Atanu Dey On India's Development

Manufactured Shortages and Corruption

A couple of telling anecdotes about the state of the educational system in India. A few weeks ago I was in Nagpur at my sister’s place. One evening, a friend of hers showed up. She (the friend) was struggling with her daughter’s admission to a medical college. She would have a fairly decent shot at getting admitted into this particular medical school if she got 180 marks or above. However if she did not get that, but got 160 or better, the school was demanding Rs 600,000; and, if she only got 140 marks or better, the price for admission was Rs 1,200,000. For Rs 3,000,000 (Rs 30 lakhs), she would have a seat even if she fails the qualifying exam.

People cope, somehow. When faced with severe shortage, they are willing to pay seemingly impossibly high prices. The monumental struggle to somehow gain access to the limited seats in educational institutions that middle-class Indians have to face is stunning to behold. The pity is that this shortage is entirely man made, a manufactured shortage. The persistence of this shortage can only be explained by understanding that those who have engineered it gain immensely from it. It is a bureaucratic and political racket that has its own logic and compulsions. All sorts of shady businesses have evolved to cater to its needs. Academic corruption is one such business, as illustrated by the next anecdote.

A friend, Anil (not his real name), who I had gone to school with came over one evening to my sister’s place to visit with me. My sister’s son had just finished his 10th grade exams and Anil started discussing his son’s 10th standard exams with her. Anil said that he had “to do some fielding” in his son’s case. What the heck was that, I asked.

It seems that he got an anonymous call a week or two after the exams. The caller said that Anil’s son was not doing too well in two subjects, and offered to have it taken care of for Rs 25,000. Anil was apprehensive, like pretty much all parents, that his son may have not done too well in some subjects. Not willing to take the risk of having his son fail, he agreed to pay the amount. Did the caller say which subjects, I asked. No, all this is very urgent and one does not go into the finer details, said Anil.

The 10th grade board exams are critical. Parents are willing to be party to deep corruption because they are unwilling to risk failure. The number of seats in good junior colleges (11th and 12th grade) are seriously limited. Miss a good junior college and you may end up not getting to a decent college. Your life can be ruined if you don’t get good grades in the 10th board exam; and if you are afraid that the grades will not be good, you could try to ensure that by paying some shady operator who would fix the grades. That is called “fielding.”

Corruption is a basic fact of life in India. It is fairy simple to understand why this is so. India is a socialistic economy. Socialism is short for “shortages.” Shortages imply high price. Generally the list price is far below the “market clearing price” and the gap between the two is bridged through a payment in “black.” The degree of socialism in a sector is correlated with the amount of shortage, and the amount of shortage is correlated with the amount of corruption. It is an unholy trinity: socialism, shortages, and corruption.

In a recent report (from the World Bank or some such organization) claimed that the education sector was the most corrupt. The amount was around Rs 27,000 crores (or US$6 billion) per year, and it was more than the figure for corruption in politics, bureaucracy, police, organized crime, etc. (I don’t have the reference handy and will update this later. So don’t quote me for now.) I am not surprised at all.

Corruption is a corrosive force and it poisons the blood of the economy. But it is a symptom of a deeper problem: shortage. Most shortages are engineered. One way to manufacture an artificial shortage is to declare something illegal. The US experience with prohibition epitomizes this. The resulting shortage gave rise to massive corruption. Another way to manufacture shortage is to exercise monopolistic control in the supply of goods and services. The government of India is a past master in this variety of manufactured shortages.

Monopolies are capable of tremendous damage to an economy. Over the centuries, people have figured that where possible, monopolies must be broken, and if for some reason they are dictated by economic logic, then monopolies have to be regulated so as to mitigate some of the harm they would otherwise do. The regulation of monopolies naturally falls as one of the roles of the government. Clearly, the government cannot be expected to break up or regulate a monopoly business if the government itself is the monopoly supplier.

The lesson is then clear. The government of India must get out of the business of education and it must constitute an independent regulator which will make the rules for the private sector provider of educational services. Furthermore, the education sector will gain immensely from allowing foreign institutions to do their business in India. Corruption will be a thing of the past as soon as the shortages disappear.

It is time to stop the insanity of government mandated shortages. If logic is insufficient to persuade us that corruption is a consequence of shortages, there are many significant examples in recent history where this was demonstrated. When will the masses rise up and revolt against the socialism in the education sector?

  • http://en.wikipedia.org/wiki/Talk:India_as_an_emerging_superpower#People_Issues_in_India Jawahar Mundlapati

    India has the potential to become superpower provided the long pending people issues are immediately solved. Ensuring a credible basic income guaranteed system for every one will bring in dignity instead of desperation for its working poor and embracing inheritance taxes will stimulate compassion instead of collusion among individuals.

  • http://thoughts2shair.blogspot.com Sabarish Sasidharan

    This article in downtoearth tells us how acute the shortage of medical professionals is. To quote them, based on the numbers released by WHO, there are 0.6 doctors per 1000 people in India.

  • sharad

    Dear Antanu,

    I went through a heavy meal of your 50+ articles over last 2-3 days. You have a lucid style and the comments your blog entries receive (though seemingly more from NRIs) too are educative as they broaden the discussion by brining in additional information and viewpoits.

    Your profile that emerges from the subset of entries I have read (under multiple categories) is reasonably consistent. You carry a definite venom for commies, Indian beauracrats & politicians, Bush/Republicans, Nehru-Gandhi clan and terrorists from across the border. Many of us share some of this and hence reading your articles strikes a sympatheic chord.

    Your categories (too many) are varied and entries are topical. Most of us are ignorant about economics (despite a good first year course at IIT which I had) and you educate us well on this difficult subject through easy-to-understand blog entries.

    There were some places where I had an urge to post an opposite view or to request you for additional questions. I haven’t done so but may do so if I stick with the blog in the long run (even probability).

    The reason for this post is to touch on two topics in your repertoire – RISC and primary education.

    Another reason I read you is because it appeared that you are a man intending to act on some of your convictions. Exposed to a great mix of India and US education, culture and work ethics, my impression was that you returned in 1993 to put your RISC to test on the ground. I haven’t read your original material on RISC but gather that it is about village aggregation and a way to reduce the poverty inducing mass of 600,000 villages which by themselves are not ecomnically viable. I assume RISC involves setting up a production hub (something like MIDC) and a service/shopping center which is within reasonable distance of each village in the selected cluster. I have no idea if you have dropped RISC in last three years. There are only 3 entries in your blog on RISC. The most recent one was about PURA. I think you may be right about need for urbanizing our villages, I was interested to know what headway, if any, in the form of pilots was made to test the model on the ground.

    Primary education is another area on which you write copiously and feel strongly about. There is lot of discussion on ICT, broadcast or CD based content on TV etc. Again nowhere did I find any notings on experiments on the ground that you or others may have done that are worth emulating or give us some valuable learnings. My specific interest is in adult literacy.

    We have reached the sorry state of Indian social affairs because we may have swallowed the earlier ruler’s (read Congress) pontificaitons when we were young. Who till 1977 could have thought that India could even reach where we are today on gross stats basis!

    This week you have given kudos to Mukesh Ambani’s Mumbai/Delhi SEZs with potential of employing 5 million each in 5 years. Whether or not India operates on free market, Ambani’s do with immense investor confidence, their own wealth and right connections. There are others like Ambanis. If there are 40+ SEZs of this size then you will have your super-RISC model implemented. My question to you is this: should we retreat to whatever we are doing (possibly continuing to be entertained by your lucid commentary on world events) and leave the poverty problems of India to private sector? Back in 80s we were too busy or unconcerned to act. Now we are wiser, see the damage and are itching to do something. Shouldn’t we let the free enterprise take its course?

    Atanu’s response: Atanu, not Antanu, for now.

  • Prasad SP

    I do not know how many are really aware of the damage caused by the governemnts policy of pegging the salaries of bureaucrats in the seventies when the country was singing socilisim to please our erstwhile soviet masters.
    With an ostensible view to reduce the disparity between the lowest and the highest paid govt servant, the IIIrd Central pay commission recommended to keep the salaries of top bureacrats at levels that were just 7-8 times the lowest. In other words a secreatary who used to get Rs 3000/-per mensum in the seventies- asmall fortune those days continued to draw same while for example a labouror started getting 4-5 times his earlier salary with oever time, bonus etc such that after IT deduction the salary of a top bureacrat got reduced to just 4-5 times of the lowest. The time came even running the household decently became impossible when the inflation was at double digit rate, thanks to madam Gandhi’s policies. And what stated as corruption for need evelved into greed now. I alaways felt corruption is like prostitution. Its only the first time one hesitates and soon it becomes a habit with everdeveloping skills of enterprise of reaping the returns with out investment. At the same time the poor salary structure never failed to attract the talented into the public services.People started to migrate for greener pastures.
    Look at the fate of Govt hospitals. Do you see any semblance of quality of service in the hospitals. All that done by govt for the sake of poor became counter productive because persons of calibre and character shunned the services to be filled only by the mediocre to the ultimate detriment of the poor. Call me an empire apologist but the administartion was much cleaner during the preindependent times and for another two decades there after. Tose days corruption by an IAS was unthinkable and he was like Caesar’s wife above suspicion. But whats the position now. Uncorrupt IAS is rare.

  • http://apunkadesh.blogspot.com/ Apun Ka Desh

    Most shortages in india can be overcome, i.e if the red-taped bureaucracy and inept politicians have the will.

    Read on:
    http://apunkadesh.blogspot.com/

  • Sambaran Mitra

    On artificial shortage, can you please go through http://www.iipm.edu/IIPM-MBA-mafia.html?
    Do you have any opinion about the following? I will like to know if you have written already something about it. If not written, may I request you a blog on this topic?
    I know bloggers love to hate ponytail, may be he deserves so. However, I want a dispassionate opinion on te points he made in this particular article.
    Sorry if I sounded demanding.

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  • http://www.pimsmmm.com Anil Jacob Purty

    Dear Atanu Dey,
    Just came across this website and Maybe I went to school with you at Spicer Memorial High School, Pune 1980-1985.

    Dr. Anil Purty
    Associate Professor
    Pondicherry Institute of Medical Sciences
    Pondicherry-605014, India