Corruption in India Stifles Economic Growth, Fosters Violence against Whistleblowers

September 13th, 2010

Cumulative Illicit Financial Flows out of India from 2000-2008 Total Over US$125 Billion

Photo: Trey Ratcliff | CC BY-NC 3.0

India’s economic boom continues with an average growth rate of over eight percent between 2004 and 2009 by GFI calculations. As the money flows, however, the poor continue to stay poor. Corruption is rampant in India as it is in almost all developing countries. Both corrupt political and corporate officers manage to siphon off funds – intended to aid the people of India – off to political and private sector elite. Recent efforts in India to challenge this corrupt affront on humanity have been met with severe violence.

An article in the Washington Post reviewed recent violent crimes in India related to whistle blowing on corrupt acts and proposed legislation to protect individuals who divulge information about corrupt officials. According to the article, “eleven people have been killed or found dead in mysterious circumstances in India this year after exposing corruption in schools and public utilities, illegal mining and unauthorized water and electricity hookups, according to activist groups. Hundreds of others have been attacked, threatened or harassed for similar crusades.”

Much of the work at GFI studies illicit capital flight out of developing countries. GFI research from a report on India soon to be released shows that from 2000 to 2008 India had more than US$125 billion in cumulative illicit capital flight. Much of the funds flowing out are generated at home within India and then sent illegally abroad. So the growth of corruption and India’s underground economy contributes significantly to illicit financial flows from the country.

As India develops economically and builds better infrastructure, one would think that all Indian citizens would see an increased standard of living and that the income inequality levels would fall. However, the gini coefficient, which measures income inequality, has actually increased over the time period measured,  2000-2005, from 0.32 to 0.37 on a scale of 0 to 1, with 1 being the highest income inequality. We see in India – as in other currently developing countries – that as the economy grows, so do illicit flows. This positive correlation exhibits the increased incentives to conduct illicit flows, mostly because more money is flowing within the system to steal away and constant greed is tapping into that pool.

India Ranks 84 out of 180 countries in Transparency International’s 2009 Corruptions Perceptions Index ranking. As corruption continues to plague both the country and its ability to develop free and fair institutions to monitor and charge corrupt officials, the majority of India’s economic growth will never make it to the people of India who desperately need it the most.

Stopping, or at the least curbing, corruption is important, but there are many ways to work towards that effort. India’s legislative efforts to protect whistleblowers and those who work to fight corruption is a step in the right direction, however more must be done. Global efforts to make it harder to move illicit funds around the world would help. These efforts include increasing financial transparency, as well as stronger work by developed-country governments to crack down on their home banks accepting these laundered, illicit funds. The developed world’s continued passive acceptance of illegal money sets a poor precedence for reigning in such activities.  By implication, it says we will not do all that we can to help the poor people of every nation to break free of a toxic cycle of corruption that often leads to life-long poverty and sometimes—if you try to stand up against such corruption—death.

Editorial Note: Later this year, Global Financial Integrity will release a new report measuring illicit financial flows out of India from 1948 through 2008. Sign up here to receive notices when new GFI reports are released.

Written by Karly Curcio

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