PROFESSIONAL

EXCELLENCE

NAME: KAJAL GUPTA

COURSE: MBA (B&F)
ENROLLMENT NO:
A50050213037

CORRUPTION- A THREAT TO ECONOMY

The simplest definition is:

Corruption is the misuse of public power (by elected politician or appointed civil servant) for
private gain.
Corruption may include many activities including bribery and embezzlement. Government, or
'political', corruption occurs when an office-holder or other governmental employee acts in an
official capacity for personal gain.
Corruption can occur on different scales. There is corruption that occurs as small favors
between a small number of people (petty corruption), corruption that affects the government
on a large scale (grand corruption), and corruption that is so prevalent that it is part of the
everyday structure of society, including corruption as one of the symptoms of organized
crime (systemic corruption).

Types of corruption
Petty corruption
Petty corruption occurs at a smaller scale and within established social frameworks and
governing norms. Examples include the exchange of small improper gifts or use of personal
connections to obtain favors. This form of corruption is particularly common in developing
countries and where public servants are significantly underpaid.
Grand corruption
Grand corruption is defined as corruption occurring at the highest levels of government in a
way that requires significant subversion of the political, legal and economic systems. Such
corruption is commonly found in countries with authoritarian or dictatorial governments but
also in those without adequate policing of corruption.
The government system in many countries is divided into the legislative, executive and
judiciary branches in an attempt to provide independent services that are less prone to
corruption due to their independence.
Systemic corruption
Systemic corruption (or endemic corruption)is corruption which is primarily due to the
weaknesses of an organization or process. It can be contrasted with individual officials or
agents who act corruptly within the system.
Factors which encourage systemic corruption include conflicting incentives, discretionary
powers; monopolistic powers; lack of transparency; low pay; and a culture of impunity.
Specific acts of corruption include "bribery, extortion, and embezzlement" in a system where
"corruption becomes the rule rather than the exception. Scholars distinguish between
centralized and decentralized systemic corruption, depending on which level of state or

government corruption takes place; in countries such as the Post-Soviet states both types
occur. Some scholars argue that there is a negative duty of western governments to protect
against systematic corruption of underdeveloped governments.

CORRUPTION IN DIFFERENT SECTORS

Corruption can occur in different sectors, whether they be public or private industry or even
NGOs.
Government/public sector
Public sector corruption includes corruption of the political process and of government
agencies such as the police as well as corruption in processes of allocating public funds for
contracts, grants, and hiring. Recent research by the World Bank suggests that who makes
policy decisions (elected officials or bureaucrats) can be critical in determining the level of
corruption because of the incentives different policy-makers face
Political corruption
Political corruption is the abuse of public power, office, or resources by elected government
officials for personal gain, e.g. by extortion, soliciting or offering bribes. It can also take the
form of office holders maintaining themselves in office by purchasing votes by enacting laws
which use taxpayers' money. Evidence suggests that corruption can have political
consequences- with citizens being asked for bribes becoming less likely to identify with their
country or region.
Police corruption
Police corruption is a specific form of police misconduct designed to obtain financial
benefits, other personal gain, and/or career advancement for a police officer or officers in
exchange for not pursuing, or selectively pursuing, an investigation or arrest. One common
form of police corruption is soliciting and/or accepting bribes in exchange for not reporting
organized drug or prostitution rings or other illegal activities. Another example is police
officers flouting the police code of conduct in order to secure convictions of suspects for
example, through the use of falsified evidence. More rarely, police officers may deliberately
and systematically participate in organized crime themselves. In most major cities, there are
internal affairs sections to investigate suspected police corruption or misconduct. Similar
entities include the British Independent Police Complaints Commission.
Judicial corruption
Judicial corruption refers to corruption related misconduct of judges, through receiving or
giving bribes, improper sentencing of convicted criminals, bias in the hearing and judgment
of arguments and other such misconduct.

Governmental corruption of judiciary is broadly known in many transitional and developing

countries because the budget is almost completely controlled by the executive. The latter
undermines the separation of powers, as it creates a critical financial dependence of the
judiciary. The proper national wealth distribution including the government spending on the
judiciary is subject of the constitutional economics.
It is important to distinguish between the two methods of corruption of the judiciary: the
government (through budget planning and various privileges), and the private.
Corruption in the educational system/universities
In some countries, such as certain eastern European countries and certain Asian countries,
corruption occurs frequently in universities. This can include bribes to bypass bureaucratic
procedures and bribing faculty for a grade. The willingness to engage in corruption such as
accepting bribe money in exchange for grades decreases if individuals perceive such behavior
as very objectionable, i.e. a violation of social norms and if they fear sanctions in terms of the
severity and probability of sanctions.
Methods
In systemic corruption and grand corruption, multiple methods of corruption are used
concurrently with similar aims.
Bribery
Bribery is the improper use of gifts and favours in exchange for personal gain. This is also
known as kickbacks or, in the Middle East, baksheesh. It is the most common form of
corruption. The types of favours given are diverse and include money, gifts, sexual favours,
company shares, entertainment, employment and political benefits. The personal gain that is
given can be anything from actively giving preferential treatment to having an indiscretion or
crime overlooked.
Bribery can sometimes be part of the systemic use of corruption for other ends, for example
to perpetrate further corruption. Bribery can make officials more susceptible to blackmail or
extortion.
Embezzlement, theft and fraud
Embezzlement and theft involve someone with access to funds or assets illegally taking
control of them. Fraud involves using deception to convince the owner of funds or assets to
give them up to an unauthorized party.
Examples include the misdirection of company funds into "shadow companies" (and then into
the pockets of corrupt employees), the skimming of foreign aid money, scams and other
corrupt activity.

Extortion and blackmail

While bribery is the use of positive inducements for corrupt aims, extortion and blackmail
Centre around the use of threats. This can be the threat of violence or false imprisonment as
well as exposure of an individual's secrets or prior crimes.
This includes such behavior as an influential person threatening to go to the media if they do
not receive speedy medical treatment (at the expense of other patients), threatening a public
official with exposure of their secrets if they do not vote in a particular manner, or demanding
money in exchange for continued secrecy.

Economic impact of corruption

Public money is for government services and projects. Taxes collected, bonds issued, income
from government investments and other means of financing government expenditure are
meant for social grants, education, hospitals, roads, the supply of power and water and to
ensure the personal security of our citizens.
Corruption and bad management practices eat into the nations wealth, channeling money
away from such projects and the very people most dependent on government for support.
Countless studies around the world show how corruption can interrupt investment, restrict
trade, reduce economic growth and distort the facts and figures associated with government
expenditure. But the most alarming studies are the ones directly linking corruption in certain
countries to increasing levels of poverty and income inequality.
Corruption can also harm the chances of success for small and micro-enterprises. Its been
demonstrated around the world particularly in developing economies that small
businesses pay more than twice as much of their earnings as larger companies, limiting their
ability to grow and become job creating.
Because corruption creates fiscal distortions and redirects money allocated to income grants,
eligibility for housing or pensions and weakens service delivery, it is usually the poor who
suffer most. Income inequality has increased in most countries experiencing high levels of
corruption.
In broad terms Transparency International calculates that investing in a relatively corrupt
country compared to an uncorrupted one is some 20% more costly. The direct economic
impact is obvious: investment critical to job creation and poverty alleviation goes elsewhere.
That cost is hidden and defies calculation.
Another cost to an economy affected by corrupt activities include capital flight, which means
that funds required to acquire assets abroad shrinks a countrys savings pool that could
otherwise have been invested in the local economy.
Other more general consequences that are difficult to quantify include higher costs and
declining quality of public sector infrastructure projects; the slide of the economy towards an

underground sector; diminishing economic efficiency and macroeconomic instability and

an increased tendency to be negatively affected by global economic crises.
Bringing it all back home
Some of this comes back to India through mis-invoicing. But wealth is also round tripped
back under the guise of foreign investment. An insight into round-tripping, in this case of
legitimate funds, came in a 2012 British legal case involving UBS in London. Its bankers ran
a scheme in which $250m of offshore funds belonging to Reliance ADAG, an Indian firm,
were invested in one of its subsidiaries in India via a vehicle in Mauritius. The London
tribunal judged that this broke Indian rules. (In a 2012 statement Reliance said that no action
had been brought against it in London and that the matter had been dealt with and closed by
Indian regulators.) Lawyers for a banker involved argued the practice was widespread.
Indias regulators say they have since cracked down.
When the bribes come home they undoubtedly enrich some Indian politicians. A 2008
telecoms scandal saw a minister allocating spectrum on iffy grounds. The government turned
a blind eye. We knew some of the decisions taken by him were blatantly illegal[and] done
to raise large amounts of money, says another minister of that time who was close to the
prime minister. The more pernicious danger is that the political system as a whole depends on
the bribes. For one thing they seem to provide a significant source of election funds; for
another the big parties increasingly need to court small parties in order to rule, and allowing
them to get rich when in power seems to be one of the ways that this is done (it was a factor
in the telecoms case).
Add in state and local elections and the total cost of politics in India between 2010 and 2015
for all parties will be $5 billion, calculates the top Congress politician, which would work out
as a substantial fraction of the estimated bribe pool. Strict campaign-finance rules mean most
of this has to be raised illegally.
A third of campaign funds are raised centrally by parties and the rest locally. Parties have
arms-length treasurers who act as their bankers. Those handling bribes take a cut for
themselves.
Illegal party funding is at the heart of corruption. But politicians are in denial, says the
Congress bigwig. Nobody wants to admit that they have taken money. It is a completely
hypocritical system. New laws, for example a Lokpal Act passed in December to create a
new anti-graft agency, just add to the huge weight of legislation dating back to the 1980s that
is cynically passed and not enforced

Conclusion: Corruption Cannot Survive in a Transparent Democracy

In a democracy like India, it is difficult to conceal corruption; instead, it is publicly debated,
discussed, and examined. Opposition parties can cite the corruption of the previous
government to gain political advantage, and this is the main reason for the government
changing hands so frequently between so many political parties in India. It is evident from
Indias history that corruption is a political problem that has far-reaching economic
consequences: opportunities are lost, innovation is deferred, and entrepreneurialism and
investment are aborted.
In a large democracy like India, the people ultimately hold the power through their voting
rights. When the people feel that the government is not committing to policies that increase
economic growth, they express their disapproval for the government by voting for a new
regime. Although India has had trouble reaching out and making the polls more accessible to
voters in rural regions, there has recently been greater awareness of the problem, and many
villages have agencies set up to relay feedback to the national government about the
performance of the local governments to ensure accountability.
Indias success at unifying a diverse secular state through democratic means is one of the
great political achievements of the twentieth century. Information disclosure, an important
component of any democracy, makes corruption difficult to hide and enhances economic
performance. Corruption has plagued India for many years, causing successive governments
to fail. However, these corruptions are ultimately exposed, and the voters will respond by
making politicians pay when they have the chance.