Image for representation.
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Honore De Balzac, a French novelist, wrote, “Behind every great fortune there is a crime.” This is at best a half-truth as it overlooks that income/wealth accumulation also breeds serious offences/crimes. As we argue, based on an analysis of the Gallup World Poll (GWP) Survey for India (2019-23) and the Centre for Monitoring Indian Economy (CMIE)’s Consumer Pyramid Household Survey, income inequality breeds corruption in the intersection of government and business — for example, in the approval of contracts by public officials of mega infrastructure projects (highways, bridges, ports) to be built by rich and influential private investors. Once rich, the greed for more wealth negates moral qualms in pursuing corrupt strategies. Indeed, wealth accumulation becomes easier too — for example, through share market manipulation, political lobbying to secure contracts for big infrastructure projects, and investments in off-shore funds.
In a recent study, Thomas Piketty et al have drawn attention to an astounding escalation of wealth and income inequality in India over the last few decades, especially between 2014 and 2022. The top 1% control more than 40% of total wealth in India today, up from 12.5% in 1980. The top 1% of income earners made 22.6% of the total pre-tax income, up from 7.3% in 1980. India is now among the most unequal countries in the world, yet few studies in recent times analyse the perverse effects of rising economic inequality.
The methodology
Our objective is to explore the relationship between income inequality and corruption. Specifically, we investigate whether higher income inequality fed corruption between government and business in the 2014-22 period. Since the two recent National Sample Survey (NSS) rounds of household expenditure for 2018 and 2022 are not directly comparable to the NSS round for 2012, GWP and CMIE data are the fallback options. As the GWP has a small sample, its representativeness of a country as large and diverse as India cannot be taken at face value. But it has several merits, including data on variables such as corruption which are not easy to measure.
We have used the Piketty measure of income inequality, which is defined as the ratio of the share of top 1 % to that of the bottom 50% of the population in total income. Although inequality in consumption expenditure distribution is usually lower than that of income distribution, we have preferred the former because of its greater reliability. Corruption is generally defined as the use of public office for private gain and thus leaves out corruption within businesses (for example, insider trading). So, a broader and more comprehensive definition is the use of public resources by executives in both public and private sectors for private gain without, of course, overlooking the role of politicians. The GWP asks the question whether corruption is widespread and if the answer is yes, it is taken as 1. By adding these up, we obtain a measure of corruption. Thus the measure of corruption is based on individual perception. There are three manifestations of corruption: in government, businesses, and the intersection between government and businesses. We focus on the relationship between inequality and corruption in this intersection — for example, whether award of contracts by the government to build ports is influenced by bribes offered by rich investors.
Corruption has risen following globalisation as natural resources have become more valuable, and regulatory agencies licensing their allocation are more subservient to powerful business interests and corrupt public officials. Besides, success of the ‘Make in India’ scheme has been elusive so far as none of the macro-economic indicators such as manufacturing, FDI, exports, and employment have registered an increase. Worse, as argued in a Carnegie India essay (2023), hike in import tariffs and tax cuts have been distortionary.
OPINION | Inequality can no longer be ignored
Findings
This means that there is a possibility of greater rent-seeking by rich and influential investors. Rent-seeking is defined as the use of resources to capture an unwarranted monetary gain from external elements, such as government/public agencies, be it directly or indirectly, without giving anything in return to them or society. An economic rent causes dissipation of resources that is potentially more serious than the waste associated with the rent itself. Groups struggling for the rents invest time and money in the transfer of wealth rather than in the creation of wealth. Since corruption in the intersection of government and business remained high between 2014 and 2022, it is not unlikely that rent-seeking persisted at a high level too. Without going into the merit of the allegations by Hindenburg of the involvement of the SEBI chair and her husband in the Adani Group off-shore fund, and the slowing of the SEBI probe, it may well be symptomatic of a larger and growing malaise.
We find that income inequality was fuelled largely by speculative investments (such as mutual funds), while savings in FDs and post offices curbed it. Trust in the judiciary was driven by the conviction rate and moderated by its square, implying that trust rose but at a diminishing rate. We find that higher income inequality causes widespread corruption, while greater confidence in the judiciary curbs it.
While the Budget missed the opportunity to tax the rich at a higher rate, greater transparency and accountability of regulatory agencies remains a chimera. Both a more competitive political system and private businesses are daunting challenges but their potential for a more prosperous India is hard to dispute.
Nidhi Kaicker is an Assistant Professor of Public Policy, B.R. Ambedkar University, Delhi. Vani S. Kulkarni is an Associate Professor of Sociology, Arkansas State University, Jonesbro, U.S. Raghav Gaiha is a Research Affiliate, Population Aging Research Centre, University of Pennsylvania, Philadelphia, U.S.
