Corrupt states: Can they ever initiate real reforms?
The malaise called corruption is spreading really fast at the state level…R Vaidyanathan
The malaise called corruption is spreading really fast at the state level…R Vaidyanathan
There is a clamour for more pay to government employees. One of the arguments is that they are paid less than their private sector counterparts.
This is not true for the lower category of government employees since their emoluments are much higher than those in the private sector. In fact, in the private sector, particularly in small businesses, there are hundreds of thousands of employees slogging it out for under Rs10,000 of total emoluments even today.
In contrast, the government babus, even at the lowest level, get medical benefits and leave travel benefits, etc, which add up to a good pay packet. In the case of higher level babus, the huge mansions they get to live in and the paraphernalia of servants like gardeners and cooks that they get are not monetised in the benefit packet.
Another argument is that the pay hike will make them more honest and reduce corruption. This is laughable since the level of corruption has gone up phenomenally after the Fifth Pay Commission.
The state has become an extortionist organ with dacoity as the main principle. Sophisticated words like ‘rent seeking’, propounded by some economists, is euphemism for dacoity.
In India, the index of middle class misery can be measured by adding tax rate, inflation rate and corruption rate. The last one is not discussed in open fora by experts or businesspersons since they are worried about the next round. Of course, there is a conspiracy of silence among political leaders since they are the Gangotri of this malaise.
The state level politicians have become capricious and extortionist and it is becoming increasingly difficult for business to be carried out in the normal process, leave alone starting new businesses. The level of extortion has increased and seems to be increasing at an increasing rate.
Yet, while the growth story is talked about, this saga of extortion isn’t. A significant level of reforms has to be initiated at the state level and yet, there isn’t a whiff of discussion on them.
At the state level, the reforms are more important, particularly for different segments of the service sector like trade, transport, hotels & restaurants, construction, and other personal services.
Let us remember that the service sector’s share in our national income is around 60%. Non-corporate forms of organisations dominate many of these activities.
The regulations pertaining to the activities in which non-corporate sector dominates are in the realm of state governments. Some of these are commercial tax, road tax, entertainment tax, excise duty on liquor, urban land ceiling and regulations, shops and establishments Acts, laws governing educational institutions, money lending, stamp duties, food and adulteration Acts, municipalities/ water/ power/ drainage regulations, registrations/ contracts Act, etc. In all these areas, the state governments are reluctant to introduce reforms since each of them is a source of massive corrupt income.
The level of corruption is phenomenal at the state level and the raids conducted by Lokayuktha in Karnataka and the information on the amount of wealth accumulated by government employees are mind boggling. Recently, the chairman of the state Water Supply Board was raided and more than Rs10 crore was found in cash and deposits, etc, and the total including other assets like land, etc— it is suggested— may reach three-digit figures. Similar is the case regarding raids on the houses of some lower level employees in sales tax, etc. The amounts involved are very large, running into crores, and it is very unfortunate that these cases do not proceed beyond a point since the necessary permission to follow up is not easily given by the higher authorities.
We find that a phenomenal amount of money is extorted by the various organs of the state and to that extent it will be very difficult to expect them to initiate any action on the reforms front. There are Acts and regulations that create massive amounts of black money and are the fountainheads of corruption at lower levels. They destabilise small businesses and increase the cost of operations. Still, whenever we talk of reforms, we are only focused on the central level activities.
It is no secret that in many departments, like police, sales tax, liquor, excise, land registration, and road transport, etc, “critical” location postings need substantial payments to authorities. Needless to add, these bribe tax collections are done with the connivance and/or encouragement of the top political leaders who get a large share of this. Even in the educational field, the situation is alarming. In many states, there is a price for getting appointed as vice-chancellors and this amount is talked about in crores.
Any reformer should internalise the age-old dictum that “government is not a solution but a problem” and work on dismantling this beast.
Lesser taxes, combined with smaller government, will unleash the entrepreneurial capability of the citizens of this country.
But my forecast is that the reforms will flounder at the cutting edge of areas of interaction with ordinary citizens, since the dacoity at the state level is ferocious. The limit to reforms will soon be realised and the entire edifice will be in a state of coma. It will decelerate our growth rates and increase inflation since many state governments have stopped governing and have become a menace for the ordinary citizens. Unless we find a way to stop these regional dacoits roaming under the guise of local democratic representatives, the reform process can be given a decent burial. But, even for burying or burning a dead body, there is corruption in our rotten system.
The author is Professor of Finance, Indian Institute of Management-Bangalore, and can be contacted at vaidya@iimb.ernet.in. The views are personal and do not reflect those of his organisation.