Shri Kaushik Basu, Chief Economic Adviser (CEA) to the Government Of India (GOI) has authored a paper titled “Why, for a class of bribes, the act of Giving a Bribe should be Treated as Legal”and put it in public domain inviting comments and feedback. Whatever the disagreements with his analysis and prescriptions, one must recognize Basu’s efforts, which has brought focus on the structural issues of bribery when the nation is focusing solely on a handful of high profile cases and the associated political fallout. In this post I would first discuss the proposals and associated issues relating to Basu’s proposals and further deal with the criticism of this proposal that appeared in the two leading dailies of India.

The paper divides the bribes into two categories, one harassment bribes and the other non-harassement bribes and advocates for decriminalising the act of bribe giving for the first category of bribes. Harassment bribes are deemed to be those that people give to obtain what they are legally entitled to. By following the suggested strategy, Basu argues, would result in a sharp decline in the insidence of bribery. Basu is categorical in making the distinction between post-retrospective pardons and an upfront legalising of bribe giving, which is what he argues for. He claims that this move would place the interests of bribe-giver and the bribe-taker orthogonal to each other and hence incentivise the bribe-giver to squeal. Finally, his clinching point is that, this very fear of facing chrages at the hands of bribe-giver would deter the officials from taking bribes and thereby resulting in the fall of incidences of bribery.

The main problem with Basu’s analysis is that it is too simplistic and more importantly it simply does not ask the right questions. He is also completely focussed on solving the problem from the wrong end, i.e the citizens and hence ends up placing too much burden on their shoulders. Examine the following assertion from the paper,

Under the new law, when a person gives a bribe, she will try to keep evidence of the act of bribery—a secret photo or jotting of the numbers on the currency notes handed over and so on—so that immediately after the bribery she can turn informer and get the bribe taker caught

He calls his idea a radical idea but he still relies exclusively on the traditional and over-stretched redressal mechanisms, i.e, police and courts. He expects the citizens burdened under the inefficient and corrupt offices of the state to turn into activists and conduct mini-sting operations everytime they enter a government office. Then to make the proposal more appealing he argues that the very act of stinging won’t be necessary because the official would be scared to ask for a bribe. This clearly suggests that Basu himself seems to be less than convinced about the sustainability of his novel idea. It also fails to strike as a convincing argument on many grounds. Firstly, the entrenched nature of our officials, especially corrupt officials, is completely underestimated. A person who sells vegetables on the streets or someone running a transport company has to deal with the brotherhood-of-officials on a daily basis. Secondly, even from a simple cost-benefit standpoint for an individual or a society this is an inefficient allocation of energy and time. What I fear about this proposal is that it would place a gun with no bullets in the hands of citizens and expect them to fight their own battle. With this proposal as a law we would have a bizzare situation where the system would first deny the service and dare you to proececute them for that. One more step close to becoming a litiguous society.

Sure there might be some public spirited, activist group with a stated objective that might employ this law to expose or even extort money from the corrupt officials. The timing of this proposal is also very crucial, this is the time when the whole nation has demonstrated that they want the malise of corruption eradicated from the society. There is a vast amount of latent energy in the public that can be mobilized and this has to be used contructively to achieve a meaningful forward movement. Hence this is the time to ask fundamental questions and ask for a re-engineering of the system and extract assurances to that end. No amount of tinkering will help us overcome the problem. So what to do, look no further, Basu himslef, in this very paper mentions as a foot-note that we need to make procedures rules based and minimize the interaction between citizens and public servants and use e-technology. These are the starting points based on which best practices must be developed and emulated across departments.Fortunately many departments for example the Department of Income Tax have been following this for many years and have been widely appreciated.

Now as some of you might have read this proposal has been criticized by P.Sainath of Hindu and by Jean Dreze in the Indian Express. Sainath questions the moral legitimacy of this proposal and says that the focus must be on the government for creating a situation of scarcity. Totally acceptable, but he locates the source of corruption in the existing structures of power and inequity. Let us see for ourselves, New Zealand which came out looking better than the rest in the Transparency International’s survey in 2009 has a Gini index of 36.2 and India with a Gini index of 36.8 was ranked 84th. All I am saying is that corruption must not become a bogie for people to perpetuate and spread their other socio-political beliefs. He criticizes Basu and his economics and then claims that GOI has given $103 billion dollars in write-offs to corporates. To an unsuspecting reader, whose judgement might be clouded with the 2G saga this itself might appear as a scam, that’s the way he “dolls” it up. Go to the source, Economic Survey Of India : chapter 3. Here item number 3.20 says that the tax foregone under the exemptions to corporate tax as 79,554 crore. Wait, read on, tax foregone on account of exemptions under personal income tax is 36,186 crore with deduction under section 80 C included. So we now understand that this is a loss to promote industries in certain sectors and areas of India, just like investment in Insurance and real estate were promoted by GOI. Jean Dreze provides an interesting analysis by following a game theory model, which is interesting. Nothing majorly hazardous here, but being a NAC economist he seems to be fighting his battle of ideas with a PMO economist here along expected lines.

So in conclusion, I would like to say that Shri Kaushik Basu’s paper even though attempts to fight corruption is defestist in it’s tone to begin with and fails to offer any workable framework for the way forwad. What other reactions come in to Shri Basu’s idea and what course of action is adopted remains to be seen. But meanwhile please beware of blah !!

The following two tabs change content below.

Manohar Seetharam

Latest posts by Manohar Seetharam (see all)