In 2010, strategic management guru CK Prahlad calculated the annual cost of corruption to India to be about $55 billion. After taking into account the cost of lost opportunities, the size of black economy, inefficient allocation of resources and distribution channels, California University (Santa Cruz) economist Nirvikar Singh claimed that instead of the present 8 or 9 per cent, Indian economic growth would have been 12–13 per cent per annum, costing India 3–4 per cent in growth every year. This cumulatively amounts to $1 trillion. In other words, India’s economy could have been almost double its size today. In November, US think tank Global Financial Integrity reported that between 1948 and 2008 at least $462 billion was siphoned out of India, two-thirds since economic liberalisation.

Corruption has changed from the ‘licence/permit raj’. As government privatises public assets (mines, land, broadband, TV and radio spectrum, etc.), tender documents and qualifying criteria are deliberately vaguely worded. This allows politicians and bureaucrats to sell public assets to chosen individuals at gigantic discounts. Anne Krueger (ex-World Bank) and Columbia University economist Jagdish Bhagwati have shown that liberalisation through discretionary powers leads to corruption. This is exactly what we are witnessing in India.

Is India staggering towards political instability due to these kleptocrats? It is a combination of the strength of India’s civic institutions and media (India has about 150 news and current affairs channels when channels in regional languages are counted) that have unearthed these scams.

One can also see other hopeful signs. Corruption has been the bête noir of the Indian middle class. Now grown to 150-200 million, its concerns cannot be easily ignored. Last week a Supreme Court judge hearing a case commented: ‘There is something rotten in the Allahabad High Court’ (Uttar Pradesh state’s highest court).

About two months ago former federal law minister Shanti Bhushan in a submission to the Supreme Court stated ‘of the last 16 Chief Justices of India, eight were definitely corrupt’. He named them and urged the court to try him for ‘contempt of court’ so that he could expose them.

For the first time since 1966, besides Prime Minister Manmohan Singh, the other three most powerful ministers (defence, finance and home affairs) are also clean.

Mrs Sonia Gandhi recently announced a four-point anti-corruption programme: fast-tracking of all corruption cases involving politicians/public servants; ‘full transparency’ in public procurement and contracts; an ‘open and competitive system’ of exploiting natural resources; and eliminating ministerial discretion in land allocation.

This would be a good start. However, it remains to be seen if this was merely a PR exercise to shield the Government until the people’s anger subsided.

The Government has proposed an anti-corruption Ombudsman bill. This bill has been pending for 30 years and it will be the ninth time it has been introduced into the Parliament.

However, to burst the corruption boil, the Government needs to go further. E-tenders and e-auctions must accompany a detailed statement of all qualifying and desirable criteria that are drafted by reputable experts. The background of a senior civil servant or judge must be thoroughly checked (similar to confirmation hearings for such positions in the US). In 2003 the BJP-led government legislated that the Central Bureau of Investigation seek government approval before investigating politicians or senior bureaucrats. This must be repealed.

Legislators and senior public servants must declare their assets annually. During elections every candidate has to list his or her assets. The Income Tax Office must study these lists for unusual wealth gains.

Unless these or similar steps are taken subversive corruption will continue to corrode India’s security, prosperity and international reputation.

Vidya Sharma (PhD) advises on country risk management and inter-country joint ventures.

This article was first published in the Australian Financial Review on 13 January 2011.