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Photo Credit: Avaaz

Since introducing market-based economic reforms in 1991, India has become one of the fastest-growing economies in the world; to date is the world’s most populous democracy and the sixth largest economy. In fact, according to projections, India is well poised to become the third-largest economy in the world by 2030, surpassing Japan, Germany, Britain, and France. On the surface, India’s upward trajectory appears unstoppable however, a closer look at the inner workings of the Indian economic system shows that one major obstacle stands in India’s path: systemic corruption.

According to a recent survey by Transparency International (TI), India has the highest bribery rate among the 16 Asia Pacific countries surveyed. Corruption is particularly prevalent in the Indian public sector, where nearly seven in ten people who accessed public services in India had to pay a bribe. All segments of society regardless of location, economic status, or business affiliation feel the effects of corruption.

The roots of India’s corruption problem can be traced back to the country’s colonial past, when the British took over large sections of the country from the East India Company. The British administrators had vast discretionary powers when it came to ruling India – thousands of miles from the UK isles, and as a result many of them felt the temptation to dip into coffers of the wealthy colony. To counter this urge, the British set up a system where officials posted in India would be very well paid.

When India gained independence in 1947, it not only had extensive extractive institutions designed to enrich their previous colonizers, Prime Minister Jawaharlal Nehru drastically slashed the salaries of employees in the public sector. This resulted in a large number of poorly paid civil servants resorting to extortion and bribes to make up for their low salaries. In addition, India’s taxation system requires high marginal tax rates and is backed by numerous regulatory bodies with the power to stop any citizen or business from operating daily – such powers are tempting and easily misused for personal gain.

Fast forward to present day and corruption has firmly entrenched itself within the Indian bureaucracy, to the point that it is perceived as ‘just the way things are’ in the country. Despite Prime Minister Narenda Modi’s campaign to combat corruption, India serves as a cautionary tale of how deep corruption can infect a country when ingrained in its institutions and left to fester as a country makes its way up the global economic ladder.

India has a fast growing economy with 7.1% GDP growth in 2017. It has the potential to dominate the global economy with its millions, if not billions of entrepreneurs, consumers, and innovators. And yet the economic and social costs of rampant corruption in India’s public sector may be equally impressive, certainly impacting every aspect of economic development, especially in the private sector. According to estimates, the lost opportunity caused by corruption in terms of investment, growth and jobs is over US $50 billion annually. With so much potential concentrated in the IT and telecom industries, it is essential that this sector leads the way in combatting corruption – both from within and in its interactions with bureaucrats and politicians – something that likely requires coalitions, pledges, or pacts. Ultimately, India’s major industries have the numbers – in terms of economic contribution and workforce participation – to make an impact, as well as the most to lose if corruption stalls economic growth.

Amol Nadkarni is a Program Assistant for Global Programs