“Understanding Corruption – impact and solution”: A talk by Subramanian Swamy

(Following are a few notes from the talk on corruption by Harvard Professor and Janata Party leader,  Dr. Subramanian Swamy held in bay area on July 29th 2011)

Corruption – misuse of public office for personal gains

Five impacts of corruption

  1. Leads to sub-optimal utilization of resources implying a lower [GDP] growth rate in long-run
  2. Since corruption involves black money which can be easily caught if it is used for re-investment [for say, setting up a factory], black money primarily goes towards consumption and this leads to reversal of investment priority (roughly 70% of investment goes directly/indirectly to sustain luxury sector in India)
  3. Hoarders and Profiteers bribes the corrupt incumbent to manipulate government [to hold/release necessary goods like food grains at their will] leading to artificial scarcity for goods [and earns huge profit by selling goods at artificially inflated prices]
  4. Most of these off-shore banks charge service fee [which can be as high as 2%] of the deposits, given that India’s off-shore deposits are estimated to be in the range of $400 Billion to $1.4 Trillion, the amount of money which is paid to off-shore banking companies for maintaining the deposits leads to significant loss of national wealth.
    Further, in many cases this money returns to Indian stock market in form of participatory notes effectively leading to insider trading.
  5. Most black money flows out of India using Hawala (and usually) via Dubai, this effectively provides these hawaladars with a way to blackmail national leaders and compromises national security.
Indian bank accounts in Bank of Liechtenstein
By bribing an officer of Bank of Liechtenstein, German government obtained list of all account holders of the bank, list consisted of citizens of 24 nationalities, Germany offered the lists to all 24 nationalities and all except India replied back asking for the names. Later, when Indian government finally is in possession of  the names, it decided not to disclose the list [and there is an ongoing court case for the disclosure of the same]

Disincentive for corruption
Low probability of catching a corrupt person is acceptable but if chance of being punished once caught is high, it acts as deterrent for corruption. Swamy praised American system of prosecution by comparing prosecution of Bernard Madoff [150 years prison] and Ramalingam Raju [still unpunished]

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