Understanding India
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  • Luke Lea


  • Joshua Yahr

    Corruption in India remains a rampant and seemingly intractable problem. Interestingly, this is as much a product of their democratic system as it is a legacy of the infamous “License Raj” which has existed for decades. The rise of lower-caste and ethno-linguistic parties in Indian politics has compounded the problem of corruption and essentially woven it into the fabric of democratic India’s political life. The primary advantage of lower-caste parties has been their ability to ruthlessly target their message to specific groups of voters. Because the Congress Party aims to appeal to many different groups, they must employ broader messages. Lower-caste and ethno-linguistic parties can tailor their message to a specific slice of the population. This has allowed them to lure voters out of the Congress umbrella and mobilize them into loyal “voting blocs” which vote for the smaller parties that they believe will best serve their interests. Most lower-caste parties have no real economic platforms or foreign policies but are primarily focused on securing government jobs for their patronage networks. In this sense, what many Americans view as corruption- the naked allotment of the spoils of power to one’s narrow constituency- is a basic fact of India’s political life.

    Where corruption may pose the largest threat to India however is in its impact on foreign direct investment. India’s economic growth has primarily been fueled by capital intensive industries such as the high tech sector which employ relatively few people. High profile corruption has seriously hampered India’s ability to attract FDI and should this continue the economic impact would be dire. The UN Global Compact has estimated that corruption can add as much as 25% to the price of doing business in India. The World Bank has listed corruption as the “single greatest obstacle” to economic and social development in India. The high-profile 2G spectrum scandal, the unprecedented $2.5 billion capital gains charge that India levied against Vodaphone, as well as hundreds of other retroactive tax investigations, have seriously alarmed investors. The impact of these actions has already been pronounced, as FDI dropped last year by 31%.

    These fears led the Ambassadors of seven nations including the United States and Britain to send a letter to the Indian Finance Minister which said, “We have received feedback from many foreign investors that the growing unpredictability in India’s tax policies creates unquantifiable risks in investment planning,” they continued to say that they were, “Concerned that this uncertainty could affect the confidence of those thinking of investing in the Indian market, who may seek an alternative destination for FDI.” This “unquantifiable risk” from inconsistent government and corruption could pose a serious threat to future growth.

    Corruption is only one of the many daunting challenges facing India. The need to deal with massive economic inequality, agricultural reform and rapid urbanization will all weigh heavily on India’s leadership in the coming decades. The recent protests are certainly a step in the right direction, yet there remains little incentive amongst India’s governing elite to seriously tackle the corruption inherent in the deeply institutionalized patronage-based political system. Should these challenges remain unmet they will seriously complicate India’s supposed role as a nascent superpower.

  • carvaka

    in the last few years there had been couple of interesting non-fictions too – which i personally recommend to understand india and her challenges.

    one is “india after gandhi” by ramachandra guha . it is post-independent history of india.
    another is “imagining india” by nandan nilekani. this is about many challenges india faces now and discussing about ways to overcome them.

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