What is the Underlying Cause of Corruption?

Apr 13, 2013

- By Asad Dossani, Author, The Lucrative Derivative Report

Asad Dossani
Corruption has always been a problem in India. Nearly everyone recognizes that corruption is a problem, but somehow it is extremely difficult to fix. Corruption is a problem in many countries outside India too, and many of the underlying causes are similar. In fact, there are a few factors we can identify that have strong links with corruption.

The first is GDP per capita. The poorer a country is, the more corruption it has. This pattern is true across many countries. It makes intuitive sense. If an individual in a country is poorer, they are more likely to accept a bribe. Lower income also means law enforcement is poor, so those who are wealthy can more easily get away with high level corruption.

The next is income inequality. The more unequal a country's income is, the more corruption it has. Usually, inequality results because the rich are able to stay rich by being corrupt, and the poor are held back due to corruption in the system. Income inequality is reduced as a country gets richer.

----------------------- Is Long-Term Investing Dead? We Are Revealing the Answer... -----------------------

Are you tired of hearing about the benefits of long-term investing but haven't seen those returns yet?

Are you beginning to doubt the concept itself?

If you're asking these questions and wondering what your next move should be, you're in luck!

Come Join Ajit Dayal, Founder, Equitymaster and Director, Quantum Asset Management Co., as he gives you the answers to these questions and more...

Register to find out the answer to the question, "Is Long-Term Investing Dead?"... Click Here! It's Free!

The last factor is strength of institutions. This means law enforcement, judicial system, and accountability. Naturally, the weaker a country's institutions, the more corruption it has. What stops corruption in countries with strong institutions is that penalties for illegal behavior are high and they are successfully enforced.

What can we do to deal with the causes of corruption here in India? The first is economic policy to encourage income growth. Rising per capita income will also reduce income inequality, and both these factors will reduce corruption over time. The final factor is improving the strength of institutions, which is easier said than done.

The good news is that as India gets richer, corruption levels will fall over time. Unfortunately, this happens only over the long term, and in the meantime we have no choice but to live with it. The fact that corruption is now a major issue in the media and politics is a good sign, and it means that it will be less tolerated in the future.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

A New Infrastructure Boom March 26, 2019
Selva Freigedo talks about the potential in 5G network and how it could transform the way we communicate.
A 40 Somethings Guide to YouTube Hits March 20, 2019
Vivek dwells into a new YouTube phenomenon.
As the Economy Slows Down, Maruti and Two-Wheeler Companies Cut Production March 19, 2019
The country's largest car maker has cut production by more than a fourth.
In Supporting Demonetisation, RBI Behaved Like an Old Uncle Not Willing to Take a Stand March 13, 2019
The minutes of the meeting of the RBI Board which happened before demonetisation have been released.

Equitymaster requests your view! Post a comment on "What is the Underlying Cause of Corruption?". Click here!

18 Responses to "What is the Underlying Cause of Corruption?"

Be Happy

Apr 24, 2013

Low government revenues. Poorly paid government servants. Chief Secretary earns Rs 90,000 as salary while signing cheques for crores



Apr 21, 2013

inequality in implementation of existing useful rules & regulations



Apr 16, 2013

I see the only reason, cause and solution put in one as " FEAR OF LAW" !
Corruption takes place with no fear of law .
Solution to bring about the Fear of law.
Request all to think and review the above.
God bless our country.



Apr 16, 2013

there is another side to the coin.

Poorer the country, higher the corruption - Richer you become, the more you become corrupt. Example, goldman sachs, lehman, US lobby groups.

Income inequality - Is the US political system (from watergate till now) and monetary system less corrupt than zimbabwe in terms of policy making?

Insitutions - Let me not start with this at all.

superficial and a very birds-eye-view analysis of a very complex topic. Not to say India is not corrupt, but the reasons attributed are vague.



Apr 14, 2013

This is nonsense.. The root of corruption is concentration of power and power without accountability. The more power rests with politicians and bureaucracy, the more chances of corruption. You are making some socialist nonsense with income inequality etc etc.


HG Sharma

Apr 14, 2013

Everyone in our country have unflinching faith in our judiciary, which it rightly deserves.The lesser privileged has a fearful un-daring faith while the powerfully placed have fearless and daredevil faith.What threatens the former and boldens the later is inordinate delay in justice delivery system. Apart from shortage of Courts and Quality Judges , a significant factor could be our insistence of absolute justice , which is like chasing horizon,`more you proceed more it recedes'.Look at recent national debate with a lot of fanfare on media - Cola for having impurities at PPM levels compared to international standards. What finally happened?. A large mass of population may be content with plain drinking water devoid of harmful bacteria , which as a society/country of billion, we are not able to provide .Judiciary needs some radical introspection,like an expert medical doctor at his first interaction , sets a course of action and preliminary medicine is delivered for if he waits for last proof of exact disease , the patient may not be alive to be saved or benefited. We have made the temple of our democracy a safe warehouse for many Corrupt and culpable,Every politician and his parasites desiring to enter parliament should be subjected to pass through fast track courts and if found to have reasonable chances of being corrupt should be banned to contest and subjected to further scrutiny , this will make the corrupt to run away from Parliament / Assembly rather than running towards it for protection.Like KYC there should be KYP( Know your Politician)qualification to regulate dirty money entering governance,for corruption starts right there.

Like (1)


Apr 14, 2013

I agree with you.But don't you think there is something basically wrong with our approach to education , an all round hypocrisy in our society ,a basic lack of self honesty and mutual trust is responsible for this unbridled corruption.

Like (1)

Amarshettar M M

Apr 14, 2013

There are several reasons why become corrupt. One of the several reasons is to become rich early instead of taking slow and steady course of time. 2nd reason, according to me, is discretionary powers to Officers in power. Whether it is Govt department, PSU-undertaking, private-undertaking or even a private office if there is discretionary power, there is chance for giving and taking corruption. Corruption can be reduced by laying down detailed rules/ regulations. But it cannot be totally eliminated. I am myself a Senior Chief Manager in a PSU-Bank. I have seen people from very close quarters. A person tilts to take corruption at a price. That price may be different for different people. For late Rajiv Gandhi, this level may be Rs25-00 Crores whereas for a peon in Govt Office he could tilt for meagre Rs25-00 (Rs twenty five only) That is life. One has got to accept that as it is.

Like (1)

Ashwin Shah

Apr 14, 2013

Laws are made in such a way that officials are empowered without counter responsibility. Therefore people have to bribe in order to escape from long litigations.

Like (1)

Dhiren Thakkar

Apr 14, 2013

One more important factor which can be linked to corruption is the level of Education. Obviously also the quality of education. This would atleast theoretically mean, that citizen understands his rights and hopefully fight for it, although you should not be required to fight in first place.

Like (1)
Equitymaster requests your view! Post a comment on "What is the Underlying Cause of Corruption?". Click here!