Inequality and corruption nexus

(General Studies III – Economy Section – Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment. Inclusive Growth and issues arising from it.)

• The quote by Honore De Balzac, “Behind every great fortune there is a crime,” highlights a perspective that wealth accumulation often involves unethical or illegal practices.
• However, this view only partially captures the broader issue that income and wealth accumulation can also lead to serious offenses, especially in the intersection of government and business.
• This connection between wealth inequality and corruption has been a growing concern in India, particularly during the period from 2014 to 2022, as highlighted by recent studies and surveys.

Rising Inequality in India: Statistics and Evidence –

1. Income Disparity Growth:
   • Top 1% Wealth Concentration: The top 1% of India’s population controls more than 40% of the total wealth, a sharp increase from 12.5% in 1980.
   • Income Share Increase: The top 1% of income earners now take home 22.6% of the total pre-tax income, up from 7.3% in 1980.
   • Widening Gap: The disparity between the top 1% and the bottom 50% has significantly widened, with the former holding wealth equivalent to the latter’s combined share.
2. Survey Insights:
   • Gallup World Poll (GWP) Findings: The survey data from 2019-2023 reveals that economic gains have disproportionately benefited the wealthy, while middle and lower-income groups have seen minimal improvements.
   • CMIE’s Consumer Pyramid Household Survey: Highlights a growing gap in consumption patterns, with the wealthy increasing their spending on luxury goods, while the lower-income groups struggle to meet basic needs.
3. International Comparisons:
   • India Among the Most Unequal: India ranks among the most unequal countries globally, with wealth and income inequality metrics surpassing those of many other large economies.

Linkage Between Inequality and Corruption –

1. Rent-Seeking Behavior:
   • Definition: Rent-seeking refers to the use of resources to obtain economic gain without reciprocating any benefits to society. This often involves manipulating public policy or government decisions to secure favorable outcomes for the wealthy.
   • Examples in India: Wealthy individuals and corporations have been known to lobby for government contracts or favorable regulations, often through unethical means such as bribery or political donations.
2. Corruption in Government-Business Intersection:
   • Infrastructure Projects: Large infrastructure contracts (ports, highways) often see corruption, where government officials award contracts to wealthy investors in exchange for bribes or other favors.
   • Regulatory Capture: Powerful business interests influence regulatory bodies to make decisions that favor their investments, often at the expense of public welfare.
3. Moral Decline and Public Trust:
   • Erosion of Ethics: As wealth becomes increasingly concentrated, the pursuit of more wealth often leads to a decline in moral standards, where corruption becomes normalized.
   • Judicial Trust: While higher conviction rates in the judiciary can curb corruption, the perception that the judiciary is influenced by the wealthy undermines public trust, allowing corruption to persist.

Measures to Overcome Inequality-Induced Corruption –

1. Progressive Taxation: Implement higher taxes on the wealthy to reduce income and wealth concentration, and use the revenue to invest in public services.
2. Strengthening Regulatory Bodies: Ensure the independence and transparency of regulatory agencies to prevent their capture by powerful business interests.
3. Judicial Reforms: Improve the efficiency and independence of the judiciary to ensure that it acts as an effective check on corruption.
4. Promoting Ethical Business Practices: Encourage businesses to adopt ethical practices through regulations and incentives, including stricter penalties for corruption and insider trading.
5. Public Awareness and Education: Foster a culture of integrity by promoting awareness of the dangers of corruption and the importance of ethical behavior from a young age.

The growing income inequality in India is not just an economic issue but also a significant contributor to the rise in corruption. As wealth becomes more concentrated, the avenues for corrupt practices multiply, eroding public trust and moral standards. To combat this, India must adopt comprehensive measures that address both the economic roots of inequality and the institutional weaknesses that allow corruption to thrive. Only by doing so can India build a more just, equitable, and prosperous society.