Kaushik Basu, former chief economic adviser of India and former chief economist of the World Bank. (Photographer: Lisi Niesner/Bloomberg)

Changes To India’s Prevention Of Corruption Act Not In The Right Direction, Says Kaushik Basu

Back in 2011, when he was chief economic adviser, Kaushik Basu suggested a radical idea to deal with corruption in India. Make bribe-giving legal in certain circumstances and allow bribe givers to get their money back by reporting the bribes. This would incentivise bribe-givers to come out in the open and get the bribe-takers caught, Basu had argued.

Last month, India amended its Prevention Of Corruption Act. The new amendments increased the punishment for bribe-givers up to a maximum of seven years. However, the amendments have provided a seven-day window, saying that if the bribe is reported within this time period, the bribe-giver will not be charged with the offence.

The amendments also increased the protection to government officials by saying that an arrest of such officials must be first sanctioned by a relevant authority.

“From my brief reading, I don’t think these are amendments in the right mode,” Basu told BloombergQuint in an interview.

My big worry is that if you give the bribe-giver a window of seven days and a disproportionate protection to the bribe-taker, then the seven-day window is not going to achieve the kind of thing that I had argued.
Kaushik Basu, Former CEA, Government of India

The amendments to the Prevention of Corruption Act came against the backdrop of a number of government officials, particularly public sector bankers, being named in various investigations.

While many believed that the purge was needed, bankers had argued that genuine commercial decisions are being question, hitting the morale of the financial sector. Basu said that ‘purges’ can have unintended fallouts.

“These can be one-time actions which give out a signal, which then backfires in many other ways,” he said.

Managed Depreciation For The Rupee?

Outlining the challenges for the Indian economy, Basu said that apart from the twin-balance sheet problem, the country needs to focus on reviving exports.

One way to do this, Basu argues, is to engineer a “managed depreciation” for the rupee. Speaking on the sidelines of a lecture in Mumbai on Monday, Basu had argued that a rupee value of close to 71 against the U.S. dollar would be more suitable for the Indian economy, which needs to shore up export growth. The Indian currency has fallen about 7 percent this year and trades at near 69 to the U.S. dollar.

The export problem has a lot to do with the minutiae of the manufacturing sector but, in addition, it has to do with exchange rate policy and we have to pay attention to that so that the real exchange rate does not appreciate. In fact, I would go for a small amount of managed depreciation of the currency, which will give exports that shot in the arm that they very badly need.
Kaushik Basu, Former CEA, Government of India

While pointing out some of the issues that India needs to address, Basu said that the Indian economy is broadly stable. India’s vulnerabilities are minimal, said Basu. “Overall, the economy is strong enough so the sort of flutter that we have seen in the past, I don’t think we will see that even if there are corrections on the global front.”

Basu acknowledged that U.S.-China trade tensions are real but added that he is hopeful of tempers calming down.

I like to believe that this will be pulled back. So there will be some turbulence but we will not get into a full fledged (trade) war because I think it will be realised that this will be a mistake. So the rich nations will pull back from this.
Kaushik Basu, Former CEA, Government of India