The Cost of Corruption in India

April 18, 2011Indiaby Liz Zuliani

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Anna Hazare is one of India's well-acclaimed social activists. The 73-year old fasting Gandhian was a former soldier in the Indian army.  Anna is well known and respected for salvaging a hopeless village ridden by drought, alcoholism and poverty. He inspired the state government to implement the ‘Model Village’ scheme as part of its official strategy.

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However while Anna Hazare’s supporters celebrate the victory of the people, we wonder; how did he prompt thousands of people to join his fight-through-fast and change the minds of local Indian government authorities against corruption?

Fighting for India’s brighter future – for the country and its people – Anna Hazare’s anti-corruption campaign is at the forefront of his movement for what he believes hinders India’s economic progress. Especially for its people in rural areas.

Dev Kar, a former International Monetary Fund economist said that the illegal money that consists of India’s underground economy drains out in foreign lands. According to him, India’s underground economy is believed to be 50 percent of the country’s GDP - US$640bn at the end of 2008.

Following Hazare’s campaign, demand for a strict Lokpal Bill in Haryana is gaining momentum as social activists call for action against corrupt officials and public representitives.

Renowned management guru Professor Jagdish Sheth along with co-author Rajendra Sisodia in his book Firms of Endearment coined the term ‘Conscious Capitalism’ – to show how companies who take care of multiple stakeholders outperform the S&P 500 index four times.

Looking at corruption scandals rocking India Inc., Sheth observes “If you do a cost analysis, let's say you want to corrupt a politician to do you a favour — then the cost of corruption is less profitable to companies. There are any number of examples from history that the corrupting way of business is very short-term. It is not long-lasting,”

However, Sheth sees a positive future for Indian companies. He predicts by 2025 India Inc. will transform into a global enterprises, not through exports but through large, global acquisitions of world-class companies with strong technical, manufacturing or branding assets.  

He also predicts that India will become the second largest consumer market, if not the largest, in many products and services – and expects India will partner with other countries in search of industrial, agricultural, energy and talent resources around the world.

But with India rocked by Radia tapes and corruption scandals, what will be the cost of corruption to these companies?

As an example, Sheth looked at how disgruntled employees and workplace violence costs companies $200 billion a year.

In a $14-trillion economy, $200 billion does not look that big. Till you do the numbers.

“Now we are trying to see how you can handle workers who are agitated, very angry, so that they do not become militant. We are going back to the Gandhian principles to do that. Interventions for drug assistance, alcohol.”

The real cost of corruption has yet to be calculated, but Sheth believes it’s only a matter of time before companies realize corruption is not a good means to achieve their ends.

Says Hazare, ``we have decided to develop centers to create awareness amongst people about government schemes and train activists to know the modus operandi of corruption in each sector. As the state government has decided to set up committees at almost every nodal point like state, district, tehsil, and village level with one member on such committee represented by our organisation. We have trained more than 400 volunteers to work on such committees.’’

According to Hazare “eradication of corruption are two sides of the same coin. If both are adopted, only then there will be an established welfare state.”

To find out more about Anna Hazare’s movement, visit his website.

Liz Zuliani

EconomyWatch