corruption and inflation – is there a link?

9 Feb

Indian PM – Dr. Manmohan Singh recently announced that corruption and inflation are two of the biggest roadblocks to india’s growth; I wonder if there is any link between the two.

Stop Corruption

Lets take an example. suppose a person receives a big bribe and wishes to spend the money, the first things that would come to his mind would be luxury items like electronics, mobile phones,  etc., may be gold or a designer watch. now since his income is not accounted for he has to pay for his spends through direct cash, which in turn may result in him trying to avoid any suspicion by not taking an original bill/memo. Now the place where he spent

his cash has to pay for salary/commission to their staff which again is generally in India is cash; with this extra income his staff members may decide to buy some items for themselves – which may be a special meal/extra groceries/travel by taxi/new shoes etc. Since in the entire cycle there is no official bill or memo we can assume there is no accounting for these expenses from the government’s perspective and hence all these expenses can easily drive up inflationary pressure.

Over the last ten years, most lucrative governmental business contracts have been given to the inner circle/power brokers of the ruling government. When I say the inner circle, I don’t directly mean the ruling government, but rather them, along with those who work under their umbrella.Believing that building the inner circle is more important than building the country has resolved into being the biggest crises the country has faced in decades.

Consider this as an endemic problem which india is facing; where corruption and bribery are a way of life, don’t you think corruption and inflation have a link  and one is feeding the other?

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