Nepal secures a ‘D’ in the World Economics Corruption grade and is ranked 110th among 180 countries and territories in the Corruption Perceptions Index (CPI) issued by Transparency International. The corruption rank in the country averaged 124.6 from 2004 until 2022, reaching an all-time high of 154 in 2011 and a record low of 90 in 2004. While there has been a slight improvement in CPI, it has not met people’s aspirations to live in a low-corruption milieu.

Perception is a normative phenomenon, but rising corruption perception is associated with diminishing trust in all state apparatus, including the legislative, judiciary and executive. As a result, people feel less secure and become more aggressive against state machinery. They leave the country for better security and opportunities, leading to brain drain, loss of population dividend and distraction in private sector investment, which races the economy to the bottom of the pyramid. The cost of such distrust cannot be recovered unless all state organs make significant efforts.

Dimensions of corruption

Corruption is the abuse of public power for private benefit. It also exists in private activities regulated by the government. In several cases, public power abuse is not necessarily for one’s private advantage; it can be for one’s party, class, race, kith and kin. Corruption is akin to bribery, fraud, embezzlement, nepotism and favouritism. Moreover, there can also be political and legal gains that include exclusive access to decision-makers and political and legal authorities. Favouritism is practised widely, but it is not legally considered bribery when the money isn’t exchanged. A favour is simply expected in return, adding a high cost to fairness and competition. It may be a favour granted in return for political support or an appointment to a position. In 2019, Transparency International described absenteeism, informal payments from patients, embezzlement, inflating cost of services, favouritism and data manipulation as the six most common ways of corruption.

Corruption impedes people in every walk of life. First, poor public service delivery is the biggest whip on people at the grassroots, as the consequences are disproportionately borne by the poor, who have no resources to compete with those who can pay bribes. Additionally, government funds are diverted to fancy low-return projects such as view towers, big office complexes and high-rent subsidies. Infrastructure projects like schools, hospitals, water supplies, road repair, sanitation facilities, and basic social protection schemes that benefit the overall population are kept aside. Additionally, the most corrupt public servants are often retained at offices where the rent-seeking possibilities are high and bribery is common. Political leaders show high interest in transferring officials to such offices in exchange for their support.

Second, corruption is associated with a high economic cost. The World Economic Forum estimates that the global cost of corruption is at least $2.6 trillion, or 5 percent of the global gross domestic product (GDP). Meanwhile, according to the World Bank, businesses and individuals pay more than $1 trillion in bribes yearly, causing the confiscation of poor people’s chunks by big contractors, power brokers and companies. A 2019 study by the International Monetary Fund suggests that the least corrupt countries collect higher revenues—4 percent more in taxes than those at the same level of economic development with the highest levels of corruption.

Third, corruption incurs various social costs. It degrades access to health care, education, social security and protection from criminal operations and violence. It also diverts people towards criminal activities, money laundering, trafficking and drug abuse. Fourth, corruption brings up environmental costs such as wildlife trafficking, degradation of natural resources and environmental pollution through bribery in policy, permitting systems and so on. A USAID study on “Corruption and Environment” reveals that smugglers earn $12 billion profit annually by smuggling endangered species.

Politically, corruption ignites disharmony and instability in societies, frequent unrest for political changes, derailed policy making to address pertinent issues, weaker international relations, biased bureaucracy and impunity. A major contributing factor is the lack of exemplary leadership. When the top political leaders do not set the right example by directly or indirectly getting involved in corruption, the private sector begins rent-seeking, establishing monopolies, price hikes and tax evasion.

Frustration and distrust towards the government and corporate sector add anguish towards the overall administrative system and regime. It jeopardises meaningful civil participation, policy democratisation, transparency in law-making and accountability in its implementation.

Combating corruption

The state must combat corruption by regulating and authorising the easing of government permits, licenses, certificates and tax clearance that are essential to promoting business activities and reducing the cost of business. The citizens deserve fewer hurdles in opening a startup, borrowing money, driving and owning a car, building a house, exporting and importing, foreign exchange, getting a passport, citizenship, etc. If such authorisation gives monopoly power to the officials who inspect, authorise or refuse the process or hold it for months, they open the highway to corruption.

In general, the laws about taxation can be interpreted differently, and the public finds them challenging to understand, so taxpayers need assistance in complying with them. Tax consultants are often alleged to work as brokers or middlemen to negotiate the amount of bribes, misguide taxpayers to evade taxes, or, in some cases, defame tax administration by taking advantage of their ignorance. Therefore, tax administration should introduce user-friendly technologies and online payment systems to calculate and collect taxes properly. As taxpayers hardly report the acts of corruption of the tax administrators for their own benefit, an automated tax calculation and income tracking system is a must, along with the demonetisation of currency with an e-payment system.

The purchase of goods and services for big investment projects on the government's part is another area affected by corruption. Public projects have sometimes been carried out specifically to provide individuals or political groups with opportunities to get commissions and complicity from those who get the projects. Public-paid tax money allocated to political parties in different possible ways is a major problem in a democracy. Democracy gives citizens a role in selecting their political leaders. Still, the positions are often hijacked by business elites or the nouveau riche, who have funded political parties and will be compensated later through policy corruption or the award of big contracts.

Way forward

The quality of bureaucracy, which varies significantly among countries, plays a significant role in combating corruption. Public sector jobs are sometimes provided with prestige, status, and handsome salaries, but the situation is the opposite in many low-income countries. Research from 35 developing countries indicates that the less a country recruits and promotes based on merit, the higher the corruption. Politically motivated hiring, patronage, nepotism and the lack of clear rules on promotions and hiring contribute to the quality of a bureaucracy.

Civil servants should be well paid based on their performance appraisal system. If billions of rupees of corruption can be curtailed, decent payment is possible. A robust penal system should be in place. In Nepal, the Commission for Investigation of Abuse of Authority often files cases against people allegedly involved in corruption. Still, the entire income of the latter is rarely taken into account. If the court finds them guilty, all their illegal income should be confiscated. Institutional controls should be in the hands of effective supervisors and good auditing officers equipped with clear rules, ethical conduct and non-discretionary or transparent use of power.