Perceptions_Index/
38
39. CPI scores and ranks of important countries
COUNTRY RANK SCORE
DENMARK 1 9.3
NEW ZEALAND 1 9.3
SINGAPORE 1 9.3
JAPAN 17 7.8
UNITED STATES 22 7.1
CHINA 78 3.5
INDIA 87 3.3
SRI LANKA 91 3.2
PAKISTHAN 143 2.3
AFGHANISTHAN 176 1.4
MYANMAR 176 1.4
SOMALIA 178 1.1
Source: http://www.economywatch.com/economic-statistics/economic- 39
indicators/Corruption_Perceptions_Index
40. World map showing CPI
Uzbekistan
Turkmenistan
Iraq
Afghanistan
Myanmar
Chad
Sudan
Angola
40
49. B ACK M
L ONEY
• $1.4 Trillion India’s Black Money Stashed in Swiss Banks.
• According to the data provided by the Swiss bank, India
has more black money than rest of the world combined.
India topping the list with almost $1500 Billion black money
in swiss banks, followed by Russia $470 Billion, UK $390
Billion, Ukraine $100 Billion and China with $96 Billion.
• An amount which is 13 times larger than the nations
foreign debt. Evert year this amount is increasing at a rapid
speed but the Indian government seem to be silent over
this matter from a very long time. The black money
accounts for 40% of GDP of India, if all the money comes49
50. T 10 Corruption Scams in India
op
1) OMC SCAM
The CBI claimed to have found incriminating documents at
their residences. It has seized over Rs 3 crore in cash
and 30 kg of gold from Janardhana Reddy’s house and
over Rs 1.5 crore in cash from Srinivas Reddy’s
residence
50
51. 2) 2G Spectrum Scam
• We have had a number of scams in India; but none bigger
than the scam involving the process of allocating unified
access service licenses.
• At the heart of this Rs.1.76-lakh crore worth of scam is the
former Telecom minister A Raja – who according to the
CAG, has evaded norms at every level as he carried out
the dubious 2G license awards in 2008 at a throw-away
price which were pegged at 2001 prices. 51
52. 3)Commonwealth Games Scam:
Another feather in the cap of Indian scandal list is
Commonwealth Games loot. Even before the long
awaited sporting bonanza could see the day of light, the
grand event was soaked in the allegations of corruption.
It is estimated that out of Rs. 70000 crores spent on the
Games, only half the said amount was spent on Indian
sportspersons.
52
53. 4) Telgi Scam
Abdul Karim Telgi had mastered the art of
forgery in printing duplicate stamp papers and
sold them to banks and other institutions. The
tentacles of the fake stamp and stamp paper case
had penetrated 12 states and was estimated at a
whooping Rs. 20000 crore plus. The Telgi clearly
had a lot of support from government departments
that were responsible for the production and sale
of high security stamps.
53
54. 5) Satyam Scam
The scam at Satyam Computer Services is something that
will shatter the peace and tranquillity of Indian investors and
shareholder community beyond repair. Satyam is the
biggest fraud in the corporate history to the tune of Rs.
14000 crore.
54
55. 6) Bofors Scam
The Bofors scandal is known as the hallmark of Indian
corruption. The Bofors scam was a major corruption
scandal in India in the 1980s; when the then PM Rajiv
Gandhi and several others including a powerful NRI family
named the Hindujas, were accused of receiving kickbacks
from Bofors AB for winning a bid to supply India’s 155 mm
field howitzer.
55
56. 7) The Fodder Scam
In this corruption scandal worth Rs.900 crore, an unholy
nexus was traced involved in fabrication of “vast herds of
fictitious livestock” for which fodder, medicine and animal
husbandry equipment was supposedly procured.
8) The Hawala Scandal:
The Hawala case to the tune of $18 million bribery
scandal, which came in the open in 1996, involved payments
allegedly received by country’s leading politicians through
hawala brokers.
56
57. 9) IPL Scam:
• The scandal already claimed the portfolios of two big-
wigs in the form of Shashi Tharoor and former IPL chief
Lalit Modi.
10) Harshad Mehta & Ketan Parekh Stock
Market Scam:
• There is no way that the investor community could
forget the unfortunate Rs. 4000 crores Harshad Mehtha
scam and over Rs. 1000 crore Ketan Parekh scam
which eroded the shareholders wealth in form of big
market jolt.
57
58. Cures for corruption in India
Effective and regular vigilance:
Strict action should be taken against lazy and corrupt
officials. Number of agencies and officials should be
increased. They should be properly trained in the latest
investigative skills. Government should supervise and
monitor these agencies. They should be quick and
active in their duties.
58
59. Strong and Effective leadership and
administration:
All those who are granted powers and authority by
people should fulfill their promises and pledge.
59
60. Transparency:
• Every process of selection, dealing and appointments of
different fields should be made transparent. People
should be made aware of reasons and merit for
selection of candidates, contracts, tenders, etc.
Media:
• Media has wider coverage and impact. It should
frequently expose the cases of corruption.
• It should educate people against corruption . Journalists
and editors should give complete information about
issues , so that public is visualized. 60
61. Legislation:
Government should frame strict and stringent anti-
corruption laws . Severe punishments and penalties
should be imposed on corrupt people. The justice and
proceedings should not be delayed. Immediate action
should be taken against corrupt people. The punishment
should act as a good lesson for other corrupt people.
61
62. Responsible citizen:
If an individual is corrupt, he cannot expect those in
power to be free from corruption. Hence, it is essential for
every citizen to perform his duties faithfully and to the
best of their abilities . Every citizen should strive hard to
eradicate corruption. People of India should report cases
of corruption to vigilance department immediately without
delay. They should follow up the cases of corruption.
Since, merely reporting the evil practice is not sufficient
for its complete eradication.
62
63. F T AGAINST CORRUP ION:
IGH T
JAN LOKPAL BILL:
The Jan Lokpal Bill (Citizen's ombudsman Bill) is a draft
anti-corruption bill drawn up by prominent civil society
activists seeking the appointment of a Jan Lokpal, an
independent body that would investigate corruption
cases, complete the investigation within a year and
envisages trial in the case getting over in the next one
year.
63
64. Drafted by Justice Santosh Hegde (former Supreme Court
Judge and former Lokayukta of Karnataka), Prashant
Bhushan (Supreme Court Lawyer) and Arvind Kejriwal (RTI
activist), the draft Bill envisages a system where a corrupt
person found guilty would go to jail within two years of the
complaint being made and his ill-gotten wealth being
confiscated. It also seeks power to the Jan Lokpal to 64
prosecute politicians and bureaucrats without government
65. Right to information act:
The Right to Information Act (2005) and equivalent
acts in the states, that require government officials to
furnish information requested by citizens or face
punitive action, computerization of services and various
central and state government acts that established
vigilance commissions have considerably reduced
corruption or at least have opened up avenues to
redress grievances. 65
66. Anti-corruption organizations
• A variety of organizations have been created in India to
actively fight against corrupt government and business
practices. Notable organizations include:
• 5th Pillar is most known for the creation of the zero rupee
note, a valueless note designed to be given to corrupt
officials when they request bribes.
• India Against Corruption is a movement created by a
citizens from a variety of professions and statuses to work
against corruption in India. It is currently headed by Anna
Hazare.
66
67. • Jaago Re! One Billion Votes is an organization originally
founded by Tata Tea and Janaagraha to increase youth
voter registration. They have since expanded their work
to include other social issues, including corruption.
• Association for Social Transparency, Rights And Action
(ASTRA) is an NGO focused on grass-roots work to
fight corruption in Karnataka.
• One organization, the Lok Satta Movement , has
transformed itself from a civil organization to a full-
fledged political party, the Lok Satta Party. 67
68. CONCLUSION
In any case, any serious strategy to attempt to reduce
corruption will need action on at least four fronts:
1. Honest and visible commitment by the leadership to the
fight against corruption, for which the leadership must show
zero tolerance;
2. Policy changes that reduce the demand for corruption by
scaling down regulations and other policies such as tax
incentives, and by making those that are retained as
transparent and as nondiscretionary as possible;
68
69. 3. Reducing the supply of corruption by increasing public
sector wages, increasing incentives toward honest
behavior, and instituting effective controls and penalties
on the public servants; and
4. Somehow solving the problem of the financing of
political parties.
Societies can do much to reduce the
intensity of corruption, but no single action will achieve
more than a limited improvement and some of the
necessary actions may require major changes in
existing policies.
69
