Impact of Corruption on GDP Growth

A PTI report tells that Government of India has lowered its estimate of GDP growth, from around 9% to 8% now. Pranab Mukherjee says this is due to high oil prices and higher rates of interest done to curb inflation. “If oil prices continue to rise, it would be difficult to achieve higher GDP. GDP may come down to 8 per cent from [the projected] 9 per cent,” Mr. Mukherjee said.

But what no one is bothered about is how large scale corruption in government impacts GDP growth of a nation. I had given a thought on this before and I was certain that as corruption increases, GDP growth of the nation should come down. Also, more corrupt people sending money in Swiss and other foreign banks makes the situation worse too. Reviewing the way our current govt was managing the affairs and the highest than ever corruption cases and scandals coming out in the open, I thought this was going to cost us dear. But I didn’t have empirical data to prove my point. Now, thanks to the US researchers, I have something to fall back on. 

Mushfiq Swaleheen of Florida Gulf Coast University has done a research on exactly this topic of how corruption impacts GDP growth. His study is titled “Economic growth with endogenous corruption: an empirical study”. As such his major discovery was that “In deeply corrupt countries such as Congo, incidences of corrupt practices actually enhance economic growth, perhaps by helping companies sidestep onerous rules.” But that is only at the extreme. I understand India doesn’t fit into that set. But going one step ahead, his finding was really hitting for countries like India: 

“For a country with average endemic corruption, a one-standard-deviation increase in corrupt incidences depresses per-capita GDP growth by 0.12 percentage points.”

Now this is exactly what I used to say, and what logically followed too! And now we have the statistics too! No wonder when our GDP figures would come out next year, and if we see a major debacle, our government and economist ministers will blame it on inflation, higher rates, oil prices, etc, and no one will speak about corruption. But we the public, should understand and think it over. After all, this country doesn’t belong to a Sonia Gandhi or a Pranab Mukherjee alone – this country belongs to all of us! And all of us can make a difference by democratic means too! Awareness is the foundation of any democracy.

- Rahul

New Hindu Rate of Growth – Same old folly

When you hate someone immensely, but can’t do anything to harm him/her, what do you do? You call one name? Giving insulting terms/names to people or things is a way through which we vent our extreme feelings. Some times, pretty innocent words become fierce, insulting and demeaning ones. For example, if you hate me for writing good things about Hindus, you can call me ‘Saffron Brigade’. Anyways, here I come to the point.

You all must have heard about the "Hindu Rate of Growth". When I first heard this from my economics professor, I raised my hand. But before I could ask something, the professor himself asked: "Why is it called ‘Hindu’ rate of growth?". And he himself answered... "Because of what we could have achieved, and what we actually managed to achieve". As if Hinduism prescribes sluggish growth rates…

For record, the so called "Hindu Rate of growth" is a term which Professor Raj Krishna from Delhi School of Economics used for around 3.5% GDP growth rate. This was the rate at which India's economy grew in the three decades (1950-1980). In those times, due to highly dominant socialist policies as championed by Nehru, it was almost a sin to be rich in India. And in order not to be rich, you have to grow slow, I guess. Anyhow, India managed to grow around 3% per year in that period and hence the professor termed it "Hindu rate of growth".

What ‘Hindu’ about it? Many authors say that the term ‘Hindu rate of growth’ had nothing to do with Hinduism. But of course many of us can think it had to, as does this Wikipedia article, by saying: “The term suggests that the low growth rate of India, a country with a high Hindu population was in a sharp contrast to high growth rates in other non-Hindu Asian countries, especially the East Asian Tigers, which were also newly independent.”

Though many economists objected the term "Hindu" and wished if we could call it "Socialist rate of growth". But it seems the term caught our fancy, and we remained chipko to it.

Internet is such a beautiful medium. You can get 180 degree views on any topic. Say X is good and you will get to know 100 reasons why what you said was incorrect. I could find one author who writes, “The Comrade Raj Krishna knew he could get away with demeaning Hindus. He is referred to as 'the famous economist Raj Krishna' although I believe he is only famous for having coined this insult. So according to the famous Raj Krishna, I take it that Pakistan's pathetic economic showing would be the 'Muslim rate of growth'? But of course, no Comrade would ever say anything that might 'hurt Muslim sentiments.” Quite a different take, I guess.

Now a days, there is a demand by industry to call 8.5% GDP growth rate as the New Hindu Rate of Growth. Though what is the New Hindu Rate of Growth is not a settled issue. Way back in 1999, a The Economist article said “The ‘Hindu Rate of Growth’ is now no longer 3 per cent but 5.6 percent.” In 2001, a Hindu article says it was 6%. And last year, a DNA article says it is 7.5-9%. Regarding this development, I see two things:

First, this figure of 8.5% is again becoming the complacent figure. Remember whenever the ministers are asked if high inflation would derail the growth path, the minister replies, "But the growth will still be around 8.5%" (Link1) (Link2) Industry leaders like Anand Mahindra have reiterated that India should not settle for any growth rate below 10%. But it seems sticking to a comfortable politically correct figure is our old habit.

Second, and the last, while demanding that 8.5% be called the New Hindu Rate of Growth, we again forgot how the term “Hindu” comes in between. Once a professor said something in amusement, and we had the term to our rote. It is not like if a daughter of old lady goes to Harvard and becomes ultra-modern but we will still call her “Rabri devi, Junior”. It is like hiding garbage by putting New garbage over it.

There is no “Hindu” rate of growth.