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My Experiment With Corruption

Prime Minister Manmohan Singh said he had heard about my idea on how to control corruption, but he had to say he did not agree with me on this

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My Experiment With Corruption
The cash-for-vote scandal, 2008
File - PTI Photo
My Experiment With Corruption
outlookindia.com
2016-03-07T19:28:51+0530
An Economist in the Real World: The Art of Policymaking in India
By Kaushik Basu
Viking | Pages: 256 | Rs. 599

How contentious the law can be, I learned by fire, when I was chief economic adviser in India. Corruption has been a long-standing problem in India that successive regimes and governments have battled or given the impression of battling and mostly failed. One can sense the despair in the classical master of statecraft, Kautilya, when in his magnum opus, Artha-shastra, written nearly three centuries before the Christian era, he observed: "Just as it is impossible to know when a fish moving in water is drinking it, so it is impossible to find out when government servants in charge of undertakings misappropriate money" (1992, 281).

Some two thousand three hundred years after those lines were penned the nation was being traumatized by one corruption scandal breaking after another. As briefly mentioned in chapter 2, Anna Hazare's call to eradicate corruption struck a chord and brought thousands out to protest. As some well-intentioned individuals in government looked at the vastness of the problem in despair, I spent a lot of time thinking about what we, sitting in the North Block, could do to curb this dreadful menace that inflicts harm on people and, in my view, damages economic development.1 A simple idea struck me about one particular kind of corruption, which I went on to call "harassment bribery," and how it could be reduced. I felt convinced that the idea was morally and theoretically well founded enough to at least merit debate and discussion.

Let me present the gist of this idea. In India ordinary citizens and, at times, even large corporations are asked to pay a bribe for something to which they have legal entitlement. I had called these "harassment bribes." Say a woman has filed her tax return properly and it turns out that the Income Tax Department owes her some money. It is not uncommon for a critical employee of the department to ask for some money before he releases the reimbursement. To give another example: a person has imported some cargo, done all the required paper work, and paid the requisite taxes; he is nevertheless asked to pay some money in cash before he can get all the papers that he needs to take the cargo out. These are examples of harassment bribes.

One advantage of getting a senior government job is that one is never asked to pay a harassment bribe. So it is genuinely easy for those high up in government to forget that the crime of bribery is ubiquitous. Plaintive calls for help from relatives and friends being harassed for bribes act as a reminder that all is well in the underworld and not all is well for the common citizen. This also raises a question: are these ordinary folks who pay bribes culpable given they are virtually compelled to do so?

According to India's main anti-bribery law, the Prevention of Corruption Act, 1988, bribe taking and bribe giving are equally wrong. In the event of conviction, both the taker (usually a public servant) and the giver are equally punishable. As section 12 of the law states, "Whoever abets any offence [pertaining to bribery], whether or not that offence is committed in consequence of the abetment, shall be punishable with imprisonment for a term which shall be not less than six months but which may extend up to five years and shall also be liable to fine." It may be added here that the giving of a bribe is treated under the Indian law as abetment to the crime of bribery, and so bribe giving is covered under this section.

I want to point out that there is, allegedly, an exception to the law on bribe giving in the form of section 24 of the Prevention of Corruption Act, 1988, which says: "Notwithstanding anything contained in any law for the time being in force, a statement made by a person in any proceeding against a public servant for an offence under sections 7 to 11 or under section 13 or section 15, that he offered or agreed to offer any gratification (other than legal remuneration) or any valuable thing to the public servant, shall not subject such person to a prosecution under section 12."

However, section 24 has a lot of ambiguity. In a 2008 case, Bhupinder Singh Patel v. CBI, 2008 (3) CCR 247 at p. 261 (Del): 2008 Cri LJ 4396, it was ruled that this exemption would apply only if the bribe giver could establish that the bribe was given unwillingly and in order to trap the public servant. The word "unwillingly" is so ambiguous that the use of this judgment as precedence is not easy. As a consequence, section 24 has effectively become a clause meant exclusively for those wanting to carry out a sting operation to trap a public servant in the act of bribe taking, and seeking protection from the law.2 Consequently, section 12, which suggests that bribe giving and taking should both be treated as equally punishable, has come to dominate the Indian anti-bribery legal system.

This, in the case of harassment bribes, seemed to me to be wrong. In situations where a civil servant asks for a bribe from a person who is legally entitled to a particular service, it is important to distinguish between the perpetrator of a crime and the victim. But over and above this moral position, there is an interesting strategic argument that one can put forward to distinguish between the giver and the taker.

Note that under the current law, once a bribe has been paid, the interests of the bribe giver and the taker become fully aligned. If this criminal act gets exposed, both will be in trouble. Hence, they tend to collude to keep the act of bribery hidden. And even if they do not actively collude, each has a level of comfort in the knowledge that it is not in the interest of the other to reveal any information. It is not surprising that while all Indians know of the widespread prevalence of bribery and, behind closed doors, people will tell you how they had to pay a bribe, this is seldom revealed in the courts and a vast majority of bribery incidents go unpunished.

It seemed to me that this could be changed by making the following simple amendment to the Prevention of Corruption Act. In all cases of this kind of bribery, declare the act of giving a bribe legal while continuing to hold the act of taking a bribe illegal. If need be, we could double up the punishment for taking a bribe, so that the total magnitude of punishment remains the same. Further, once the bribery has been proven, the bribe taker will be required to return the bribe to the giver.

Now think of a civil servant trying to take a bribe. He will know that, once he has taken the bribe, he can no longer rely on help from the giver in keeping this fact a secret. Unlike under the existing law, after the bribery, the interests of the giver and the taker are diametrically opposed to each other. Knowing that this will happen, the bribe taker will be much more hesitant to take the bribe in the first place. Hence, if the law were amended, as is being suggested here, the incidence of bribery would drop sharply.

The argument that I just spelled out is rooted in game theory. It is called a subgame perfect equilibrium and was an idea that was published by Reinhart Selten in 1975, and David Kreps and Robert Wilson in 1982, building on the fundamental work of the celebrated economist and subject of a popular biography and film, John Nash.3 Subgame perfection can be a complex idea in situations of complicated interaction between individuals over time, but in this case, its use is so commonsensical that one needs no prior training to understand its use.

The idea seemed sufficiently compelling and of practical value that I quickly wrote and put it up on the website of the Ministry of Finance as a working paper. There was a rancorous debate going on in India on corruption at that time. Much of the debate, while founded in genuine passion and concern, generated few practical ideas of what could be done. Most of the popular talk was of creating a layer of special bureaucracy to catch and punish corruption. Little thought was given to what David Hume recognized some 250 years ago—that with each such layer of bureaucracy, there would be a tendency for a new layer of corruption to arise. This was the fundamental question of who would police the policeman. Indeed, one factor behind the high incidence of corruption in India was the complex layers of laws and inspectorates that we had built up over time in order to curb corruption.

I felt pleased with the idea. I knew I was addressing only a segment of the problem—namely, corruption that took the form of harassment bribery—but this segment was not negligible by any means. If we could bring this down drastically through a small change in the law without adding to the size of the bureaucracy, that seemed to be worthwhile.

What I did not anticipate was the level of anger (and misreporting) that my note would generate. It began with small mentions of my paper in the newspapers, followed by lacerating editorials and op-eds.4 Some of them stemmed from the mistaken view that I was somehow condoning corruption and saying that bribery should be made legal. I may add that I myself would be upset if someone made such an argument (even though I must admit I could never quite follow what making bribery legal means). Soon there were some members of parliament (MPs) writing to various leaders in government protesting against the floating of this idea. Two MPs, members of the Communist Party of India, wrote letters to the prime minister and the finance minister, asking that action be taken against such an immoral idea on a government website and insisting that it be taken down. Then the television channels picked this up and there were some screaming matches debating the idea.

Some individuals including some prominent industrialists called me up to support this kind of an amendment to the law. Narayana Murthy, the founder of Infosys and one of the pivotal figures in India's takeoff in the information technology sector, publicly stated that it deserved serious consideration and was roundly subjected to criticism himself.5 I knew that, at least for the next two or three years, my idea was dead. No politician would want to be associated with it. Not openly. Yet, curiously, it revealed a side of Indian politics which gave me hope.

At the peak of this debate, when protest letters were sent to the finance minister and others and the political leaders had to write back and explain the government's position on this, I thought I would be asked to take the working paper down from the Ministry of Finance website. That did not happen. Moreover, no politician in the ruling party, not one, asked me either to relent or told me off for causing embarrassment to the government. On April 23, 2011, a Saturday evening, the prominent TV journalist Barkha Dutt phoned me requesting me to appear on her show We the People the following evening. Having an instinctive taste for such discussions but not knowing whether this would churn up the debate more or dampen it, I decided to do something which I rarely did—ask the finance minister or the prime minister whether I should risk stoking the fires by participat- ing in the debate. The finance minister was away in Vietnam so I phoned the prime minister at his residence. When he called me back, I told him I enjoyed these debates and, left to myself, I would love to explain my idea to the public, but since I had caused grief enough to the government, I was wondering whether or not I should go on the Barkha Dutt show.

This was the first time I was speaking to Prime Minister Singh on this subject. There was a moment's pause, and then the prime minister said that he had heard about my idea on how to control corruption, but he had to say he did not agree with me on this. Fearing that he had heard one of the many misstatements that were floating around, I explained briefly what my argument was. I doubt I would have succeeded in persuading him so quickly. But anyway, what he went on to say was very heartening to me. He said he was leaving the decision on whether or not to appear on this particular program to me, but since it was my job as chief economic adviser to bring ideas to the table, I should feel free to articulate my ideas in public and discuss them.

Eventually, I, on my own, decided not to appear on We the People, but I participated in many subsequent debates and felt strangely good about India. There are not too many developing countries, and not that many industrialized nations either, that would give this kind of space not just to the nation's writers, intellectuals, and journalists, but also to its professional and technical advisers to air new ideas that may be unpopular and perhaps not even in keeping with the government's own position, but are potentially useful in the long run. This strategy creates short-term turbulence, but by enriching the quality of a nation's public discourse it contributes to a more robust development.


1. For a widely cited survey of the connection between corruption and development, see Bardhan 1997.

2. This was clear from a ruling of the Delhi High Court in the Bharadwaj Media Private Limited v. State, 2008 146 DLT 108 (Del): 2008 (1) CCR 11: 2008 (2) Crimes 244.

3. Interestingly, it had been used in special cases even before the concept had been formally "discovered" (see, for instance, Dixit 1980).

4. The two most notable (and confused) ones in this genre were in The Hindu and The Telegraph.

5. The Economist ("A Novel Way to Combat Corruption: Who to Punish?" May 5, 2011) and La Monde ("Faut-il legaliser la corruption?" by Paul Seabright, May 24, 2011) would later publish supportive articles on this; and CNN International would devote a segment of its popular GPS program to this (May 16, 2011); see also Xingx- ing Li, "Bribery and the Limits of Game Theory: The Lessons from China," Financial Times, May 1, 2012. More recently, there have been some research-based extensions and evaluations of this argument: see Kenny, Klein, and Sztajerowska 2011; Gandhi, Pethe, and Tandel 2012; Songchoo and Suriya 2012; Spengler 2014; Borooah 2012; Sundell 2014; Abbink et al. 2014; Dufwenberg and Spagnolo 2014; Oak 2014; Basu, Basu, and Cordella 2014.

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