In a lecture in the city of Ahmedabad in 1975, Indian economist B. R. Shenoy asserted that the Indian state’s extensive control over economic activities, facilitated by bureaucratic discretion, was the root cause of the country’s corruption.
Shenoy argued that the power vested in government officials to grant permissions and clearances and issue licenses inherently enabled a system of rent-seeking. He illustrated his argument by noting that a piece of paper has virtually no intrinsic value but becomes incredibly valuable with an official’s signature. This power of bureaucratic signatures to confer value sparked a culture of corruption, as individuals and businesses were incentivized to offer bribes to expedite the approval process or secure favorable outcomes.
Shenoy argued that in addition to fostering corruption, extensive government intervention hampered economic development. He was thus a vocal advocate for economic liberalization. Though his views were out of step with the times, they began to gain traction around 1975.
Shenoy’s lecture remains influential, with its arguments against interventionism still resonating in contemporary discussions about economic policy and corruption. His early advocacy of liberalization presaged the significant reforms that would eventually transform India’s economic landscape.