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From one Kejriwal to another Kejriwal.

By Alok Rodinhood Kejriwal on 199 Comments / 28277 views

 My dear Sir Arvind Kejriwal,

Hope you are doing well.

My name is Alok Kejriwal, and I am a humble digital entrepreneur based out of Mumbai.

Sir, I have been struggling for the past 13 years to make a mark for myself in my industry and while I have certainly not achieved the size and scale of success and fame that you have, I do enjoy my own small universe of friends and supporters.

This mail is not to obviously compare my popularity vs yours’ (silly comparison) BUT to ASK you a question about your philosophy of creating such amazing and effective agitation against CORRUPTION. 

My Question – Instead of fighting tooth and nail (and losing yesterday’s battle) against corruption, have you Dear Sir considered fighting and agitating for INCREASED GDP??

Sir, allow me to explain…

In my Company, let’s assume I do a business turnover of Rs 100.00

Also let’s assume that my profit margin is 10%

Therefore, I SPEND Rs 90.00 in generating my business turnover.

Obviously this expenditure of Rs 90 is towards salaries, cost of buying services, electricity, rent etc paid to OTHER Indian companies and individuals.

Since you are a very smart man, you will quickly understand that IF a man starts a business of Rs 100 in India, then this is what happens when the people who receive my Rs 90.00 further retain 10% margin and SPEND the rest in making THEIR business run:

Turnover Profit Expenditure
100.0 10.00% 90.0
90.0 10.00% 81.0
81.0 10.00% 72.9
72.9 10.00% 65.6
65.6 10.00% 59.0
59.0 10.00% 53.1
53.1 10.00% 47.8
47.8 10.00% 43.0
43.0 10.00% 38.7
38.7 10.00% 34.9
34.9 10.00% 31.4
31.4 10.00% 28.2
28.2 10.00% 25.4
25.4 10.00% 22.9
22.9 10.00% 20.6
20.6 10.00% 18.5
18.5 10.00% 16.7
16.7 10.00% 15.0
15.0 10.00% 13.5
13.5 10.00% 12.2
12.2 10.00% 10.9
10.9 10.00% 9.8
9.8 10.00% 8.9
8.9 10.00% 8.0
8.0 10.00% 7.2
7.2 10.00% 6.5
6.5 10.00% 5.8
5.8 10.00% 5.2
5.2 10.00% 4.7
4.7 10.00% 4.2
4.2 10.00% 3.8
3.8 10.00% 3.4
3.4 10.00% 3.1
3.1 10.00% 2.8
 TOTAL
875.00

Sir, if you notice, the TRICKLE DOWN EFFECT of starting a business with Rs 100.00 turnover results in Rs 875.00 turnover generated by other people down the value chain as they run their business/service. 

NOW, coming to a topic closer to you:

LET’S ASSUME THAT THE PERCENTAGE of BRIBE IN EACH BUSINESS TRANSACTION IS 10% 

So, of the first Rs 90 I spend, I will have spent Rs 9 in bribes.

AND 

In the Rs 875.00 turnover achieved above, the other players in the VALUE chain will also have spent 10% of 875.00  or Rs 87.50 AS BRIBES.

In short, Rs 100.00 turnover GENERATES Rs 875 more turnover, with Rs 87.50 being spent as bribes.

MY QUESTION TO YOU IS – what is MORE IMPORTANT?

Encouraging me to START A BUSINESS of Rs 100.00 that GENERATES further business of Rs 875.00 OR  SAVING Rs 9.00 ????

Bear with me for one more minute:

Let’s ask ourselves, what stops people from starting businesses (that grows GDP) in India in the first place??

It’s the lack of EDUCATION.

So, let’s take the case of my Driver.

His son is studying in an English medium school and is quite a bright guy.

I hope that one day he will NOT become another driver BUT someone, like say, an Auto Parts Dealer with a SHOP that sells parts and runs a BUSINESS. 

NOW COMES THE QUESTION:

If he HAS TO PAY A SMALL BRIBE TO START HIS SHOP – ISN’T THAT OK – CONSIDERING THAT HE WILL CREATE 8.75 TIMES MORE BUSINESS FOR THE COUNTRY EACH YEAR???

BRIBES ARE PAID ONCE. BUSINESSES RUN FOR EVER!

If my driver asks me for a LOAN to help start his son’s business – should I NOT GIVE IT – KNOWING that Rs 9.00 WILL GO IN BRIBES, BUT EACH year he will generate a 8.75 MULTIPLE effect for the country??

Sir, I am businessman, and just using elementary math, note THAT RS 875.00 is BIGGER than Rs 87.50!!

My plea with you is:

Agitate to get more people to START businesses.

TO INCREASE THE GDP OF INDIA

TO CREATE ENTERPRISES 

TO CREATE AN ARMY OF ENTREPRENEURS

TO NOT JAIL BHARO

BUT

BANK BHARO WITH ENTREPRENEURS!!!

I have tears in my eyes as I write this Sir.

Simply because the biggest and most powerful agitators ever born in this great country… which would be you and Shri Annaji… seem to have MISSED THE REALLY, REALLY, BIG PICTURE.

A troubled,

Alok Kejriwal

alok@rodinhood.com

*****

Ps – special thanks to Asha for her speed editing of this one!

*****

This comment exchange between me and a fellow rodinhooder (part of comments) may also help understand my article:

Comment by Darshan Mujumdar

Hi Alok,

First of all, very creative attempt to solve the problem at hand than keep beating around the bush. I, however, see a fundamental flaw in your argument. The number Rs. 875 is a notional number, as you are summing the “revenues” while you move down the value chain of your product/service. In effect your model is proving that if our country’s earning is Rs. 100 (the revenue generated in your example), then Rs. 87.5 goes in bribe. Note that at each level in the value chain, the REAL earnings are only 10% of the service/product that you sell, so effectively your model depicts that at each level of the value chain, as the money trickles down, 90% goes in the form of bribe, while 10% of the profit or 1% of the revenue remains with the actual producer of the service or goods.

Regards,
Darshan

My reply:

Darshan,

You really need some basic tutoring in economics.

Let me contribute:

– Lets assume I run a Paav Bhaji stall in Mumbai.

I SELL Rs 100 worth of paav bahji to customers PER DAY

FIRST – who pays me? Nearby employees of office buildings etc – who have EARNED SALARY and spend small moneys to eat every day. So that is where I get Rs. 100 from. ( not important in this discussion).

Now, from the Rs 100 I earn, I SPEND RS 90 per day.

Where does the Rs 90 get spent per day?

Assume:

– Vegetables & Food vendors – Rs 70

– Helper – Plates, disposables etc – Rs 11

– HAFTA – BRIBE TO POLICE WALA – Rs 9  (10%)

– TOTAL  = Rs 90

– Profit retained  = Rs 10 

GROSS TOTAL = Rs 100 = Original sales.

Now, lets look at ONE OF THE ELEMENTS of my Rs 90 spent – the Rs 70 spent on the vegetable and food vendor.

The Rs 70 I SPEND is EARNED by Wholesale vegetable guys who have small shops that BUY from the Village market suppliers etc. So get this right – My Rs 70 spend is Rs 70 Sales for this guy.

This person in turns spend Rs 63 (90% of his cost) daily on:

Lets assume – Rs 50 – paid to village agent who gets him vegetables, Rs 7 to a Hamaal (coolie) who carries the goods for him and Rs 6 (10%) BRIBES – to the police wala who lets the vegetable seller conduct his business.

As per the economic model I have maintained, the Vegetable vendor keeps 10% of his sale or Rs 7 as profit for himself.

Now, lets do totals for JUST ALOK and Vegetable Vendor

Alok’s sales – Rs 100, Bribe paid – Rs 9

Vegetable sales wala – Sales – Rs 70 – bribe paid – Rs 7

(The same could be calculate for plate supplier, hamaal etc)

TOTAL SALES just between 2 people = Rs 100+ Rs 70 = Rs 170

BRIBES PAID – Rs 9 + Rs 6 = Rs 15 ( less than 10% here)

Therefore, as the Original 100 trickles down, it creates momentum value since what I spend is someone’s earning etc etc

IF I REFUSE TO SPEND RS 9 on the first Bribe – I DONT SELL Rs 100 of Paav Bhaji, the Vegetable Vendor doesn’t get Rs 70 etc etc etc….

DOES THIS MAKE SENSE???

Now comes the FUN!!

The 2 police walas who take bribes – Rs 9 and Rs 6 = Rs 15 ACTUALLY FURTHER SPEND MONEY ON EATING PAAV BHAJI FROM MY NEIGHBOR, thereby again increasing the cash circulation!!! (source of money which I did not care to cover because if I ever said that bribes are good for the economy, then I would be killed).

FINALLY:

I would like you to look up a famous man called Keynes and what he said about ‘digging holes in the ground’…. that will really strike a point.

Your friendly, neighborhood economist:

Rodinhood

******

Update – 30-8-2012

I just cant help smiling to myself. 

In the post above, just below the maths, this is what I had written:

“Sir, if you notice, the TRICKLE DOWN EFFECT of starting a business with Rs 100.00 turnover results in Rs 875.00 turnover generated by other people down the value chain as they run their business/service. “

YES!!!

Just read this in the Times of India Today:

:-))))

******

Some blessings from a Senior Economist!

*****

 

Prof. Pinaki was not quoted by me ‘randomly’ – he was quoted by me to prove that corruption INDEED DECREASES AUTOMATICALLY when GDP increases – something that i been screaming in my post.

Check the PPT and Prof. Pinaki’s graph as under:

 

 
And, here is Prof. Pinaki’s graph taken from – https://www.multiplier-effect.org/?p=1481
 
*****

“What do you think of the AAP party?

I think they are stumbling. Corruption is not a problem. It is a symptom of a problem. Today people have no trouble buying airline tickets, car, train tickets, a phone. You know why? The markets opened up; which is the point I want to make to the AAP — open up the markets fully. Indian liberalisation is of the elite, by the elite and for the elite. They have liberalised air travel, automobile, financial sector, capital freedom but  they did not liberalise (for the ) poor—farm sector, labour sector. They think they are helping the poor. They’re not. They’re preventing jobs from being created. All the power in a train is actually the locomotive, entrepreneurs are like locomotives. They start the train. For people at the lower end to have jobs, people with entrepreneurial skills should start companies.”

********

You can read the compilation of my articles on

AAP, Arvind Kejriwal & Anna Hazare in AAP the BIG Fail

********

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199 Comments

  1. Hi Alok,

    First of all, very creative attempt to solve the problem at hand than keep beating around the bush. I, however, see a fundamental flaw in your argument. The number Rs. 875 is a notional number, as you are summing the “revenues” while you move down the value chain of your product/service. In effect your model is proving that if our country’s earning is Rs. 100 (the revenue generated in your example), then Rs. 87.5 goes in bribe. Note that at each level in the value chain, the REAL earnings are only 10% of the service/product that you sell, so effectively your model depicts that at each level of the value chain, as the money trickles down, 90% goes in the form of bribe, while 10% of the profit or 1% of the revenue remains with the actual producer of the service or goods.

    Regards,
    Darshan

  2. Darshan,

     

    You really need some basic tutoring in economics.

     

    Let me contribute:

     

    – Lets assume I run a Paav Bhaji stall in Mumbai.

     

    I SELL Rs 100 worth of paav bahji to customers PER DAY

     

    FIRST – who pays me? Nearby employees of office buildings etc – who have EARNED SALARY and spend small moneys to eat every day. So that is where I get Rs. 100 from. ( not important in this discussion).

     

    Now, from the Rs 100 I earn, I SPEND RS 90 per day.

     

    Where does the Rs 90 get spent per day?

     

    Assume:

    – Vegetables & Food vendors – Rs 70

     

    – Helper – Plates, disposables etc – Rs 11

     

    – HAFTA – BRIBE TO POLICE WALA – Rs 9  (10%)

     

    – TOTAL  = Rs 90

    – Profit retained  = Rs 10

     

    GROSS TOTAL = Rs 100 = Original sales.

     

    Now, lets look at ONE OF THE ELEMENTS of my Rs 90 spent – the Rs 70 spent on the vegetable and food vendor.

     

    The Rs 70 I SPEND is EARNED by Wholesale vegetable guys who have small shops that BUY from the Village market suppliers etc. So get this right – My Rs 70 spend is Rs 70 Sales for this guy.

     

    This person in turns spend Rs 63 (90% of his cost) daily on:

     

    Lets assume – Rs 50 – paid to village agent who gets him vegetables, Rs 7 to a Hamaal (coolie) who carries the goods for him and Rs 6 (10%) BRIBES – to the police wala who lets the vegetable seller conduct his business.

     

    As per the economic model I have maintained, the Vegetable vendor keeps 10% of his sale or Rs 7 as profit for himself.

     

    Now, lets do totals for JUST ALOK and Vegetable Vendor

     

    Alok’s sales – Rs 100, Bribe paid – Rs 9

     

    Vegetable sales wala – Sales – Rs 70 – bribe paid – Rs 7

     

    (The same could be calculate for plate supplier, hamaal etc)

     

    TOTAL SALES just between 2 people = Rs 100+ Rs 70 = Rs 170

     

    BRIBES PAID – Rs 9 + Rs 6 = Rs 15 ( less than 10% here)

     

    Therefore, as the Original 100 trickles down, it creates momentum value since what I spend is someone’s earning etc etc

     

    IF I REFUSE TO SPEND RS 9 on the first Bribe – I DONT SELL Rs 100 of Paav Bhaji, the Vegetable Vendor doesn’t get Rs 70 etc etc etc….

     

    DOES THIS MAKE SENSE???

     

    Now comes the FUN!!

     

    The 2 police walas who take bribes – Rs 9 and Rs 6 = Rs 15 ACTUALLY FURTHER SPEND MONEY ON EATING PAAV BHAJI FROM MY NEIGHBOR, thereby again increasing the cash circulation!!! (source of money which I did not care to cover because if I ever said that bribes are good for the economy, then I would be killed).

     

    FINALLY:

     

    I would like you to look up a famous man called Keynes and what he said about ‘digging holes in the ground’…. that will really strike a point.

     

    Your friendly, neighborhood economist:

     

    Rodinhood

     

  3. just get a like button saves my time typing 🙂

  4. It is clear you do not understand what corruption is. What you are advising is that one should hear no evil and see no evil.

    You started your business with Rs. 100 but who gave you that 100 in the first place? What if you are denied access to that Rs 100? What if that contract you are coveting goes to a politician’s firm? What if your import/export goods are blocked at the port and you are asked to pay up? Your answer would be that its just a business expense to you and as long as you are able to pay up, not a problem. Right!

    You can be that cocky only till you are up against the weaklings. Talk to me the day one of your friends/relatives/colleagues are shot in the head by the drunk son pf a politician after their car brushed against yours and you are left to face the slow grind of Indian judicial system. When Union Carbide has gassed half your city to death/disability and you can’t do anything. When a terrorist captured on camera with a gun shooting people in public is granted bail by the court. Clearly, you think money is the answer to everything.

    Just sharing a surname is no passport to greatness. If you do not understand what IAC is demanding, please at least do not insult their intelligence by advising them from your ivory tower.

  5. Dude… Take ur Ram Leela Bhashan elsewhere.

    This is an economic discussion… Not some nollywood script writing contest!!!!

  6. Sure!!! But neither you and me can declare him India’s Leanardo Da Vinci!!

    THE People need to appoint him to BE THEIR painter.

    He cannot sit in empty grounds and beg for attention…!!!!

  7. For Better or For Worse. You can’t beat corruption, it’s like a nanomites in your blood, you would have to drain yourself/economy before you can get throw it out. besides what about corruption that leads to opportunity.

    We are not corrupt or selfish. We are the John Galt’s of this world, the crazy one’s besides I love Corruption.

    Summary:- “Saheb will meet you tomorrow, I like you guys normally we would take a cut of 10% but since you are new guys we will only take 8& from you” He demanded. “OK, when do we get the WO {Work Order}”. I asked. “As soon as you submit money” He said. That’s insane, the project value is 2.5cr+ how do a son of farmer come up with that kind of money to pay to Saheb I thought to myself. “We will arrange the commission in a week, are you sure we will get the work” My friend said suddenly. Sure but he would need to pay something in Advance as Saheb is going to meet some other parties during the week. If someone pays before than you, I can’t do anything, I will try to hold since I like you but Saheb has his own mind. You see he is very Big. our new found friend said in confidence.


    Corruption is a moral problem, let’s not make it a economical one. 

  8. Dear Alok,
    you wrote well. Good to read a different angle about contribution of Bribes. You have addressed it to another Kejriwal but when somebody tries to ask a question (think another Kejriwal is asking) like Pawan Khatri, You just brush it aside….!!
    Have courage to answer the questions…!!
    I think u will have more following than now. Being Aggressive like another Kejriwal will put people off. Giving a quantitative model just like Mutual Fund seller ( who makes u feel rich in just few year to come) doesn’t come handy. There are so many qualitative issues which affect life even to business people. Don’t they suffer..!!
    Anyway its a good article to amuse and ofcouse to think differently.
     

  9. Okay. Let’s talk economics.

    Your theory implies that there is no downside to corruption. There is no cost to be paid for it. Think again.

    If two people want to become pilot and the undeserving one gets the commercial pilot license by paying a bribe and ends up crashing a plane then that is good right because keynesian economics says that the crashed plane will have to be replaced with a new one in turn generating more economic activity.

    How about the people on board?

    Its good they died. We will have less mouths to feed and their jobs will be taken up by the unemployed.

    All gain no pain! Where did you learn your economics? Dude!

  10. You are mixing emotions with theory.

     

    Poor economics became a widow!

     

    Watch National Geographic. 

     

    The MOST plane crashes happen by the MOST EXPERIENCED pilots – because they get over confident.

     

    Now, wonderful economics.

     

    Bribes dont work because Airlines (EMPLOYERS) have a far bigger economic INCENTIVE to choose the best (and hence not allow bribed incapable pilots to fly) BECAUSE:

     

    – Loss of revenue and reputation to their business!!!!

     

    Please READ – SEE – OBSERVE – THINK – RESEARCH – then talk!!!

    NO PLANE ACCIDENT in recent history has happened due to BRIBES!

    Poor Migs crash because of bad airplanes – our BEST PILOTS DIE.

    Next example please!!

  11. nope.  i propose economic argument.

    it must be countered such.

    no hoky poky, ram leela stuff here please!

  12. thanks sir

  13. tell me if u want help (explanations) – see one explanation in detail below in comments about paav bhaji stall

  14. Interesting points but you failed to point out what the other Kejriwal needs to do?Alok the point you are clearly missing is that why should the 9 bucks be a cost of doing business in the first place? The key to a successful entrepreneurial ecosystem is simple understandable regulation. Complex regulation leads to monopolistic businesses thriving because they dont care about business ethics and are happy to pay the bribe that you described in your somewhat simplistic flawed calculation. I call it illogical because it fails to ascribe any value to social and innovation opportunity cost of paying bribes. My point is that Entrepreneurs are so busy beating the system that they dint get to focus on innovation and building world class products .

    Another cost you ignored in your calculation is the cost of raising capital. Absent a corruption free environment you will never have venture capital making its way to new ideas because everyone will be in it for the short term gain. So you will create a brand of businessmen who succeed despite the system and not because of it. Think about it. I dont support Jail Bharo but maybe it is the road to fixing the structural constraints of doing business.

     

  15. You sure do live in an ivory tower.

    See this: https://www.outlookindia.com/article.aspx?271146

    Clearly the far bigger economic INCENTIVE of airlines can be easily bypassed. That is called CORRUPTION if you still have not got it.

    What would you say now? Outlook magazine is wrong? All these experts are wrong?

    QUOTE

    NO PLANE ACCIDENT in recent history has happened due to BRIBES!

    Poor Migs crash because of bad airplanes – our BEST PILOTS DIE.

    UNQUOTE

    You say something and contradict yourself in the very next statement. If Migs are bad, why did we buy them?Who took money to buy bad planes? Are these crashes not due to corruption?

    Who needs to READ – SEE – OBSERVE – THINK – RESEARCH – then talk?

  16. Dear Pawan,

     

    I dont’t live in an Ivory Tower (though I am trying to live in an apartment called ‘Imperial Towers :-))

     

    I also know of this outlook report. 

     

    BUT

     

    I am also a man of facts.

     

    CHECK THIS OUT:

     

    https://planecrashinfo.com/cause.htm

    It lists ALL PLANE CRASHES IN THE WORLD AND THE REASONS.

     

    See the bottom of the table on that page and then read up.

    don’t get emotional. Get factual :-))

  17. Very nice article Alok, really liked it !!!

    @ Alok / Asha Only one comment from my end  : You guys have mentioned : My name is Alok Kejriwal, and I am a humble digital entrepreneur based out of Mumbai. It shd be My name is Alok Kejriwal, and I am a humble serial digital entrepreneur based out of Mumbai.

    Alok you really know how to create successful products. E.g chk out popularity of https://www.therodinhoods.com

    Good show.

  18. One Kejriwal is talking about how to eradicate corruption and the other Kejriwal is talking about how to make corruption a way of life. One Kejriwal gave up his cushy job to bring awareness about our rights and the other Kejriwal is speaking like a money making bania. Totally opposite. What a waste!

  19. hahahahaha !!!

    2win has paid 100 crores in salary.

    Now, using my wonderful formulae – thats CREATED 8,750 CRORES IN VALUE for India.

  20. And has your wonderful formula which has created 8,750 crores in value been able to eradicate poverty in our country? Has it been able to provide with basic education to the millions of children in our country? Has your wonderful formula provided for basic infrastructure in our country?? This list can go on and on…..  The reality is that your wonderful formula has only created more corruption and corrupt people who want to live life only for themselves. Lets applaud the other Kejriwal for what he is doing for all of us and our future generations. Its easy to give gyaan but gyaan should have some basis. Not for the sake of talking…..

  21. thats exactly my point to arvind!!

     

    A small silly digital entrepreneur called alok can generate 870 crores

     

    what happens when 1000 infosys are born each year in india??

     

    is it difficult to see that GDP creates wealth that creates education and sanitation?

    Have you heard of countries called USA/UK/Sweden?Germany etc?

     

  22. If you have decided you are not going to understand then I can’t help. This is the last time I am writing on your blog (where I landed because of a Facebook link posted by my friend who thought your article is insightful and had the Kejriwal name whom I deeply respect).

    The link you have given says that in every decade almost 50% crashes were Pilot errors. Now can you guarantee that all those pilots were genuine and not the fake under-trained ones we have flying in our skies? Read that Outlook report again. The lady who landed the plane on its nose-wheel could have killed everyone on board. Just because it did not happen, the fact remains that this lady pilot has never crashed a plane. But would I like to fly with her? Certainly not. Would you? Yes if you are a man of facts!

  23. Pawan, by choosing to reply or not is your prerogative.

    your example of corruption with airline pilots is what I am arguing.

    Globally, its know that the most experienced pilots have crashed planes.

    But as you say, i am deaf and you are busy, so good luck and good bye!

    Ps – when you fly, do you check the backgrounds of the pilots who fly?

    or do u take trains (more people in India get killed by trains than planes)

    or do u take cars (india has the highest death rates for car accidents)

    or do u walk ? thats corruption free and death free!!!!

  24. same Germany that killed millions of innocent ppl?same uk that made us their slave for 200 years? same US wher one president did “watergate” and another did “chakkargate” with monica in his office? yes, sabke bare me suna hai. aap iname se kisako follow karate hain?

    by the way, aapane Bihar ke “super 30” ke baare me suna hai yaa sirf firng logo ko jaanate hain? 

  25. Arup. I dunno if u read this post or read some history blog.

    This post is about GDP and how to make it larger.

    In that context I mentioned some of the largest success stories of the world.

    German given that its actually bailing out the EU as we speak.

    I am a very spiritual man and absolutely abhor Hitler and the SS and everything he did. That is a discussion on Karma and leadership of heads of nations.

    Don’t get confused. Get focussed!

  26. I think Alok , this is  a time to test your doctirne with some ‘Real Economist’ and let us know what he says,

     

    Arivind Kejriwal and team are the smartest ‘Disruptive Innovators’ in Indian Politics today, who has established their Brand in a huge country of ours by ‘Borrowing money and support from common people.

     

    They have revealed their ‘POLITICAL’ motives after the Lokpal bill has failed in both the houses.

     

     

     

  27. Brilliantly put, clarifying d value preposition of both sides & in turn showing how senseless is to show aggression against something which hardly matters, when there are thousand of critical concerns to be worked upon within d framework of Democracy.

    Few Days back I was responding to one of my old dear friend on corruption – “Handling corruption issue with this aggression, is like an old filmy idiot extra Hero is running to save his father’s last gift locket without bothering the villain bullet shoot outs and finally dies off. Result in nothing but the left behind mother with no one to support, which his son would have had done so without showing that foolish aggression. Take Corruption as that last gift & whole lot of major faults as bullets – Systems are still not liberal, Paperwork & ease of doing business you know where we stand, every party has put his ifs & buts to favor his vote banks at every step, all states on integrated resources behave like they are not part of same nation & oppose uniform basics, duties & charges of the approval are for futile and force many to bribe, judiciary delays are almost like no justice for anything…… ” 

    Soldier

  28. Dear Alok, that’s good calculations. But only on paper. In reality. your driver’s son wants to start the business but he will require to pay the bribe not only once but time and time again. I agree everyone must support entrepreneurship and businesses that create value or GDP as you say. However, reality shows different picture. Look at increase in Indian GDP since 1992 and poverty and layer these numbers with % increase in wealth of 500 richest Indians. You might stumble upon shocking figures.   

    Having said this, the business can bring in tectonic shifts if they wish to. Case in point happened in Pune in early 90’s. A strike that crippled the large conglomerate operations.One warning from the head of business that he’s willing to shift the plant out of Pune and then CM had to intervene personally and sort it out. Now let’s look at Mumbai – the financial capital and where several richie rich are based out of. Yet, none of the road is with out a pothole and dust. All employees productivity is much lower due to traffic woes. However, I haven’t heard a single business owner taking a stand and telling the government that if you don’t follow basics of ‘civilized’ society, you will move out. Is there any example am not aware of???
        
    Given this situation, I salute those guys who at least stood for something that common man faces and not criticizing sitting in their air conditioned offices. Whether these guys fail or succeed doesn’t matter…what matter is they have guts to go on street. And I call it “social entrepreneurship’!! 

  29. Alok, in your example, if you remove bribes/corruption from the equation, you’re profit margins nearly double from 10% to 19%. Expenses are now only Rs.81, as opposed to Rs.90. Your business suddenly make Rs.19 for every Rs.100 in sales. Wow! Wouldn’t you and your shareholders like that?

    The increased profits now can be used to scale up your business. A vada pav wala can now think of investing capital accrued from increased profits and open up another vada pav stall. (McDonald’s anyone?) This is the multiplier effect at play which you have described so well. Except, this is the multiplier effect of increased Investments and not of increased consumption (which by the way is more sustainable and beneficial to the long term growth of any economy).

    You’re other argument about “The 2 police walas who take bribes – Rs 9 and Rs 6 = Rs 15 ACTUALLY FURTHER SPEND MONEY ON EATING PAAV BHAJI FROM MY NEIGHBOR, thereby again increasing the cash circulation” is theoretically correct. However, in India’s case the ‘police walas who take bribes’ have managed to stash up over $1.6 TRILLION in Swiss Bank accounts which has not created any multiplier effect nor has it increased GDP. (Just some trivia: The total amount of black money in Swiss Banks belonging to Indians is greater than the GDP of India)

    My sense is that you need the other Kejriwal (or whoever else) to take your profit margins from 10% to 19%. Other things being equal, smart businessmen and investors should be supportive of such causes.

  30. very well put and agreed.

     

    in fact, an increased GDP lifts the bribes concept from bottom strata (difficult to bribe police officer in USA) and makes small local businesses profitable.

     

    The bribe seekers (always wanting to improve their personal GDP) then also move up and target say Defence contractors (i believe very corrupt in USA)

     

    Thanks Vivek – for the FIRST COHERENT and economically inclined SENSIBLE and thought provoking response!!!

  31. good point!

  32. @jitendra: i completely agree with you!!!!! noted for good… many thanks 🙂 

  33. Only thought provoking articles draw thought provoking comments. keep them coming. cheers!

  34. Your argument is flawed. If you generate a turnover of Rs. 100, spend Rs. 90 in expenses and Rs. 10 (10% of turnover) for bribe. You will be left with 0 profits, Rs. 10 bribe is an additional expense apart from your expenditure of Rs. 90. The bribe will go from your bottom line which is Rs. 10.

    From the value chain of Rs. 875, if Rs. 87.5 goes to bribe the left over money is only Rs. 12.5 (100 – 87.5 = 12.5). Because on every transaction, the money is not multiplied it is just transferred and actually reduced by 10% (bribery cut) on every step. This bribery cut may not be circulated again in Indian economy because it goes to the offshore bank accounts.

  35. To cast the argument in terms of Economics, which Alok used to illustrate his point – What Aravind is doing is trying to bring the economy to operate at highest level of efficiency. Just like taxes, the premuim paid by players (in form of bribes) cuts away into the consumer surplus and forces the equilibruim to lie at a lower point. This cannot be justified on any grounds and it has to be adressed even if we keep increasing our GDP… it’s like the heat that’s always lost and never gets converted to work because of entropy 😉 doesn’t matter how many more engines we run..there’s always an efficiency loss.. something which can be corrected!

    P.S: Do you guys really require people to sign up to e able to comment.  I already sense taxation here ;).. disinsentive to free enterprise 😛

    [EDIT] : Going throught the comments, I notice Vivek Kundnani brilliantly summarizing the same thought with a simple example.

  36. Ravish, let me ask you an kindergarden question:

     

    – Will a businessman ever do a business where he earns 0?

     

    Read the statement in my discussion:

     

    LET’S ASSUME THAT THE PERCENTAGE of BRIBE IN EACH BUSINESS TRANSACTION IS 10% 

     

    So, of the first Rs 90 I spend, I will have spent Rs 9 in bribes.



    All BRIBES are paid WHILE DOING business. 

     

    Yeah, the Rs 10 saved can be considered a bribe – to be given to your wife.

     

    Part 2 of your questions is answered thus:

     

    – Lets assume I run a Paav Bhaji stall in Mumbai.

     

    I SELL Rs 100 worth of paav bahji to customers PER DAY

     

    FIRST – who pays me? Nearby employees of office buildings etc – who have EARNED SALARY and spend small moneys to eat every day. So that is where I get Rs. 100 from. ( not important in this discussion).

     

    Now, from the Rs 100 I earn, I SPEND RS 90 per day.

     

    Where does the Rs 90 get spent per day?

     

    Assume:

    – Vegetables & Food vendors – Rs 70

     

    – Helper – Plates, disposables etc – Rs 11

     

    – HAFTA – BRIBE TO POLICE WALA – Rs 9  (10%)

     

    – TOTAL  = Rs 90

     

    – Profit retained  = Rs 10

     

    GROSS TOTAL = Rs 100 = Original sales.

     

    Now, lets look at ONE OF THE ELEMENTS of my Rs 90 spent – the Rs 70 spent on the vegetable and food vendor.

     

    The Rs 70 I SPEND is EARNED by Wholesale vegetable guys who have small shops that BUY from the Village market suppliers etc. So get this right – My Rs 70 spend is Rs 70 Sales for this guy.

     

    This person in turns spend Rs 63 (90% of his cost) daily on:

     

    Lets assume – Rs 50 – paid to village agent who gets him vegetables, Rs 7 to a Hamaal (coolie) who carries the goods for him and Rs 6 (10%) BRIBES – to the police wala who lets the vegetable seller conduct his business.

     

    As per the economic model I have maintained, the Vegetable vendor keeps 10% of his sale or Rs 7 as profit for himself.

     

    Now, lets do totals for JUST ALOK and Vegetable Vendor

     

    Alok’s sales – Rs 100, Bribe paid – Rs 9

     

    Vegetable sales wala – Sales – Rs 70 – bribe paid – Rs 7

     

    (The same could be calculate for plate supplier, hamaal etc)

     

    TOTAL SALES just between 2 people = Rs 100+ Rs 70 = Rs 170

     

    BRIBES PAID – Rs 9 + Rs 6 = Rs 15 ( less than 10% here)

     

    Therefore, as the Original 100 trickles down, it creates momentum value since what I spend is someone’s earning etc etc

     

    IF I REFUSE TO SPEND RS 9 on the first Bribe – I DONT SELL Rs 100 of Paav Bhaji, the Vegetable Vendor doesn’t get Rs 70 etc etc etc….

     

    DOES THIS MAKE SENSE???

     

    Now comes the FUN!!

     

    The 2 police walas who take bribes – Rs 9 and Rs 6 = Rs 15 ACTUALLY FURTHER SPEND MONEY ON EATING PAAV BHAJI FROM MY NEIGHBOR, thereby again increasing the cash circulation!!! (source of money which I did not care to cover because if I ever said that bribes are good for the economy, then I would be killed).

     

    FINALLY:

     

    I would like you to look up a famous man called Keynes and what he said about ‘digging holes in the ground’…. that will really strike a point.

     

    Your friendly, neighborhood economist:

     

    Rodinhood

     

  37. Alok u might be right in your calculations and explaining that giving 10% as bribe is not a bad option at all but tell what about those people who are not rich entrepreneur like u and who are also not very good in convincing others that if u see sun from my eyes it’s not a sun but just a star among millions others and even if we don’t have it don’t worry we still have million like it.

    Let me explain with an example there is an Alokram who is a village farmer and have family of 5 members, a wife, a son, and two daughters. It is really difficult for him to make his family meet both ends still he is taking care of every responsibility and providing good education to all his kids.

    And suddenly one day their eldest daughter didn’t return to home after school. He went to school they told she left at right time from here with other kids.  He went to local police station to file complain they said she must be somewhere with her friends or at relatives home and send him back without lodging a complaint.

    He again went there next day after confirming at all his relatives and her friends but again his complain was not registered as bade shahab was not in the office and told first he will listen to him and then only complain can be filed.  After a week bade shahab told him don’t worry they will look and search for her but nothing happened as he is not as rich as u so nobody took him seriously.

    Now after a month passed by he is fully frustrated and don’t know what to do. His neighbors told him police will not do anything until you’ll not pay them bribe and as u know it is really difficult for him to feed his children properly, from where he can pay bribe to police to search for his beloved daughter.

    What should he do??? Where should he complain?? Whom should he go for complain??  How he can get his missing daughter back??

    If u r father and have daughter Mr. Economist I’m sure now u can understand how it affects when people are not doing their job and how corruption is taking its toll and when for every work u have to pay bribe…

  38. u r right. 

    but no one here seems to be geting the point.

    I am never saying DONT fight corruption!

    I am saying use the powers of influence – Kejriwal and Anna to build Indian GDP

    Why waste the energy of both fighting one cause?

    And specifically in ur case, its because INCOME does not reach the villages that bribes get demanded.

  39.  

    Alok u tell, even both of them are standing together; still they are not able to nail down the devil of corruption.

    Are they???

    If I have wound in my one leg and not am able to walk properly, you come and explain me all sorts of benefits of jogging. Will it make any sense to me??

    It’s just like telling people on a sinking boat to throw water out with higher speed instead fix the hole first.

    Actually we need people like you, to who masses listen, who make valid points, (sometimes) who have the courage to come and tell truth.

    Instead of sitting and judging what other are doing do u have the courage and say Hey, we all are against corruption and we want a powerful solution. We can’t let u fucking idiots to sit on our heads and shell off our hard earned money in foreign banks.

    A simple question to u Mr. Economist how much you pay in taxes every year.

    Does it hurt when u pay a big sum of well-deserved money in Taxes?? I’m sure it does but we convince ourselves it is going for betterment of our nation, our own home, for better roads, for good jobs ,better healthcare and better safety.

    But when u come to know somebody stole this hard earned money of yours and cheated on us and then we come know now nothing can be done because of poor laws to prevent corruption. That person will enjoy your money for his leisure and now you’ll remain devoid of everything u need for betterment.

    How it feels??

    You were saying u r not as popular as Mr. Kejriwal. He has devoted all his life for nation he left his diplomatic career and took challenge to change his nation’s life.

    Ask yourself have u ever done anything for upliftment for poor except doing your business.

    U might get the answer…

  40. yes. i have. i have paid 100 crores in salaries to people in the past 13 years

    thats 8750 crores of gdp creation!

    arvind kejriwal did not even pay his dues!!

    and as far as calling me a ‘fucking idiot’ goes… thanks. you just confirmed the type of people anna and kejriwal motivate!!

  41.  

    U paid them coz they worked for you day and night. Thousands of companies are doing so.

    Instead they made u rich in other way if we say.

    And Alok Don’t read it in a hurry…Read the lines again.

    I said to u that” Do you have guts to say to these corrupt “Fucking idiots” not to sit on our heads…..

    And not to u though.

    Mr. Kejriwal is not my chahca or Mama that I’ll support him I m supporting the cause u better try to understand.

    U just proved u did nothing for nation coz u don’t have anything to brag about here. Otherwise u would have given the list with all the calculation and logics behind it.

  42. You are right. All the entrepreneurs of India and for that matter of the world are useless fools.

    We should also be in jail protesting about something….

    Thanks for the advice. Will tell my children to consider.

    In awe and respect,

    One of India’s biggest “fucking idiots”
    Alok Rodinhood Kejriwal

  43. Alok U might be the smartest of the entire world. Firstly we not in talk about entrepreneurs of India or of world.

    It was u who started with what Kejriwal is doing is not right by putting his energy against corruption instead he should be focusing on other things like build Indian GDP and all.

    If u r blind enough to understand the cause of this protest against corruption and that is what entrepreneurs are upto I will suggest u must tell ur kids to not be entrepreneurs like u but be like Mr. Kejriwal, I will appreciate your efforts.

    And if still u thinks I said fucking idiot to u I apologize for it, anyhow it was not for u and to respect you as a person I am leaving your blog site as you are the king here and u don’t want to listen to anybody else viewpoints, better mention a note on registering page that “join and comment only if u r agree to me otherwise not. I will take it as a disgust to me”.

    NS

  44. Bon voyage

  45. with due respect sir, here is mumabi i get sms from CBI that if anyone ask me for bribe i should report against him because taking / giving bribe is crime and illegal activity.

    with due respect sir should i report against you to cbi ki aap ek public forum me bribe taking ko badhava de rahe hani? bribe and corruption- both are crime in india and aapki site par dono ko khul kar promot kiyaa ja raha hai. to aap bhi criminal hue ?

  46. yes.

     

    alok kejriwal

    71, ajay apartments,

    25 peddar road,

    mumbai 400026.

    mobile – 98200 8558; landline – 23516053

     

    office 

    42, film center

    tardeo

    mumbai 400034

    tel 23511497/98

     

    Now, await your advise that you have informed CBI. eagerly awaiting their contact.

     

     

  47. arre, i forgot:

    e-mail – alok@games2win.com (official)

    i cant wait to hear from CBI… just cant wait!!! wow – you just made my 2011!! 

  48. Of course, 0 profits would drive you out of business. Its a sad reality, but corruption does put many entrepreneurs out of business.

     

    Allow me to complete your spreadsheet. I have added three additional columns; bribe, money left in Indian economy, and the dirty money parked in offshore bank accounts.
     

    So when the corruption kicks in, trickle down effects only results in the GDP of Rs. 396.3; which is less than half of your figure. Moreover, it drives half of the money out of our economy into offshore bank accounts and we are left with only Rs. 50.5in our economy.

    Moreover, to be able to pay 10% bribe, your expenditure should be 80% and you will have to pay half of your bottom line to corrupt officials. 

     

    Stopping corruption is important for economy because it is eroding our wealth and it makes it difficult for entrepreneurs to start business. Arvind is indeed trying to make it easier for entrepreneurs to do business in India by stopping corruption.
    Now let’s bring our $1.5 Trillion black money back to India and see the ripple effect it could create.

     

    Turnover Profit Expenditure (in billions)
    1600 10% 1440
    1440 10% 1296
    1296 10% 1166.4
    1166.4 10% 1049.8
    1049.8 10% 944.8
    944.8 10% 850.3
    850.3 10% 765.3
    765.3 10% 688.7
    688.7 10% 619.9
    619.9 10% 557.9
    557.9 10% 502.1
    502.1 10% 451.9
    451.9 10% 406.7
    406.7 10% 366.0
    366.0 10% 329.4
    329.4 10% 296.5
    296.5 10% 266.8
    266.8 10% 240.2
    240.2 10% 216.1
    216.1 10% 194.5
    194.5 10% 175.1
    175.1 10% 157.6
    157.6 10% 141.8
    141.8 10% 127.6
    127.6 10% 114.9
    114.9 10% 103.4
    103.4 10% 93.0
    93.0 10% 83.7
    83.7 10% 75.4
    75.4 10% 67.8
    67.8 10% 61.0
    61.0 10% 54.9
    54.9 10% 49.4
    49.4 10% 44.5
    44.5 10% 40.1
    40.1 10% 36.0
    36.0 10% 32.4
    32.4 10% 29.2
    29.2 10% 26.3
    26.3 10% 23.6
    23.6 10% 21.3
    21.3 10% 19.2
    19.2 10% 17.2
    17.2 10% 15.5
    15.5 10% 14.0
    14.0 10% 12.6
    12.6 10% 11.3
    11.3 10% 10.2
    10.2 10% 9.2
    9.2 10% 8.2
    8.2 10% 7.4
    7.4 10% 6.7
    6.7 10% 6.0
    6.0 10% 5.4
    5.4 10% 4.9
    4.9 10% 4.4
    4.4 10% 3.9
    3.9 10% 3.5
    3.5 10% 3.2
    3.2 10% 2.9
    2.9 10% 2.6
    2.6 10% 2.3
    2.3 10% 2.1
    2.1 10% 1.9
    1.9 10% 1.7
    1.7 10% 1.5
    1.5 10% 1.4
    1.4 10% 1.2
    1.2 10% 1.1
    1.1 10% 1.0
    1.0 10% 0.9
    Total: $14391.9  billion

    So this can actually increase the GDP by $14.5 trillion, which is 10 times the GDP of India.

  49. WOW!

     

    I am so impressed that unlike most of the ‘Alok you are an idiot’ statements made, you have made such an amazing effort to counter maths and economics, WITH math and economics.

     

    THANK U SIR. 

    Now, to business:

     

    – I really don’t know why U INSIST that the bribe paid in the first row is Rs 10, when I say Rs 9!

     

    I mean I thought I WAS THE BAD guy – why are u giving more bribes?

     

    I guess its just to make my model look ‘defective’. I’m not buying that coz in any argument, u cannot CHANGE the basis.

     

    Its like appearing for a maths paper and CHANGING THE SUM rather than solving it 🙂

    No can do.

     

    BUT, thats besides the point. We can have a friendly battle on that one.

     

    – Lets come to EXACTLY what I was trying to prove that you have helped me!!

     

    Consider your own First Row – where the Turnover is 100 and the Bribe is Rs 10 (hmmm…9 but ok – 10 :-))

     

    NOW, SUPPOSE THAT BUSINESSMAN IS RAVISH.

     

    I assume that when U ARE ASKED TO PAY RS 10 – you will REFUSE???

     

    CORRECT???

     

    IF YES – THATS IT! – Row 2 of your TABLE WILL NOT EXIST – because the business will NOT START!!!!!

     

    THATS THE BASIS OF MY ARGUMENT – so well illustrated by you also.

     

    NOW, IF U DO PAY ( and hence behave like Alok Kejriwal), THEN…..

     

    U HAVE CONTRIBUTED TO Rs 396 to GDP!!! ( hmmm – subject to argument to Rs 1)

    so????

    what was better – Paying Rs 10 or not??? ( for the country and yourself)!!!?????

     

    ***

     

    Your move.

  50. You lost the point, it doesn’t make much difference if the bribe is 9, 10 or even 5. It just adds up two more rows to the spreadsheet. I used 10 because 10% was a round figure, anyone never asked me for 9% bribe. It is mostly 5%, 10% or 20%. Also, they ask for bribe based on your turnover or the transaction value; not your expenses. You can use 9, or even 8… it is not trivial.

     
    I am that startup guy who was asked for Rs. 20,000 bribe to register a company with paid up capital of Rs. 100,000. They are asking 20% of the capital in bribe, off the books. It just makes it difficult to start and do business in India.

    At that time, I was new in business; I had no other options. But now, I would rather quit India than participate in the corruption scandals. I will move my business elsewhere, along with all the taxes, GDP and jobs my business will create.

    I met an NRI entrepreneur in Dubai, who runs a $500 business. He moved his business out of India because India made it extremely difficult to do business because of corruption. I am sure many other entrepreneurs are doing the same.

    If we are able to end corruption in India, it could create the biggest impact on Indian economy in the history. I explained in my above post how. 

    Rather than justifying the corruption and bribe, we should eradicate it out of our society. It has come to a point where corruption is woven deep into Indian society and Indians have become morally corrupt. 

  51. agree. we should end corruption. end bribes. end all bad things.

    then when thats done, probably in 2199, then we can start building the country!!

  52. Good points, Alok.

    One request – please try changing the bribe % to (say) 30% and rework the numbers.. you’d be shocked. 

  53. nope. i can change it 30 % also – NOTHING WILL CHANGE in the concept of what I am trying to explain here!

    if my business is creating value by giving 10-30% bribes and as long as I generate a 10% profit (which most businesses do) and keep spending the rest on the Indian economy, I am fine!!

    So, to take your example, if instead of Rs 9 (10%) of Rs 90, I spend Rs 27 and let the remainder flow to other vendors, i will still have created value for my country!

  54. Why should it be either your way or the highway!

    Obviously trying to get as many entrepreneurs is as important as dealing with corruption. It is not a ‘choose the best alternative’ kinda question. When entrepreneurs venture, they can do so keeping one or many objectives in mind. Even Arvind Kejriwal is an entrepreneur (maybe in more of a social sense), with an objective and HE HAS TAKEN HUGE RISKS just like we people do. Type & volume is irrelevant.

    His effort cannot be & SHOULDN’t be undermined just because his ways are not in sync. with yours!

  55. agreed! if u read my messages, he should grow GDP – Anna should fight corrution.

    what’s wrong with that?

  56. At least Ad tech called me!!

    Yipee!!!! 

    Long live the long arm of the law!

  57. oh, btw, CBI also called. I explained. They will be calling you for cross references also.

    Also hired Kanga and Co (150 year old firm) as my lawyer.

    Suggest you hire yours, coz I am going to filing defamation cases against you.

  58. Arupkumar – U ARE SUCH A COWARD!

    telling the CBI (govt. agency) is fine – but writing behind my back to media partners like Ad Tech and advising them NOT to let me speak shows your upbringing and your background.

    It sure shows how poorly you have been raised!

    If you have the GUTS – file a case against me – dont go hiding behind my partners mini skirts….

    they are LAUGHING AT YOU!

  59. Aurpkumar – enjoy!

    you are famous amongst 6000 of my facebook friends now!!

    Love live this agitation!

  60. Please iss bachche ko maaf kar do melord….

  61. Taareekh pe Taareekh, Taareekh pe Taareekh, Yahan sirf Taareekh milti hai melord insaaf nahin!

  62. Nothing. Just that let him play his part. Instead of getting him to work for a completely diff. agenda, let him work for Anna. After all, Anna also needs a second-in-command just like any entrepreneur would need.

    As for increasing GDP, I guess we all entrepreneurs can do that and maybe one from the community has talent enough who can fit your bill for the ‘Arvind Kejriwal’! Why not focus on those budding ones!

  63. Little did he know that advertising & media is one of the most corruption infested private industry.

  64. little DOES he know that a man must measure for what he stands for.

    I argue publicly and fight like a gladiator in an arena. to win or die. in the open.

    If you want to set the CBI, the Police, the Interpol, the Anna and Fanna, tell them to come to the arena and fight! And I will. Till I win or lose!

    I am not some pussy (cat) who goes and climbs into the queen’s lap and complains that the bad dog is growling at her and to keep him locked.

  65. Entrepreneur

    It is not the critic who counts, not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat

  66. wow!

  67. WOW…. POETIC!

  68. One of the most inspirational quotes I have ever heard, attributed to Theodore Roosevelt. Pretty much sums up an entrepreneur and how much he/she has to go through. Been my guiding light.

    Let us not bother about the ‘cold and timid souls who knew neither victory or defeat’

  69. :-))))

  70. Alok Kejriwal, “IF I REFUSE TO SPEND RS 9 on the first Bribe – I DONT SELL Rs 100 of Paav Bhaji, the Vegetable Vendor doesn’t get Rs 70 etc etc etc….” 

    You miss the whole point of Arvind Kejriwal and Team Anna’s movement when you write the above line.

    They are fighting precisely for this reason “You can  have 100rs worth business without paying Re. 1 Bribe” 

    What you sell is properly accounted profit and expenses. Income Tax or Sales tax doesn’t care if you paid 10% in bribe. They charge you for 100Rs value. 

    If you are trying to say Out of Rs 100, Rs 10 is profit and 9rs is bribe then If there is no bribe, that person would be have eanred 19rs for every 100 ! thats more saving, better lifestyle. [and so on and on in the cycle]

    Now you go back and stop spreading your evil propaganda. If you can’t help, you better dont mutilate the cause of few people who are trying to make a better living place for us and our future generations

  71. THIS SUMS UP WHAT THESE CLOWNS HAVE BEEN UPTO!!

    What will they teach INDIA when, after WASTING hours of Indian Parliament time and that of young Indians this is there SITUATION NOW!!

    hahahaha – Anshul – u better check with Arvind if even he knows what he stands for!

  72. Hi Alok

    Am sure you will find answers to lot of your questions (economists answer) in a book The Next Covergence (The future of economic growth ina Multispeed World) by Michael Spence (Published by Random House India).

  73. agreed!!

  74. ALL:

    This is a ppt i posted today – it has nothing to do with the Ideology of Anna Hazare – and is neutral and unbiased. Check it out if you have a couple of moments to spare.

    The 9 Start Up Lessons I learnt from the Anna Hazare movement!

    https://www.therodinhoods.com/forum/topics/the-9-start-up-lessons-i-learnt-from-the-anna-hazare-movement

  75. Brilliantly nail Alok 🙂 Hats off to you! 
    @  Pawan: I pity the men like you who speak from their hips rather than lips! Better luck next time.

  76.  Whatever little economics that i understand you are talking abt nothing but velocity of money. Now the money which is paid as big bribes will get stashed away in swiss bank or cayman islands. Now getting money out of india the corrupt guy is sucking out money supply and in turn reducing the velocity of money and in turn making money dearer to borrow. In this scenario if a business man wants to borrow money he will have to shell out more money as money supply is low than expected and int rates have gone up.

    So y not fight against corruption.

  77. Nope. Money does not leak like this in India. This is the scene in Uganda, Panama etc..

  78. Then money gulped by rajas, kodas and kalmadis stays in the system? I doubt. In 2006-07 when Dubai real estate was at its peak a leading politician bought 3-4 floors in a newly launched tower (of course through someone else). The value of the same must be 30-40% of the purchased value. the money earned in corruption benefited none. seveal 100 crores wasted.

    Also by bribing we are increasing our cost. If pav bhaji wala had not givern hafta to policeman his pavbhaji would have been cheaper by Rs.9 or he had earned 19% profit instead of 10.

    Now while competing with other org in another country we are at a disadvantage has our cost increases by 9% and which doesnt even get accounted and so which becomes our income (which doesnt exist) and we also end up tax on tht 9% so the ultimate loss wud be (9% + tax paid)

  79. But, if seen from the view of the person paying that Rs.100/-

    and assuming this:

    – vendor margin                     – Rs 10

    – Vegetables & Food vendors – Rs 70

    – Helper – Plates, disposables etc – Rs 11

    – HAFTA – BRIBE TO POLICE WALA – Rs 9  (10%)

    Then, the total money that has gone into bribes in that Rs.100/- product would be 9+7+1 = Rs. 17/-
    So without bribes the product could have been sold for Rs. 17/- cheaper and the business man could have had a larger market willing to afford the product at Rs.83/- than at Rs.100 /-
    So it would have been a bigger market: more goods produced and more money circulated.
    Also, another problem with corruption is it’s arbitrariness and lack of rules. Say the policewala takes bribe from a bihari immigrant to allow him to sell pav bhaji, but not from his distant relative from the policeman’s village. Now this relative guy has more economic advantage in the market than the bihari guy. He has either more margins or competitive pricing or both. So, a person who is not well connected and who is clueless about the bribe system is screwed and a well connected person is aided by the bribe system in furthering his business. Bribe is not just a constant overhead for everyone but also something that can determine the winners and loosers of a market, as it is arbitrary.
    Hence a corrupt government plays an external, unnecessary, but very influential economic role (not capitalism!), which wouldn’t be present in a system wholly comprised of private players dealing with each other in their own interests(capitalism).
    I believe the crappy services provided by companies in India is not because they dont care, but because the battle is so much more harder with their margins and competition. A truly good service would cost much much more.

  80. i completely agree with Vinuth. 

  81. Nope. U modeled just the first turnover of Rs 100 – in that the bribe was Rs 9.

    If you move to the next cycle and add the 7 then you have to add the second consumers spend of 70 also

    so, 170 turnover, bribe = 9+7 = 16

    (dunno where your Rs 1 came from).

    Each row has to be added in entirety ! not columns for one section and only one row selectively 🙂

    sorry to spoil your point 🙂

  82. 🙂 Rs. 1 was from the platewala’s Rs 11. (10% of it went into bribes.)

    I maybe wrong, but if seen from the view of the person buying the split somewhat looks like:

    10(vendor margin) + 9(vendors’ bribe) + 63 (vegetable guy’s money) + 7 (vegetable guy paid bribe) + 10 (plate guy’s money) + 1 (plate guy paid bribe.) = Rs. 100/-

    No?

  83. Still, I guess my point about arbitrariness stands.

    I thought Rs. 9 was just the bribe paid by the pav bhaji vendor.. if it is the total money that has gone out of Rs.100/- as bribes.. then yeah my numbers are wrong.

  84. Nope. Coz u are isolating just the bribes from the other people’s transactions.

    let me explain:

    you have treated just 100 as 1 person earning (paav bhaji vendor) 

    but the bribes you have included in this are of 3 people = vendor + Veg guy + Plate guy

    If you add 3 people’s bribes, then you need to add their earnings also in the equation 🙂

  85. subjectively, anything can be inferred.

    people here say that bribes went out. i say they went into the economy.

    this was a numeric economic model i was purporting 🙂

  86. U can agree to a wrong formula! that’s ok by me!

    think of a table of rows and columns.

    if u add subtotals, or gross totals, it has to be of the SAME NUMBER OF COLUMNS AND ROWS!!

    making sense ?! 

  87. But isn’t it an unwanted business expenditure? A nuisance?

    I would bribe any day than shutdown my business. 

    Ultimately it is money within economic system, but is there a positive to bribes? Can one say bribes are helpful than harmful?

    Asking, just to get more of your thoughts 🙂

  88. Got it 🙂

    Thanks.

  89. I admit mistake of cal. The sumtotal of bribe wud be 9. But I don’t agree tht bribe money stays in the system. N I’m not talking bribes by havaldars n babus. Wht abt netas tht take several crores. Tht money goes to swiss banks. One real life eg. In 2008 the ad agency I was working wid helped leading real estate comp to launch a luxurious bldg. One of the indian neta booked 3 to 4 floors. Of course money must be black. 2008 dubai real estate mkt was at peak. Sep 2008 mkt crashed. The value of the same is 30%. Now how tht money tht I’m sure was earned as bribe remained in indian eco system.

  90. Please excuse me if this starts feeling like you are having to give a economics 101 class.. but I got confused again..

    Lets see the numbers from bottom up, rather than top down.. 

    Vegetable guy: spends 57, bribes 6, earns 7 = total 70

    plate guy: spends 9, bribes 1, earns 1 = total 11

    Pav bhaji guy gets from these people: spends 81, bribes 9, earns 10 = total 100.

    Now, lets say bribes did not exist in this country:

    Vegetable guy: spends 57, earns 6 = total 63

    plate guy: spends 9, earns 1 = total 10

    Pav bhaji guy gets from these people: spends 73, earns 8 = total 81.

    Now the cost of vada pav is Rs.81/-

    everyone still makes 10% profit on total sales.

    customers pay less.

    market is bigger as more people can afford vada pavs.

    Happy world?

    🙂

  91. nope its not.

    that was the central part of my argument that u missed.

    kejriwal and anna say – dont accept corruption.

    that means dont sell pav bhaaji or grow vegetables = either way.

    no economy.

    that’s why the soviet union etc died – they lived in idealistic ideology.

    i say, corruption is bad – low gdp is worse.

    grow gdp, corruption will move from low lying areas to higher more invisible areas. thats all.

  92. Agreed !

  93. ” And specifically in ur case, its because INCOME does not reach the villages that bribes get demanded.”

    Alok:

    I am specifically responding to this comment. It is not because people are poor that bribes are demanded. It is because they are uneducated about their rights. An education empowers people. If bribes were demanded only of poor people, wonder why the various telecom companies were asked, and paid, the bribes in the 2G scam.

  94. Alok:

    What you are suggesting is like body building vs what other kejriwal is doing is fighting an infection. What is required for a healthy body?

    You are saying forget the infection, build your body and lets co exist with the infection.

    Does not sound like common sense.

  95. no. i am saying eat swallow bitter ‘medicine’ (corruption) as you grow up to make a healthier body.

    the other kejriwal is saying dont swallow bitter medicine ‘corruption’ while growing up. die. perish. end your life!

    Makes sense now?

  96. I could not help but notice, with a closer look at your and Arvind kejriwal’s picture that If i fix that mustache of Arvinds on your face, you two look amazingly alike.

    Are you the Arvind Kejriwal in Disguise and If you are, why the hell are you messing up with us poor souls  with your alter ego…:D

  97. Hahaha… I think YOU are the poor Arvind Kejriwal who is staving himself to ignominy …..

    Hmmm… Wanna eat some samosa, munna??

  98. Your GDP calculations are wrong

    GDP can be calculated from 3 methods-

    1) Production Approach- also called value added method, here all the value addition at each stage is added, not whole amount of each stage

    2) Income Approach- this is the addition of household income’s, corporate profits, interest income etc.

    3) Expendiure approach- this is an addition of consumption + investments + govt. spending + exports – imports

    consumption is only final household consumption not all the expenditures in the production chain

    investment is basically purchase of new assets and does not include financial products.

    By any method expenditure of all the stages in production can’t be added and passed on as GDP.

    Somewhere in the replies I read of Multiplier effect, which is basically income/marginal propensity to save

    MPC is basically savings rate.

    Multiplier effect is calculated on Income and not on Consumption or Expenditure.

    say someone earns Rs.10 then he will spend some and save some amount from this, say he saves 20%

    then Multiplier effect of this (his total addition to GDP) will be 10/.20= rs. 50

    No doubt, multiplier effect and trickle down factor will increase the the GDP (but not to such proportions as mentioned by alok), but the original guy who gave the definition of GDP also said that GDP should not form the measure of nations welfare. GDP per capita is also not a true measure of standard of living.

    Human Development Index is considered the best way to measure standard of living.

    also their is another index which measures corruption, The CORRUPTION PERCEPTION INDEX(CPI) by Transparency International.

    Top 20 Countries as per HDI-

    Norway, Australia, Netherlands, US, New Zealand, Canada, Ireland< Liechetenstein, Germany, Sweden, Switzerland, Japan, Hongkong, Iceland, South Korea, Denmark, Israel, Belgium, Austria and France.

    Top 20 least corrupt Countries as per CPI-

    NEW ZEALAND, DENMARK, FINLAND SWEDEN SINGAPORE NORWAY NETHERLANDS AUSTRALIA SWITZERLAND CANADA LUXEMBOURG HONGKONG ICELAND GERMANY JAPAN AUSTRIA BARBADOS UK BELGIUM IRELAND 

    and if we compare the 2 index- HDI  and CPI , 15 countries in the HDI list also appear in CPI index.

    other 5 also hover around 20 to 30 in the ranking.

    India ranks 134 in HDI and 95 in CPI (although it has third highest GDP(ppp) in the world

    China ranks 101 in HDI and 75 in CPI and it has 2nd largest GDP(ppp) in the world.

    CONCLUSION- if corruption is low real standard of living and quality of life is high

    despite higher GDP India and China lack in human development as they also have high rate of corruption.

    @alok you started by acknowledging that Arvind is the most powerful agitators born….and there were tears in your eyes, but then in replies you are simply mocking and belittling and deprecating the same Arvind.

    @Asha Chaudhry: It appears to me that you are the editor of this blog and also this particular article, but only one comment from you and in that also you are profusely thanking someone who corrected Alok as a serial rather than just entrepreneur. I don’t know whetther this is plain sycophancy at work or maybe you are too busy to give your opinion or you are just a glorified proof reader. Editors are known for their opinions. 

    or maybe I am totally wrong.

     

  99. I was actually going to spend a nice hour typing out a my working of the example I gave, but you saved me from the effort!

    In your reply you state:

    “Multiplier effect is calculated on Income and not on Consumption or Expenditure.

    say someone earns Rs.10 then he will spend some and save some amount from this, say he saves 20%

    then Multiplier effect of this (his total addition to GDP) will be 10/.20= rs. 50

    No doubt, multiplier effect and trickle down factor will increase the the GDP (but not to such proportions as mentioned by alok)”

    :-)))

    In my example, I state:

    I own a Pav Bhaji stall with an income of Rs 100 and a profit of Rs 10

    Going JUST by YOUR MATHS

    I save Rs 10 on Rs 100 = 10%

    Now, using your MCP formula – 100/.10 = 1000!!!

    SO 1000 IS what you also state “No doubt, multiplier effect and trickle down factor will increase the the GDP (but not to such proportions as mentioned by alok)” 

    errrr – by your own math, the multiplier trickle down effect is = 1000

    I just said 875 :-)))))

    Yeah, you are right. The extent I said was wrong. ITS MORE as explained by you!!

    (Ps – I guess you got caught in the trap I laid of drilling down the MCP via a single constant example. Instead you thought I was multiplying each trickle down by the factor….?! The trap was on purpose)

    By virtue of a real example, let me explain what happens:

    When there are 1 lac paav bhaji stalls in India due to increasing urban life and activity (office goers, students, people who need a quick meal), then:

    A massive demand shows up for:

    – Tomatoes, Potatoes, Ghee, Butter, Paav, Kerosene, Plates, spoons etc etc

    – Lets take just Plates. Because of the massive increase in demand, many factories in Vashi, Daman, Dui (near by industrial areas of Mumbai) start making plates.

    Therefore the GDP of the country does go up!!

    These factories employ labor that do not eat the Mumbai Paav Bhaji – but because the Paav Bhaji created a trickle down effect, the labor in Daman benefited.

    Now, the children of the labo go and buy Kurkure from the near by stall of their homes because their father is earning money working in a plate factory.

    So, Paav Bhaji helped in selling Kurkure – although they compete with each other!

    GDP expands massively as you rightly pointed out at an exponential rate linked to consumption! 

    INDIA MUST BE ALLOWED TO CONSUME – BRIBES OR NO BRIBES

  100. why are you so obsessed by your point of view. first you miss the larger picture or maybe you are reluctant to admit that maybe you are wrong. please explain me

    if your profit is rs.10 on rs. 100 than your income is rs.10 and multiplier effect of this sales of rs. 100 will work on your income of rs.10. and you will save 10% from this income.

    so the multiplier effect will be 10/.10=rs100

    and this multiplier effect will work whenever someone earns and consumes something. consumption is very good.

    but please tell me if you agree or don’t agree with the fact that GDP does not reflect the  actual quality of life of a nation and wherever corruption is low, quality of life is higher.

  101. Sir,

    I must say you have a very convincing & creative way to put forth your point but am also sure that Arvind Kejriwal could have definitely countered your theory well had he been confronted directly.

    But I would like to put my views on table now, according to me Business people are the reason for all sort of corruption, and no wonder most politicians are businessman too.

    Businesses( I don’t mean all business houses but some) can’t wait for anyone and can’t forego any opportunity, it want everything to be done on toe tips, so it offers a part of benefit to policy planners, exceuters, etc to get the work done which we call corruption. Now virus has been inflicted upon the main governing body, it slowly moves downward to roots and then we see peons, havaldars, etc harassing common man for bribe.

    Slowly common man and bizman accepts bribery as a part of their life. What happens next? Common man and Bizman are ready to offer bribe for any sort of task to be get done before even they are asked for bribe. We Indians easily gets used to such things, this is the reason why corruption is growing day by day!

    Now coming to the economic effects!

    Sir you well explained the positive effect but my question to you is what is more important to you GDP or HDI?

    Though according to UN India was on 10th rank in terms of GDP, India was on 134th rank for HDI, even Srilanka was far ahead of us in HDI rank. India has worst HDI rank in all BRIC countires.

    Surely more and more money get into circulation but it doesn’t get distributed equally to everyone. We still have people dying of starvation though we have such high food subsidy, because all the benefits of these food subsidies are transferred to kings of Black market and Grey Market. Also when politicians earns large sum of money through bribe, they don’t pump that money into system because its huge amount, they pull out that money and stack in Swiss banks in form of Dollars, it means India looses its dollar reserves and it affects our BOP and also rupee gets weak which in turn fuels inflation as importing oil becomes more pricey, and again common man is affected, also due to weak rupee and policy paralysis Indian businesses become incompetent in global market thus loosing again!


    Please correct me sir if I am wrong somewhere, but I really feel that we have to go simultaneously after both issues, we need an army of Entrepreneurs as well as army of people like Arvind Kejriwal who can fight corruption and make business environment favourable for entrepreneurs!

  102. dude, i went to sleep reading this ‘potha’ of a comment.

    dont confuse economics with emotion. they don’t live on the same planet.

  103. hahahahah! This is one of the most silly mathematical discussions I have ever encountered!!

    See you own ORIGINAL text (reproduced for the last time) – 

    “Multiplier effect is calculated on Income and not on Consumption or Expenditure.

    say someone earns Rs.10 then he will spend some and save some amount from this, say he saves 20%

    then Multiplier effect of this (his total addition to GDP) will be 10/.20= rs. 50

    No doubt, multiplier effect and trickle down factor will increase the the GDP (but not to such proportions as mentioned by alok)”

    ****

    I note that you are a Chartered Accountant

    Revenue = EARNINGS!!

    When a factory generates revenue, it PAYS out its vendors = spends

    When a man EARNS salary (revenue), he pays his bills.

    When a Pav Bhaji owner earns Rs 100, he saves some and spends the other.

    Hence your formula is RIGHT when u stated it first.

    Now, when I trapped you, you are changing the formula!

    But, the beauty of maths is that you cannot fool it.

    So, think – How can SAVINGS HAPPEN ON SAVINGS?!!

    :-)))))))))))))

    if so, then your formula should be Rs 2 (savings) /.2 = 10!!

    How can I earn or create Rs 10 from Rs 2 that I have SAVED?

    Is my safe deposit box magical??

    Boss, when you SPEND money, thats when it create a multiplier.

    Its like when you give a speech, thousands of people hear!

    And the biggest joke is, you are dividing the numerator by the numerator!

    Boss – don’t make me laugh 🙂

  104. Ravi,

    Maybe you should prove Wikipedia wrong:

    https://en.wikipedia.org/wiki/Gross_domestic_product

    Expenditure approach

    ” All expenditure incurred by individuals during 1 year . “

    In economics, most things produced are produced for sale, and sold. Therefore, measuring the total expenditure of money used to buy things is a way of measuring production. This is known as the expenditure method of calculating GDP. Note that if you knit yourself a sweater, it is production but does not get counted as GDP because it is never sold. Sweater-knitting is a small part of the economy, but if one counts some major activities such as child-rearing (generally unpaid) as production, GDP ceases to be an accurate indicator of production. Similarly, if there is a long term shift from non-market provision of services (for example cooking, cleaning, child rearing, do-it yourself repairs) to market provision of services, then this trend toward increased market provision of services may mask a dramatic decrease in actual domestic production, resulting in overly optimistic and inflated reported GDP. This is particularly a problem for economies which have shifted from production economies to service economies.

    [edit]Components of GDP by expenditure

    GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M).

    Y = C + I + G + (X − M)

    Here is a description of each GDP component:

    • C (consumption) is normally the largest GDP component in the economy, consisting of private (household final consumption expenditure) in the economy. These personal expenditures fall under one of the following categories: durable goods, non-durable goods, and services. Examples include food, rent, jewelry, gasoline, and medical expenses but does not include the purchase of new housing.

    • I (investment) includes, for instance, business investment in equipment, but does not include exchanges of existing assets. Examples include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households (not government) on new houses is also included in Investment. In contrast to its colloquial meaning, ‘Investment’ in GDP does not mean purchases of financial products. Buying financial products is classed as ‘saving‘, as opposed to investment. This avoids double-counting: if one buys shares in a company, and the company uses the money received to buy plant, equipment, etc., the amount will be counted toward GDP when the company spends the money on those things; to also count it when one gives it to the company would be to count two times an amount that only corresponds to one group of products. Buying bonds or stocks is a swapping of deeds, a transfer of claims on future production, not directly an expenditure on products.

    • G (government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits.

    • X (exports) represents gross exports. GDP captures the amount a country produces, including goods and services produced for other nations’ consumption, therefore exports are added.

    • M (imports) represents gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and must be deducted to avoid counting foreignsupply as domestic.

  105. Revenue is not earnings. Earnings is Net benefit, on which tax is paid. Read this https://en.wikipedia.org/wiki/Earnings
    Revenue is turnover or sales, read this https://en.wikipedia.org/wiki/Revenue

    Let me explain again. When you sell a vada pao for 100 your revenue is 100 and you will earn (income) rs 10 on it. Now you will take this rs 10 home and a portion of it will be saved and other will be consumed.
    Now multiplier effect will occour when you will spend to consume and it will be income or earnings/mps
    And that will be 10/.1=100

    Expenditure method to calculate GDP-again you are showing lack of basic conceptual knowledge. Read carefully consumption is defined as final household consumption, consumption by intermediaries to provide goods/service to final consumer is excluded. Investment also does not include expenditure but only includes purchase of assets.

    Again you are skirting around the issue and trying to prove my calculations wrong… Lets assume all my concepts and calculations and maths are wrong and I am a dumbass b.com. Now what do you have to say about “human development index and corruption” argument I made in my first reply.

    The fool doth think he is wise, but the wise man knows himself to be a fool.
    -william shakespear

    Theses are few lines from your post China-the den of theives… (https://www.therodinhoods.com/xn/detail/6328457:Topic:19557)
    Both the cases above presented ethical dilemmas to me. They forced me to walk the tight rope of being ‘righteous’ vs. ‘practical’, ‘academic’ vs. ‘practical’ and most importantly a ‘rigid businessman’ vs. a ‘practical one’.  Was I supposed to ask the ladies who came for the interviews indirect questions leading to figuring out if they were indeed pregnant? Pretend that we needed men secretaries’ because they might be required to work the night shift?  In my meetings with the local Chinese firms, was I supposed to carry gifts bought in China and pretend they were from India and just hand them over as a token of friendship? ***** …

  106. Ravi, now as per you even wikipedia is wrong!

    What you are forgetting is the Rs 90 that is spent by you on others.

    IT BECOMES THE OTHER PERSONS INCOME!!

    Lets take a simple example.

    A taxi driver in Mumbai drives 10 hours a day.

    On an average he does about 10 trips, each of Rs 150

    Thats Rs 1500/- of income = earnings.

    He saves Rs 300 for home and living. That means power companies, etc etc gain from that and earn income!

    The cab driver gives the balance RS 1200 to the owner of the cab, for gas, for hafta etc

    Of the Rs 1200, lets say 500 is kept by the cab owner for home expenses, and Rs 700 spent on fuel

    Now, 700 is earned by petrol companies who then have their own employees etc

    So, the Rs 1200 is income for the Cab Owner  is AN EXPENSE for the Cab driver!

    As per your formula, the Rs 1200 spent by the cab driver has vanished!! Its impact is lost?? You are only focussed on the Rs 300 saved!

    WHAT HAPPENED TO THE 1200? WHAT IMPACT DID IT HAVE ON THE ECONOMY?

    THIS IS THE TRICKLE DOWN – CASCADING effect of expenditure!

    Read this HEADLINE again:

    https://en.wikipedia.org/wiki/Gross_domestic_product

    Expenditure approach

    ” All expenditure incurred by individuals during 1 year . “

    In economics, most things produced are produced for sale, and sold. Therefore, measuring the total expenditure of money used to buy things is a way of measuring production. This is known as the expenditure method of calculating GDP. Note that if you knit yourself a sweater, it is production but does not get counted as GDP because it is never sold. Sweater-knitting is a small part of the economy, but if one counts some major activities such as child-rearing (generally unpaid) as production, GDP ceases to be an accurate indicator of production. Similarly, if there is a long term shift from non-market provision of services (for example cooking, cleaning, child rearing, do-it yourself repairs) to market provision of services, then this trend toward increased market provision of services may mask a dramatic decrease in actual domestic production, resulting in overly optimistic and inflated reported GDP. This is particularly a problem for economies which have shifted from production economies to service economies.

    [edit]Components of GDP by expenditure

    GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M).

    Y = C + I + G + (X − M)

    Here is a description of each GDP component:

    • C (consumption) is normally the largest GDP component in the economy, consisting of private (household final consumption expenditure) in the economy. These personal expenditures fall under one of the following categories: durable goods, non-durable goods, and services. Examples include food, rent, jewelry, gasoline, and medical expenses but does not include the purchase of new housing.

  107. Ravi, I followed your advise!

    I calculated my table again, this time ADDING THE savings (earnings) whatever you wanna call it:

    Check out what happens when all the earnings get added up!!

    It TOTALS 100!

    That’s because as I have been saying, one persons expense is another ones income!

    So, when I add your formula to the savings:

    99.1/0.1 = Rs 991!!!! 

    Hmmmmm- NOT to different from my Rs 887!!!!

    Turnover Profit Expenditure Savings
    100.00 10% 90.00 10.00
    90.00 10% 81.00 9.00
    81.00 10% 72.90 8.10
    72.90 10% 65.61 7.29
    65.61 10% 59.05 6.56
    59.05 10% 53.14 5.90
    53.14 10% 47.83 5.31
    47.83 10% 43.05 4.78
    43.05 10% 38.74 4.30
    38.74 10% 34.87 3.87
    34.87 10% 31.38 3.49
    31.38 10% 28.24 3.14
    28.24 10% 25.42 2.82
    25.42 10% 22.88 2.54
    22.88 10% 20.59 2.29
    20.59 10% 18.53 2.06
    18.53 10% 16.68 1.85
    16.68 10% 15.01 1.67
    15.01 10% 13.51 1.50
    13.51 10% 12.16 1.35
    12.16 10% 10.94 1.22
    10.94 10% 9.85 1.09
    9.85 10% 8.86 0.98
    8.86 10% 7.98 0.89
    7.98 10% 7.18 0.80
    7.18 10% 6.46 0.72
    6.46 10% 5.81 0.65
    5.81 10% 5.23 0.58
    5.23 10% 4.71 0.52
    4.71 10% 4.24 0.47
    4.24 10% 3.82 0.42
    3.82 10% 3.43 0.38
    3.43 10% 3.09 0.34
    3.09 10% 2.78 0.31
    2.78 10% 2.50 0.28
    2.50 10% 2.25 0.25
    2.25 10% 2.03 0.23
    2.03 10% 1.82 0.20
    1.82 10% 1.64 0.18
    1.64 10% 1.48 0.16
    1.48 10% 1.33 0.15
    1.33 10% 1.20 0.13
    1.20 10% 1.08 0.12
    1.08 10% 0.97 0.11
    0.97 10% 0.87 0.10
    TOTAL 99.1

  108. Sir, I had stated facts supporting my views. You didnt answer what is important for you GDP or HDI? Who wants growth in numbers without any development!

  109. what is the CRAP called HDI? When g

  110. Hi Alok,

    Take the case, One RTO takes 100 rupees bribe to give a driving license to a person without verification. What is your take on this bribe?

  111. to give a license without verification is criminal. Its not a lubrication. I don’t support CRIMINALITY.

    but if the bribe is paid (as a necessary evil) to get a taxi driver to start his business and begin adding to the economy, I am fine with it.

    Anna Hazare says dont take the license. Sit and wait?? As per his idea, India should stop working. We should go and live in forests and caves..

    I say, pay and take the license. 20 years later, that Taxi Drivers daughter will become an Income Tax officer…

  112. Alok’s premise is flawed, a search on google for “corruption is good for economic growth”: 

    https://www.google.co.in/webhp?rlz=1C1CHKQ_en-ININ428IN433&sourceid=chrome-instant&ie=UTF-8#hl=en&rlz=1C1CHKQ_en-ININ428IN433&output=search&sclient=psy-ab&q=corruption%20is%20good%20for%20economic%20growth&oq=&gs_l=&pbx=1&fp=c1c3f7fb4c60f5a4&bav=on.2,or.r_gc.r_pw.r_qf.&biw=1280&bih=685

    provides multiple results. I found this result: https://www.imf.org/external/pubs/ft/issues6/index.htm

    An excerpt from the preface reads as follows:

    “…Second, the paper presents recent evidence on the extent to which corruption affects investment and economic growth and on how it influences governments in choosing what to spend their money on. It finds that corruption discourages investment, limits economic growth, and alters the composition of government spending, often to the detriment of future economic growth.”

    Another paper reads as follows in the first para itself:

    “…We utilize the economic freedom index to examine if corruption can facilitate growth by allowing entrepreneurs to avoid inefficient policies and regulations when economic freedom is limited. Using regression analysis, we find that corruption is growth enhancing when economic freedom is most limited but the beneficial impact of corruption decreases as economic freedom increases. Not all areas of economic freedom affect the corruption-growth relationship equally. In particular, we find that when we analyze individual areas of economic freedom the beneficial effect of corruption disappears most quickly when the size of government and the extent of regulation decrease. “

    The second excerpt refers to the license raj when economic freedom was lower. 

    Alok does not seem to understand that corruption is governed by greed and greed knows no bounds. Petty corruption does not stay petty. PERIOD.

  113. Alok ji:

    Your wisdom is unfathomable.

    If you hit upon a good business idea (lets say a game), you will release one version of it and not monetise that with subsequent versions or other related products?

    You expect the RTO to satisfy himself with one Rs 100/- once in his lifetime. Next day two Rs 100/-  bribes and so on. If somebody comes along and says I will give Rs 1000/- and asks him to pass or approve something else, would he not be tempted to do that? On the same lines as your exmaple, will the RTO not dream of sending his daughter to Harvard with all these bribes?

    You expect a rational and corrupt RTO not to milk a good business model. So the system will become corrupt and not deliver what it is supposed to. What is good at a micro level will not work at a macro level.

    if you recall the RDX for mumbai blasts was smuggled in like this. Shipments of contraband used to pass everyday thru checkpost and one day the attackers decided to smuggle in RDX and paid the regular rate to the policeman. I am sure you know the consequences of that.

  114. HDI= Human Development Index

  115. If corruption could fuel economic growth, why is majority of India’s population still below poverty line after 65 years full of corruption?

    Apparently, majority of India’s population can’t afford a daily meal. So they won’t be able to pay bribe and will never get a job, a license start a business and admission in any school or college.

    Indian businessmen, Politicians and Government officers who have vested interest in corruption will continue to fill their offshore accounts… while majority of Indian population will continue to suffer. It is easy to understand why the privileged class in India will never want to end corruption. It gives them an advantage, and allows them to continue to treat poor as their slaves.

    A rich brat once told me, “Most enjoyable part of owning a Jaguar is not that I am driving it, the best part about owning a luxury car is… while most of Indian population don’t get a single meal to eat. I am driving a car worth fucking 1 crore.”

  116. I don’t think people get the point.

    I say – move ahead. If corruption is an irritant, get used to it to move ahead.

    In the USA, corruption is not in the streets with cops but in washington where gun laws are abused.

    As long as 2 people on earth do not have the same lifestyle, there will be corruption.

    Now, Anna Hazare says – DONT pay. STOP

    If indeed a magical spell was cast on India and no one paid any bribes for a day, our factories, our services, our ports, our offices would SHUT DOWN

    Is that viable?

    Isn’t it better to trace the economic history of all developed countries and see how they had MASS corruption and they lifted out of it JUST BY ECONOMIC PROGRES!

    Where and who was the Anna Hazare of Germany, UK, USA, France??

    Are those countries poorer than India???

  117. i dont know about brats and jaguars.

    i just dont know what men like anna hazare want to do

    they threaten and stall democracy. THATS CORRUPTON in itself

  118. Alok,

    Your writing was creative worth clap but not worth praise.Advocating for bribe goes against Business ethics which every entrepreneur should have 

  119. Agreed. I’m a bad guy.

  120. You can definitely start by encouraging corruption and bribery with in your company. Set an example how businesses can flourish by embracing corruption.

    As a result we would often get to see this:

    Alok: It has been two months since I ask you to develop this game, and it hasn’t even started yet?

    Developer: Not so easy old man, It will cost you Rs. 200,000 more or I am gonna sell all your source codes to EvenMoreCompetitor.com for Rs. 500,000.

    Manager: I am not going to let you release this unless I get my cut!

    Investor: I am going to freeze all your accounts, unless I get my kickbacks for this month.

    So we should all pay bribes to our employees to do the job they are hired for?

  121. I like this!

    So, as  gaming  entrepreneur who has started up a business in India from scratch and has cumulatively paid 14 years * 12 = 168 months * 100 employees average = 17,000 months of salaries to Indians  is BAD!??

    Oh, so making Games that entertain people is bad?

    Entertainment is bad I see?

    You suggest we become Taliban?? 

    Oh you may not know – Games is bigger than Hollywood as a business. USA is not a market to benchmark against?

    hmmmmmmm

    Let me see what you do:


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    Hahahaha!

    So selling strictly imported goods !! to Indians is good for the GDP?!

    Hmmmmm – paying 17,000 man months of salaries to Indians for sweat, toil and blood expended in India is BAD – while making Indians pay for imported goods bought into India by Forex is GOOD!!??

    HILARIOUS!!

     

  122. My dear friend,

    Don’t confuse morals, personal beliefs and what is a general suggestion to make a country progress as one item!

    Consider these 2 notes written by me that exist on this site itself – here https://www.therodinhoods.com/forum/topics/is-it-possible-to-do-business

    Being practical.

     

    A couple of years ago, a labor inspector arrived in our office to check our provident fund records. To his utter disappointment, he found that everything was perfect and hence there was no scope for a bribe.

    He still insisted on a ‘gift’. When we refused, he did the unthinkable – he sat down on the visitor’s sofa and refused to move. Not just the first day but 3 days in a row!

    On the 4th day, tired of having an ugly, smelly owl in our pristine office, we paid him some cash and bid him a happy departure. 

    I found it practical to bend my ethics a bit in return for the sake of sanity and the healthy atmosphere of the office!

    Being Honest

    In 1996, I was shipping my first container of socks to the Netherlands.

    It had taken me 3 years to get one order of Rs 3 lacs.

    I met the shipping deadline just on time and thankfully was able to send the container to the docks (that happened to be very near my father’s factory).

    I was of sitting on my desk and taking a few deep breaths when I got a call on my desk phone (mobile was unaffordable).

    My manager on the other line sounded tense and said that there was a CUSTOMS OFFICER who wanted to talk to me.

    He came on the line and said ‘Mr. Alok, I think these socks being exported by you are UNDER invoiced. They are surely worth more than 3 lacs. I think there may be a case where you are taking the rest of the money overseas’.

    First I tried to reason with him and explained that tax free export status made it more profitable for anyone to receive and bill all the money in India. I refused to even hear me. Then I got a bit more aggressive and asked him what his experience in evaluating sock prices were… he just shrugged of the question.

    Finally, I said ‘Fine – why dont you pay me Rs 3 lacs and 1 rupee and the entire consignment is yours. If there is an under invoicing, I will pay the price and your department can auction it – like you do for flats and make profits’.

    This struck him hard. He started mumbling about ‘co-operation’ and trying to ‘understand’.

    I refused to yield, and finally he stamped the documents required.

    Later my manager told me that we wanted Rs 500!

     

    ****

    Moral? There is a time to be practical and there is a time to be headstrong when it comes to resolving problems in business as much as in personal life

    ***

     

  123.  Take Back the currency Notes of 1000 and 500 (Will pulls out billions of Black Money)

    and 90% problem will be solved

  124. Mr. Kejriwal, I don’t know who you are, I don’t know what you have done and I honestly have no clue why all these people follow you.. :P.

    I am a nobody, with nothing to show for achievement in my life, certainly someone with just average intelligence. You do seem to be a smart guy, what with all that mathematics and economics thrown in, but I wonder why would you be so ignorant about things.Did you take into picture that not everyone might have same acumen/panache for doing intelligent things?? Some of us mere mortals actually have to slug it out to make ends meet??

    Any perspective of human rights? Ethics? human nature? kucch bhi human??

    Again.. I might not be able to argue with you, I am man of limited education, experience and confidence. Even I understand that theory of by hook or by crook does not bode well in long term for a society/civilization/culture.

    If you really do what you preach, I wonder what kind of people would like to do business with you, in the end its all gonna be about money for you, I would keep watching my back for the day you would screw me. Unfortunately in real world, life has much more to it than money.. I call it the Human Factor.

  125. Hello Alok sir,

    I have read your article on Arvind Kejriwal but there are some calculations and some thoughts which are perplexing me so just want to share on this forum. The level of corruption/bribe in business you have calculated is a percentage of profit or revenue and the overall impact is rise in GDP. But what about the corruption level in mega events or deals. Last 2-3 years, our politics is rocked with scams running in lakhs of crores and does a common man business able to justify that corruption level. For eg, Adarsh, commonwealth, 2G and the latest Coalgate, the figures are so huge that they dnt justify the 10% profit, 9% bribe model. I am a working person and today I am in doubt to what purpose my tax is being used???? Plus I live in Guwahati and when I see the pathetic condition of roads, drainage, water supply and other areas, I get curious to know what way the State Government spending is being done??

    Regards,

    Smridhi Khemka

     

  126. Hey, You got a really nice view point. But, I would like to add something(If I am not wrong)!!

    Take the case of pao bhaji wala, If he do not have to give Rs 9 as bribe, his cost price decreases. He can sell his pao bhaji for Rs95 which he was earlier selling for Rs 100. So eventually the person(s) buying from him can save 5%. An yes now the pao bhaji wala, he saves Rs 4 more… Out of which he keeps Rs 2 and distribute other Rs2 to his vendors and labours.

    In all this what happened… Costumer saved 5%, Pao Bhaaji Waala earnded Rs12(which was earlier 10) i.e. 20% extra and so does the labour under the Pao Bhaaji Wala… All this can lead to higher consumption of Pao Bhaji because of reduced price.

    What you see here, ‘Savings’ increased, ‘Profit’ increased, Wages increased but ‘Price’ decreased!!!  

    According to Wikipedia : Income Approach GDP is “” sum total of incomes of individuals living in a country during 1 year .”“

    SO GDP Increases!!! Thats what you, me and we want!!!

    I think what he is doing is also very important because you are doing that Entrepreneur part. For us both the Kejriwal’s are equally important.

  127. Hey I dont wanna get into economics, but please explain me how countries with very less corruption are the ones leading the world economy. These countries like Japan, Germany,France, Australia etc. are very less on corruption yet very high on GDP. So to conclude that corruption does not qualify as an argument to  support GDP. Infact there are lot more other variables which work in favor of GDP. And these variables are enhanced by corruption free environment. 

  128. Akhil, its simple – I think people here dont get the point i am making. i am not advocating corruption. i am advocating ‘being practical’. lets say the the electricity fails in your office. either u buy a generator and keep working or stop ur business and travel to delhi to fight the govt – “why is there no electricity”??
    im saying – as gdp grows, corruption automatically decreases. all the high gdp countries have seen this – corruption then migrates to the highest levels of power (gun manufacturers and cigarette companies bribing american senators) rather than on the street. the policeman who takes a bribe is also a citizen – he needs to feed – salary is very low. increase his salary. by creating gdp.

  129. Alok, how can you find time to spend time on such detailed discussion. Guess someone is doing this on your behalf

  130. Sanjeev, I am so so flattered that you think that there is someone actually helping me write this 🙂

    I wish – how I wish!

    That’s the aim of therodinhoods – and its slowly coming true! Check out the quality and quantity of the posts of the members on the site now!

    A year back, I was the only writer  – now I am one of the many many!

    PS – this article (you may have missed noticing) was first written by me in Dec 2011. And all these counter arguments etc have happened in the 8 months since. So, I have had time 🙂

    PS – I love to write. That’s truly my passion.

    The day I have no job, thats all I will do. And yes, help entrepreneurs.

    Dharma = write

    Karma = help

    :-))))

  131. Simple question to all the people who have a problem with the article – where were you when the GDP was growing at 8%+ from 2004-2008? Did you guys complain about corruption like you are complaining now, with GDP at 6%? 

    When the going is good, everybody is happy, corruption or no corruption. But when the economy slows, everyone needs a scapegoat. By increasing economic growth, you empower people and improve their standard of living. 

  132. !!!! U KILLED IT MAN!!!!!! 2004 / 2008 is when we were ALL DANCING!!!! Malls, construction, cars, sky rocketing salaries, liberal travel budgets!!! Games2win raised 5 million dollars in just 2 months in 2007!!  Man, u nailed it!!!!!

  133. Phew!!
    We simply should have a One Window System with a Single Person taking care of EVERYTHING under the SUN!!!
    Yeah!! Some call it GOD, still HE loves variety 🙂 Thus created ALL of this Whole World with its various Balances to work with each other in tandem.
    Imagine any one on the Earth trying to Take over that JOB what is being done by HIM, we are all here for our Individual Purpose though we still have to co exist, we need to have BAD to compare what is still GOOD right ?
    That’s Life, a balance is always visible thus the various Laws in place too ( I don’t say that, we have books taught in schools) Seen here as well in this context too!!
    Kismat kabhi dusra mauka nahi deti ….. Duniya anjane ko panaah nahi deti ….. Zindagi aur paise se pyaar mat karna ….. ‘Kyunki’ maut kabhi RISHWAT nahi leti – Live cause you LIVE only Once!!
    We all are here to play our individual part and if some do play a LARGER part there is a Smaller one to compare with too to make it BIGGER 🙂
    My Two small bits!! 

  134. Brother, According to you this article is useless then.

    One can say that, where were all Entrepreneurs and Entrepreneur Enthusiast in 2004-2008.

    For your information, Fight against corruption started in 1970’s in India by Mr. JP Narayan(when in India people did not know meaning of Entrepreneur). SO Corruption, GDP, Business goes hand in hand.

  135. Hello Alok,

    I read your article on GDP calculation and all the follow-ups about it, especially your calculations on the revenue generation via the bribe concept.

    Actually I went 1 step ahead and made more detailed calculation on both the scenarios BRIBE, NO BRIBE. 

    If you look at my calculation on this link https://tinyurl.com/GDP-BRIBE

    You will see if bribes are paid as per your calculation you are actually generating Rs87 in black money which is not in the flow of GDP. But in the other case if the 10% of expenses is not spent on bribe then the actual profit retained will be Rs185 as compared to your Rs 97. So now lets take 10% as tax rate slab on the profit earned. The government treasury will earn Rs18 if bribes are not paid as compared to Rs10 as per your calculations. So assuming our tax money is not squandered there will be 80% more money in the government treasury. I have also given the calculations based on the 2011 GDP and if we follow your bribe concept then we have 8.5 Trillion Rupees in CORRUPTED Money sitting somewhere else.

    Anu 

  136. I look at it from a different perspective:

    Consider I am having a business of selling samosas on railway stations, in a day I earn Rs. 100 and I need to pay a bribe of Rs. 9. Without bribe I was making a profit of Rs. 19 and with bribes its Rs. 10. Afterall the human that I am I see my profits being being reduced to ‘almost’ half and I would not want to let go off those!

    Now I have 2 options:

    1. Try and reduce my expenses to 80 instead of 90 and keep paying the bribe of Rs. 9.

    2. Stop paying the bribe and lose my licenses to do samosa business.

    (I have a third option of doing business on 10% profit margins but I would want to move to the option 1 somehow!!)

    The best option for anyone would be option 1 and to reduce my expenses to 80, I would try and use a lower quality oil, mediocre quality potatoes, pay lesser attention to hygiene (it comes with a cost) and all of it since the babus are not concerned about it but are only concerned about their Rs. 9!!

    Oops forgot to add one more way out: Make the samosas more expensive til the babus start noticing it and then start asking for more, and then I increase my prices again to beat it (get into a vicious circle) but with competition around I cant sell samosas for even 50 paise more than them.

    Now what that bribe has done to me is, instead of worrying for bettering my services or concentrating on serving people better it has made me reduce the quality of services or increase the prices to keep the great quality going. 

    If we keep the GDP aside for a minute, as a businessman before I look into the country’s books, I would first look at my own books and try and squeez the maximum out of it. In doing so invariably in all sectors the babus are getting 50% profit share in all companies, the businesses are working towards making bribes as ‘another expenses’ in business which cant be done without and the common man a buyer is shelling out that much more to avail lower quality services than before. 

    People personally look at bribes not as an expense to business coz it cant be shown in books but I look at it as a profit sharing exercise and that mindset is difficult to change!

    -Divyesh

  137. Not spending means not doing business. would you advocate that?

    thats all my point is

    Spend and get started. get the economy to a state where bribes slowly disappear!

  138. Well….the basic point seems to be missed…..corruption is not really limited to 10% of TO as described by Rodinhood…actually it is 100% or more.  Look at any Government contract or work.  Whatever work the Govt does, it pays more than double the amount of what the actual price should be.  For example, say if the market price of a particular construction is Rs 100 normally, the Government budget for the same is Rs. 200 or more. Now this extra burden of Rs 100 is passed on to the common man in the form of multiple taxation.

    Now here begins the cycle…

    More taxes = Expensive Living

    Expensive Living = Reduced Consumption

    Reduced Consumption = Reduced Production

    Reduced Production = Reduced Employment

    Reduced Employment = More Unemployment

    More UnEmployment = More Poverty

    More Poverty = Reduced Consumption

    Reduced Consumption = Reduced Production

    Reduced Production = Reduced Employment………..and so on n on n on…

    Now if I take Alok’s example, if he doesnt pay the bribe, his pav bhaji will be cheaper by Rs. 10.00 which will increase consumption and give better volumes to Alok and his suppliers.  If the suppliers also do not have to pay a bribe, probably the price of pav bhaji will get reduced by 50% which will increase its consumption manyfolds, giving more business & work to all and hence increasing the GDP.

    And Increased Consumption Creates need of more Entrepreneurs.

    What say???

  139. Greetings Mr Alok,

    I am really moved by your article explaining the economics behind the generation of GDP of an economy pretty well, with extremely advanced Mathematics.

    The only doubt I have and I request you to kindly clear it.

    What if we somehow succeed to save 10% of the expenses being paid as a bribe,  won’t it increase the profit percentage of all the members of the hierarchy shown in your article and hence, more beneficial?

    Just a Yes/No will do, but if you want to explain (which I guess you surely will), the blog is all yours.

    PS : If your answer is ‘NO’ and you want to give explanation, you just have to convince on ‘More profit % is less beneficial for a businessman’?

    But in case, your answer is ‘YES’, then I guess you have understood what ‘Other Kejriwal’ (Mr Arvind Kejriwal Ji) is trying to do.

  140. Yes.

    No.

  141. Oops… 

    too many arguments error.

    You were supposed to give either Yes or No followed by explanation which was optional.

    May be, Leave it !

  142. So much to read here…

    @Alok ji

    Just one observation. What Arvind Kejriwal is fighting for is the case where corruption accounts for over 800-1000% of base value and not 10%

  143. Tarun,

    Economically speaking, thats an erroneous argument.

    If you want something of Rs 100, you will NEVER PAY Rs 800 or Rs 1000 (800% – 1000%) of base as suggested by you.

    If there is a 1 crore bribe involved, then the VALUE of the goods being received is 100+ crores.

    ONLY GOD gives more than she receives…

  144. Update – 30-8-2012

    I just cant help smiling to myself. 

    In the post above, just below the maths, this is what I had written:

    “Sir, if you notice, the TRICKLE DOWN EFFECT of starting a business with Rs 100.00 turnover results in Rs 875.00 turnover generated by other people down the value chain as they run their business/service. “

    YES!!!

    Just read this in the Times of India Today:

     

  145. If we plot this corruption index against per capita state income and literacy we do see a negative relationship between the two (See Figure 1 & 2). In other words, with higher levels of income and education, corruption does come down.

    Source: https://www.multiplier-effect.org/?p=1481

  146. Interesting thought Alok! 

    Here my few concerns: 

    1. 87.5 rupees that went in Bribe (lets say illegitimate money)  is not accounted in the GDP and actually a value lost in the circulation. As this money grows, the loss to the government grows higher. I am thinking when this 87.50 becomes 875000000000000, and government sits to account for…..it will be counted as Money that went in market, is in circulation but never accounted. The market will keep running but country will be affected. 

    2. The amount paid for bribe is NOT meant to be paid per law. Change the law to call it a COMMISSION, if someone is so interested. That will be a REAL motivation for officers/policemen to PROMOTE business environment for officers will have their vested interest. The current BRIBE system is a NEGATIVE driver.

    3. The biggest thing hit by the Bribe system is the System itself and its Quality. Need not mention myriads of Colleges, Universities, Companies, Industries opened are all through BRIBES (atleast 80% of them). You can easily spot an engineering college amidst the  Wheat fields in rural Uttar Pradesh, Haryana, Punjab or anywhere. It is all Black Money and Bribe. Quality Lost, System hit. 

    4. As you are a celebrated businessman, you will know that a businessman counts his losses before the profits – therefore, it is better so save the money that is draining before creating more options to create profits through business, which in itself is risky. Businesses take time to grow, so do industries. Needless to mention Nehru’s Second Five Year Plan to promote Industrialization and not Agricultural contributed to devaluation of rupee and deaaceleration of economy, besides the deficit in food reserves. 

    I might be wrong at certain points, but I thing Checking Corruption and Fueling Business are two different things.

    Regards,

    Yogi

  147. Probably you were sleeping because we have been discussing corruption since 1960’s. You should read Kuldip Nayar’s books published in 60s, 70s. 

    Also, personally I have had many discussions private/public on famous CHARA GHOTALA’s, BOFORS, HAWALA, and many more scams since I was able to understand what corruption is – I can say that the topic of corruption is not new…..the scale has just increased.

    The entire Ho-Halla u see today is just because of expansion of Media and Communication Platforms….earlier it was just Doordarsh or AIR – controlled by Govt. 

    You would be lying if you say that you never heard a joke on Lalu Prasad and how he was involved in Chara Ghotala.

    We were more concerned about corruption earlier, Mate. In past few years, a generation might just got busy and the generations that are following are turning consumerists. 

  148. I don’t think anyone would question your achievements. But promoting things like Corruption and Malpractices does not indicate a sensible growth for a strong country. It will come down someday, people inside the business or country will start eating each other, because they have no morals. This is what happening in country. When leaders involved in corruption, everyone thinks its their birthright to do it.

    What if people in your own company are doing malpractices under your nose – will you allow it?

    Or your Gatekeeper taking bribes from your customers or vendors without your consent?

  149. Hello Alok Sir, 

     Great article and brilliant economics! A new follower.

    As consumption increases GDP does increases and yes, this is good for the country. But, the people taking the bribe think about the same while taking bribe?

    What matters to them is their family first, isn’t it?
    Now, coming to your “Economics” is the 10 rupees you have earned. This is the money you take to your home, isn’t it?

    With this amount of money, one has to run their family and expenses aren’t always fixed for one. They keep changing depending on the wants and the circumstances.

    It just increases as times pass. What would one do when there happens a major expense, where will the money come from? (Let’s say expense on doctor treatment) One doesn’t have enough corpuses to meet the same. What will you do?

    Sorry, no one would come to help me just because I have contributed to the GDP. Even take you, would you come to help me?

    What if would have taken home 10+9=19.

    Wouldn’t it have made a difference? I hope this would make some sense.

    Regards,
    Manish

  150. Since when did police walas start paying for their food specially when they are on duty?? Never! 

  151. There are some IIM A Punks who think about PROSTITUTES when they give examples – Check this Facebook link – https://www.facebook.com/kartik.julka/posts/344871438930534

    THIS IS MY ANSWER TO THEM:

    Sajo, I really respect you. You have maintained your dignity and made your points solidly. So, this is my question:

    Building on your XYZ and Rs 100 story, lets assume that there are 3 people in a train compartment: Zameendaar Ji (a land lord) who has the Rs 100/-, Kachowri Wala – a kachori seller who has 12 kachoris with him and Halwaii Ram who has 50 rasgullas with him.

    In the train compartment, when it is lunch time, Kachowri Wala and Halwaii Ram open the food they have. Zameendaar Ji has nothing with him.

    Kachowri Wala and Halwaii Ram are entrepreneurs and sense the opportunity.

    Zameendar Ji asks each of them how much will they charge for their feed.

    Kachowri Wala says he can sell 4 kachowris for Rs 15 each and Halwaii Ram says he will can only sell 20 rasgullas for Rs 1.50 each. No negotiation possible.

    Zameerdar Ji reluctantly agrees and pays them. Zameendar Ji pays Rs 60 ( 4*15) to Kachori Wala and Rs 30 (20*1.5) to Halwaii Ram = Total = Rs 90.

    Between themselves, Kachowri Wala gives 1 kachowri (worth Rs 15) to rasgulla wala and gets 10 rasgullas in return (Rs 1.50*10) = Rs 15 (just as barter and goodwill)

    Then, they all eat their food :

    Zameendaar Ji eats 4 kachowris and 20 rasgullas.
    Kachowri Wala eats 7 kachowris and 10 rasgullas
    Halwaii Ram eats 1 kachowi and 20 rasgullas.

    They are happy!

    Kachowriwala has Rs 60 in his pocket and Halwaii Ram has Rs 30 in his pocket and they begin to think of the stuff they will buy for their wife and kids they have never bought stuff for. 

    Zameendar Ji is very happy and satiated. 

    In the end of the journey Zameendar Ji suprises his co-passengers and says – “please start supplying me 100 kachowris and 500 rasgullas everyday! I love your food! I want to feed my household with this everyday!”

    Kachowri Wala and Halwaii Ram are both very excited and they go home and starts hiring more workers, buying more goods, hiring delivery boys etc. They promise to just survive on feeding themselves (as they were earlier) and grow and grow and grow their business.

    Sajo, please explain to me:

    If the Zameendaar starts to buy AN ADDITIONAL 100*15 and 500*1.50, of goods he had never bought before, that will mean unlocking Rs 1750/- per day of income in the hands of Kachowri Wala and Halwaii Ram that they never earned before.

    What do you think they will do with this?

    Isn’t this REAL WORLD economics??

  152. I LOVE U MAN

  153. Alok,

    I have had the pleasure (and it is indeed a pleasure) of setting up work in a different country, without having to pay off anything. Simple straight and transparent. Its one thing if you dont want to take up the battle and live with a certain amount of corruption. But to actually advocate its ok to leave it alone? Everyone must fight the battle they believe in passionately for whatever reason because only out of that passion can come heroic action and ability to withstand reversals and obstacles along the way. You fight for the cause of enterpreneurs – more strength to you in that cause. Someone else does on corruption – more strength to them too. Why should everyone fight only one cause?

    There is the celebrated story of New York crime, how it was brought down by tackling small crimes like jumping turnstiles at the subway and not paying fare – the people caught had done bigger things too. So the person who took Rs. 9 from you has probably taken another 90 elsewhere. A 10 Rs for not ticketing your jumping traffic red light etc here, a 20 Rs for registering your pickpocketed wallet because they contained your driving license that you need to reapply for etc. And those bribes don’t come with revenue enabled – they are just bribes. Others have made the comments about bribes not (necessarily) finding their way back to our economy so I wont repeat them.

    You like economic arguments, so how about this one. I had only 81 rupees in my pocket, and I could have started this business and earned 100, but I couldnt start since I didnt have another 9 to pay off somone and get my permit. How many aspirants have been turned away? Yes I know there could be versions where you could still start business with 72 but there would be versions where the bribe would be a show stopper. And some bribes are not 9Rs. What has to be paid at a registrar while buying property can be staggering. So if thats a part of your startup costs for buying a small commercial space, what do you do?

    Or lets try another one. You concede in your maths that for the revenue you earned (100), 87.5 got paid as bribes partly by you and partly down the line. How much less expensive would your inputs costs be if no one down the line had to pay bribes? Therefore how much lower price, therefore how much more local consumption and global competitiveness?

    In the end, is it really ok to have this arbitrary unsanctioned additional cost in an economy where we are anyway saddled with many additional costs? There is the cost of diesel in our gensets because there isnt enough power (an argument maybe not felt as much in Mumbai but in Gurgaon it pinches like @#!ing crazy). There is wear and tear on tyres of our vehicles because the road maker bribed his way to the contract and didnt fill the surface below the top as intended and made the layer 10% thinner to pay for the bribe. So how much corruption is ok? Or is it ok if its taken from revenue generated and not others? And in former case, if 10% of revenue is ok, can make a huge argument for saying no when someone demands 11% (cost of living rising you know)? When that becomes ok do we go to 12%? Who will draw up this table of cap on corruption in various walks of life?

    There are many fights to be fought. A great economic environment is one of them. So is equality for women, education for children, etc. Do you know how much corruption is there in education of children? I have direct first hand knowledge of some of this so its not media reports or hearsay. When government supplied grains, sacks would go the principals home. So government got wiser and started sending meals instead of grains. So now meal contractor is the one who siphons partly based on inflated numbers given by school and the grains still end up at principal’s home. The other part of inflated numbers goes to feeding teachers lunches and filling their tiffin carriers taken home for dinner. What entrepreneurial revenue got generated here? We fight to take children out of child labor and put them in schools. Where on karvachauth day they can be seen putting mehndi on their teachers hands while they are chatting with each other instead of teaching. Or cleaning teachers lunch boxes when they are done. All this seen by close friends and family members working with NGOs on government school visits.

    Fighting corruption is much needed fight and toughest in some ways since it requires the earners of this ill gotten wealth to agree to not earn it anymore. It will never be conceded easily. Its not the face value of a small transaction you face but the tip of the iceberg that pervades our country. And I would like not just entrepreneurs but also people in all walks and for all purposes to experience the pleasure I have experienced in a different environment.

    Lets ourselves fight the ones we believe in and support others who fight other relevant and meaningful causes instead of asking them to fight ours too. If they dont believe in yours as passionately as the one they are fighting, you will neither get heroic support for yours nor will the other fight be fought.

    We have a billion folks. We can and should fight all the fights that need fighting. More power to all of them. And to you too for continuing to light the flame for enterpreneurs.

  154. wow. thanks

  155. Great comment. I agree, each and every fight is important. Each and every one. It is not ok to accept the system as is. We can do much better. 

  156. Dear Alok, 

    I would just like to add other effects of paying bribe:

    Since running a business is dependent on ability to pay bribe & obviously getting an agreement with the bribed. It leads to

    • A deterrent for any good entrepreneur to start a business (most of the entrepreneurs will just waste time and money to get the above (bribe  & contact) also leading to loss of motivation). It might be possible most (80%) of them fail and drop the idea of running the business itself. This results in lesser number of entrepreneurs in any business further denting the business as a whole.

    • Inefficient people who can easily comply with the two (Bribe & Contact), are able to “start” the business due to the inequality created. Thus leading to loss of revenue as their motivation to grow or even run the business is almost nil (read coal & 3G). You can easily see the same thing in any other business availed in this way. This also paves the path for richer to become more richer (their ability to pay bribe is much higher compared to yours and mine). 

    • The Cost (Bribe) which a business pays always comes from the pockets of general public AND your own customers (Whatever one entrepreneur pays he has to generate that additional profit by charging more).

    • This Cost as you explained as 9%, is direct part of GDP. If this Cost is freed, One – The cost of all goods & services will go DIRECTLY down resulting in increased demand & more turnover for your business as well. Second –  This cost will further be used for development of the nation (basically infrastructure & society). Better infrastructure will lead to lower cost for the customers (so more demand for any product). Better society will lead to abundance of workforce & earners, making more businesses viable.

    • THE ABOVE POINT (additional development of infrastructure & society) is the ONLY POINT WHICH WILL RESULT IN INCREASED GDP. Even if 50% of bribe cost (4.5%) goes additionally in the above two factors, this itself can have an effect of increasing the GDP easily by 4.5% (most important perennially).

    Now then, if you want to grow GDP – STOP PAYING ANY BRIBES FOR RUNNING THE BUSINESS (it is your right). Practically, for this to happen – A STRONG LAW OR LOKPAL BILL (for which Annaji & Kejriwalji are fighting for) is needed. SO GO ALL OUT TO SUPPORT THE SAME. Once the same is achieved your profits are bound to increase by atleast 50%, Which the whole chain in turnover generation can use to further increase the turnover and eventually GDP.

    Regard

    Devender Kr

    PS: Even if you cannot support, do not to remove the focus from it or go against it. If this continues, we all will be eventual sufferers in the long run. (Just an example here, Power bills today are 5 times what they were 5 years back. This can be easily attributed to the fact of Coal production not increasing due to the corrupt allocation of the same).

    NO BRIBE CAN RESULT IN ANY BETTERMENT OF ANY BUSINESS. DO NOT IGNORE IT. FIGHT FOR YOUR RIGHT.

  157. I found this argument really fascinating but I think Mr. Arvind Kejriwal is actually fighting for higher GDP. Please refer this paper about ‘The Impact of Corruption on Economic Development of Bangladesh'(https://mpra.ub.uni-muenchen.de/28755/1/MPRA_paper_28755.pdf) which states ” …News Scan Analysis of Transparency International Bangladesh (2002) reports that about 1.85% of the GDP had been lost because of corruption in the fiscal year of 1999-2000…. It shows that a 1% increase in the level of corruption during this period has resulted in about 10% reduction in per capita GDP of Bangladesh. It means that corruption is affecting the economic growth of Bangladesh adversely. In other words that Bangladesh could achieve faster economic development if it could curb widespread corruption. This finding is similar to the results of Mauro (1995), Rahman, Kisunko and Kapoor (2000) and Dreher and Herzfel (2005) but differs in magnitude….”.
    I am not aware of any similar study about India but there is clearly empirical evidence of GDP hampered by increase in corruption. Both Kejriwals are different sides of same coin.

  158. Finally, some official blessings!

    Who is Pinaki Chakrabaroty?

  159. Wow!!!

  160. Dear Mr. Kejriwal,

    Out of these two options which one will you choose :

    Option 1 : Out of Rs.100, keep Rs.10 as profit, give away Rs.10 as bribe & spend Rs.80 on actual business

    Option 2 : Out of Rs.100, keep Rs.10 as profit, spend Rs.90 on actual business

    Don’t you think Option 2 will grow business faster this pacing up the entire chain ??

  161. Hi Mr. Alok,

    Today I have read your article really I liked and partially agree with you. I have read almost half of comments, we are discussing only one side of Economics, getting monetary benefit in Static Environment. In real world it does not happen. 

    There are External Factors also play their role. If you have paid bribe to setup Stall at Railway Station or Bus Stop, after 1 month or 1 Year Government realizes, Its unauthorized or false approval given after paying bribe they will demolish the Shop.

    I request to again calculate the loss to all stake holders & Effect on GDP & Stock Market. Shop will be closed there will be direct loss of Rs.100 but it will again create Multiplier effect in Economy, All Supply chain member will loose and there will be hole of Rs. 875 in economy (Calculation will be same as urs) and will be loss employment. 

    Taken an latest burning example of Telecom Sector Scam under Congress Rule (I am not sure it was a scam or a genuine mistake) bur now its a Scam. I think I need to Explain further on this as every one knows the effect of Bribe on Telecom sector. Next is Coal and then Oil and gas.

    Our half of Indian Economy is suffering just because of Bribes.

    Regards,

    Deepak

  162. Dear Alok,

    I don’t understand, Multiplier Effect/Trickle Effect on one hand, what is “objective” of your blog? What is the take away?

    Bribes are fine if it increases GDP?

    GDP has increased from 3% to 7,8,9% in 50 years……can you assure a commoner can get his/her constitutional rights without bribes? Your Title “Kejriwal to Kejriwal:” is faulty. 

    If you have said “How Business Cope up with Bribes” or something like that, it would be a informative discussion and a new perspective to ponder upon.

    But you started with Questioning a Noble cause of a man who UNLIKE you does not fancy MILLION DOLLAR investments in his company and sits in luxurious offices. He sleeps in 45 degree heat on stage so that a poor man in rural India could live his life hassle free and that corruption could not take away his basic rights. 

    I am ashamed and embarrassed to see to an extent you have went to prove a point which is so narrow compared to the mammoth mission taken by Mr. Arvind Kejrival. 

    I tell you a real example – My father, a business (cinema theater) owner in a small town, continued to pay bribes to Entertainment Tax Officers, Electricity Board Offices, Town Area and what not. One fine day he charges Rs 2,00,000 as pending electricity bill (in 90s) for delay in paying bribes????? He had to fight this case for 5 damn years, pay thousands of rupees in bribe and loose the peace of mind and not to forget the rising family tension we witnessed as kids!

    He was paying a price of what? Despite paying BRIBES!!!

    This is a small example – I can count you 100s of such people who died waiting for their turn and arranging for the bribe money.

    How shameful that instead of looking at the bigger picture you are acting like a teenager to prove a point what is popularly called a brain fart?

    Your ONLY point that is right is the trickle down effect and all the economics you are trying to teach here…..BUT ADVOCATING BRIBERY? Shame!

    You probably never experienced the life at grassroot, you do not even represent India. 

    It seems you had a FANCY DREAM “Oh! He is Kejrival, I am Kejrival! What a coincidence, and suddenly you read an article on Trickle Down Effect…..oh this is the moment! I got a point! Let me put some stupid analysis, let me be famous!”

    What a loss!

    Writing it was fine, debating it was ok……going to this extent to prove some concept to people?? WOW!……you have lot of time sir!

    Its not the people, it is you who is missing the BASIC POINT….and it is not the ECONOMICS sir…..it is HUMAN RIGHT!

    Wake up, walk out of your fancy office once in a while….you will know. There are kids in small villages, who DESERVE the mid-day meal……and corruption does not allow them to have the food that can help them live a little longer and FOR ONCE atleast believe that this world could still be a better place to live! You haven’t seen that, have you? 

    Yes, they can do business by paying bribes, only if they can live a day longer. 

    They dip their breads in milk-less tea to survive entire day, because the Principal of school is busy paying bribe to the Education minister. ……Do you still agree Bribe is fine?

    How could you miss such details of life? I am very disappointed by a person of your caliber of not just making a stupid Headline but going to more stupid ways for proving it! 

  163. And for GOD’s Sake, just remove your picture besides Mr. Arving Kejrival….. this act of yours appears to be more of a “Self Proclaimed Righteous” image! 

  164. Dear Alok,

    Your theory on these figures is absolutely right. When we talk in volumes, these will multiply in amazing numbers. But to increase volumes we need more entrepreneurs. The fact is, Bribing discourages entrepreneurship, Especially in states which are still developing and has lesser volumes of business industries. 

    If i talk about my city Jaipur, there is a queue of people for bribe. Starting from business registration to establishment of unit. From local police station to sales tax/ service tax people.. every one is demanding something. In such cases, we need to put a big share in bribing. For small businesses, this matters a lot. When i started my software development unit, i had Rs 100000 to start. I ended up spending around 25000 just for bribing and it even took around two months to finish registration process and starting my unit. These guys unnecessarily delay your work to prove their importance.

    For a big business, its not difficult to manage capital. For a small entrepreneur, its very difficult to arrange funds to start a business. In such cases, it becomes very difficult to share in bribing.

    Bribing is an ill practice and need to be abolished. 

    Anuj

  165. Thank you Vinay Chhoda for pointing me to this one! It probably sums IT ALL UP https://www.haywardecon.com/KEYNESIAN_MULTIPLIER_EFFECTS.ppt

  166. I have been following Alok Rodinhood Kejriwal’s blogs since long, i have utmost respect for this Kejriwal(Rodinhood). Recently there was a lot of hullabaloo happening on this post of him, which definitely attracted my attention 😉 For me all the logics/arguments absolutely makes sense. smile

    And the other thing is that, its just his perception, its his personal view on his personal blog which absolutely makes sense from his point of view. Don’t understand why people beat around the bush and still couldn’t counter him if they are right? 

    We Indians are very emotional(including me :P)wink, especially youth. We want to change things out here. But we don’t want to be the change, but we show off, being patriotic towards our country. Trust me even am against corruption. But there were times when i was getting late for work and i took a wrong way(it wasn’t more than 10mts), got caught by cops, paid bribe just to save my ass from getting late, for an important meeting wink (just to save my job). Why did i do it??? 

    For me if i want to fight against corruption, i should change my perception first than paying bribes to anyone or supporting the other Kejriwal(Arvind). 

    Just curious to know, how people who put comments against the other Kejriwal(Rodinhood), are contributing to the society? Did they waited in line for hours for something, did they do what they are supposed to(never paid bribes) at least once? Can Arvind Kejriwal be successful and can he ensure that, we Indians don’t have to pay a single rupee for bribe?

    Paying bribes is in our DNA and it will take ages for us to overcome it, and for now what i see is, what if am not even earning a single rupee? I cant even pay a bribe, which means i cant get my work done isn’t it?? 

    Entrepreneurship is the answer! Create jobs, make people independent first. Change perception, don’t pay bribes and start taking initiative than sitting on a cozy chair in an AC Room and lolling around FB.

    I have utmost respect for the other Kejriwal(Arvind) as well, but can he do it all alone? Without our support???( i don’t mean attending his fasts in Ram leela Maidan) ???

    I don’t think so.

    Thats all from my end. 

    PS: Am not targeting anyone, thats just my perception 😛

  167. Alok that like throws a 404. Can you post the correct link?

  169. Dear Mr.Alok Kejriwal,

    Having gone at length through the entirity of your remarkably creative approach to economics and politics and what not, the words of Alexander Pope come to mind: ‘A little knowledge is a dangerous thing’                                                                                                                                                                      

    Not only is your explanation illogical, incorrect and absurd, it is also extremely saddening and shaming, no wonder Sh.Arvind Kejriwal did not think it even merited a response despite your literally vulgar efforts to drum up support on social networks. However, I felt it was necessary to draw everyone’s attention to how seriously your theory is flawed and misleading and fit for a trash can. 

    Let us to start with, concentrate on the matheconomic part of it: 

    Take your own example : You sell Rs.100 worth of Pav Bhaji. For the sake of keeping it uncomplicated, I will only elaborate the vegetables’ part as you have done in your calculations 

    Your Sales(Snack Stall)                     Profit      Expenses

    Rs.100                                             Rs.10        Rs.90 (Rs.70 Vegetables  +  Rs. 11 Disposables  +  Rs.9 Bribes) 

    Sales of Vegetable( Vendor )            Profits     Expenses

    Rs.70 (as above)                             Rs. 7         Rs.63 (Rs.50 Vegetables from Mandi + Rs.7 Hamali + Rs.6 Bribes) 

    Sales of Vegetables (Mandi Trader )    Profits      Expenses

    Rs.50 (as above)                              Rs.5           Rs.45 (Rs. 34 Vegetables from Farmer + Rs.6 Hamali +Rs.5 Bribes) 

    Sales of Vegetables (Farmer )            Profits       Expenses

    Rs. 34 (as above)                              Rs.3           Rs.31 ( Rs.23 Veg Bulbs + 5 Cultivation expenses + Rs.3 Bribes)

                 Total Profits/Value Addition : Rs.25       Total Bribes: Rs.23     Total Expenses Rs. 229

     Now if you note carefully, by adding the expenditure successively, as you have done in your tables, you are adding the cost of the very same vegetables multiple times. The tickle down effect is to be calculated on the value added at each stage, not the tally of expenses (or for that matter, even the total turnover). The total of the expenses (Rs.229) is a totally irrelevant number: because in an economy, the sales figure of one guy is automatically in-built into the purchase figure(and hence the sales figure) of the next guy in the chain. This is precisely the reason why indirect taxes are set off against purchases made by an organization on the particular product which it sells; only the actual value addition is taxed. 

    For a good or a service produced once, you are adding the value several times over. Despite your rather wondorous magical wand formula and sweet wishful thinking, dear self proclaimed ‘friendly neighborhood economist’, you cannot calculate GDP in this way; GDP is not the ‘Aggregate of Expendiute’ or ‘Aggregate of Turnover’ of a country. Actual product/wealth created once cannot be added over and over again as it passes hands.  

    ‘A horse that can count to ten is a remarkable horse, not a remarkable mathematician’ – Samuel Johnson

     You’re a  well known dotcom entrepreneur. Leave the economics to the economists, Alok, and try sharpening up your existing skills.

     Mark Twain said  “To a man with a hammer, everything looks like a nail”

     You are so obsessed with this skewed idea of yours that you missed to notice that by agreeing to pay a bribe, you are creating a virtual parallel economy: Rs.25 versus Rs.23!  Before you drift off to dreaming of the Nobel prize for welfare economics, can you imagine the quantum of black money that would be, and what problems it could pose for a country already grappling with poverty, inequality, crime and terrorism?

     And this brings me to the socioeconomic aspect of your inglorious proposal to accept 10% corruption. Assuming that despite your intellectual inability to grasp fundamentals of macro-economics, you will have some basic human traits and appreciation for the moral aspects of life, I will venture to touch upon those. 

    What is corruption? I don’t need to be an economist to tell you this, corruption is the perpetration of unrightful or untimely or undeserved favours or benefits on someone/something for a return consideration, illegal and usually in the form of money(bribe).  

    But Corruption does not exist in a vacuum, by favouring someone undeserving or out-of-turn, the rights of the deserving individual/entity get crushed or relegated and thus gives birth to an ever widening vicious circle where the percentages of bribes will continue to increase and the volumes of fair business will continue to decrease until virtually no activity will take place without a significant generation of black-money in the form of bribes. 

    When you agree to pay Rs.10 as a bribe to further your business, there will another ready to pay Rs.12 for the same job, and yet another to pay Rs.14 and so on until whole system begins to crumble under the weight of unaccounted money. It would serve you well to read a few lines about the correlation between corruption and the economic health of failed countries. In-fact, if simply a higher GDP were anything of a barometer of the quality of life, we should have been amongst the best countries to live or do business in. Unfortunately we’re not! Great nations are built, not by GDP or growth rates but by conscientious citizens and able governance: Japan, Canada, Sweden and Switzerland in the modern world and dynasties like the Mauryas and Guptas and the Vijaynagar empire of the old world are glaring examples you might have heard of. 

    Have you ever wondered, ‘Mr.10 percent’, what about those people who cannot afford to pay your generous 10% bribe to start their business or get their way through in life? These individuals will feel, like you do about paying monetary bribes that it is equally fair to get their work done by resorting to crimes. So we now have a problem of people robbing banks, staging hold-ups, creating frauds, kidnapping and murdering because they feel it is justified and right to get their work done by hook or crook, in the event of lack of money. 

    However, given the nature of your business- the dotcoms,  I think you’re forgiven because a lot of people of your genre are so busy on facebook, online games and blogs and embellishing their digital persona  that they lose touch with earthly life. 

    • Corruption is when someone finds a bank loan to fund his/her child’s education can only be ‘bought’ with your 10% bribe

    • Corruption is when a person who has met with an accident is rushed to the hospital but there are no oxygen cylinders or blood bags because the funds that were sanctioned to buy them have been siphoned off with the help of your 10% bribe.

    • Corruption is when one finds the piece of land his/her father bought with his life’s savings has been taken over by the land mafia who had the wherewithal to buy the patwari and the tehsildar with your 10% bribe.

    • Corruption is when one finds someone else’s electricity bill has been clubbed with his, all because that someone paid a simple 10% bribe.

    • Corruption is when a woman is gang-raped and murdered but the assailants cannot be brought to law because the police or the judiciary accepts your 10% bribe.

    • Corruption is when a competitor bribes the customs department to delay your export consignment and penalize you, by facilitating your favourite 10% bribe.

    • Corruption is when the nations security is compromised because someone at the International Airport can be bribed to smuggle in arms and ammunition, all for a 10% bribe. And then, Kasabs are born. 

    George Burns once said  “ It’s really too bad that all the people who know how to run the nation are busy either driving taxis or cutting hair”. I’m seriously surprised, you aren’t doing either.

     God bless you, Alok!

    Rtvik Sethia

     PS:  When you go home tonight, Alok, take some time off from self-aggrandizement and gaze at your children. Would you like them to be corrupt or accept corruption when they come of age?

     

     

     

     

     

     

     

     

  170. rtvik…

    i normally applaud intelligent, well thought comments. especially where ppl take pains to contribute to a post. 

    what i do not tolerate is personal attacks. you could’ve put forth your POV decently. just because we don’t believe in censoring posts or comments doesn’t mean you abuse this freedom. dragging in someone’s children crosses all limits.

    and to think, last evening i checked out your website and thought “interesting. great addition”.

    i have never been so disappointed. 

    🙁

    and btw… there are hundreds of ppl who disagreed with this post. they all put forth their arguments. but NO ONE felt the need to stoop to this level.


  171. Dear Asha:

    Thanks…I just wanted to point out to Alok that is he fine with the next generation of the country accepting corruption as a way of life.

    After 60 years of independence, we have today, perhaps the finest human capital in the world. Our generation, people like you and me are gradually waking up to our ‘real wants’, where we want to be 50 years from now– a truly prosperous country.

    …and amid this Alok has blatantly advocated that it is fine if there is a 10% blanket bribe. Isn’t that shaming? He must be a genius to be where he is today and has himself done the nation a good duty by being a successful job and value creator. Now why this, especially with no mathematic/economic sense and that too on a public platform? 

    You will note, I have neither used derogatory language nor any personal insults. My reply is in the same vein as the one Alok wrote to Arvind Kejriwal.

    b.regards,

    Rtvik

  172. thanks for the effort made to reply to me and the advise to ‘gaze’ at my kids!!! Oh, when was the last time someone reminded me to do that!!

    Instead of repeating the theme of my post, I would simply assume that you have read the Keynesian Multiplier post and the study of the eminent economist Pinaki Chakrabaroty listed above.

    If Keynes himself cannot make a point to you, then I guess I am no one to make any impact on your enlightened understanding of economics! 

  173. Asha, the level of the man who directly stoops to directly referencing A MANS CHILDREN does not need to be elaborated!!

    That one line alone clearly showed his level of respect he has for people!!!!

  174. Rtvik, 

    Just to clarify (hopefully for the last time), this post does not advocate corruption per se.

    It is instead asking people who can lead agitations and garner public support to fight for the right reasons which according to Alok should be increasing GDP growth and income. 

    His economics example is meant to be as basic as it can get and is definitely not flawed. Just because it is perceived by some people to advocate corruption you cannot assume his economics is flawed. You can have a look at some of the links posted throughout this thread on the multiplier effect, Keynesian economics, etc. 

    Who is George Burns? The comedian… how does what he says apply here?

    And yes, I’ll rather be a remarkable horse than an unremarkable human. Better to be remembered for something right? 

  175. oh, you better watch it – this guy is gonna come after your wife and mom and dad now 🙂

    you should ‘love’ your wife more, ‘respect’ your parents more etc etc

    the moral moses has arrived on therodinhoods armed with a nobel prize in economics!!!!!!!!!!!

    move over keynes – you are rubbish. Pinaki – what’s that? a fish?

    :-)))

  176. Dear Alok!

    Ref to your message on facebook.

    1. The message about gazing at your children did not mean anything personal and indicative of the next generation per se, which I hope you realise and I categorically mentioned the same to Asha in her moderator post as well. Whether to highlight a footnote or to ignore it is entirely your view. The content in the body of the mail itself requires your attention.

    2.  I think we could ask Dr.Pinaki again about the mathematical and economic accuracy of the calculation where you have created a total GDP of 875 by starting off a business of Rs.100. From his reply to you, it seems he endorses the ‘multiplier effect’, not how you used it.

    In-fact if you re-read that section of my letter, you may see my point.

    I’m not advocating any moral duties, unfortunately the perpetration of corruption has an effect that impacts the society both morally and economically

    If in case, I am incorrect, I’ll be glad to withdraw my letter with a due apology on this public platform. We are businessmen, there are no egos to nurse.

    rgds,

    Rtvik

  177. Rtvik, 

    in your obsession to bring in my family and my kids into the discussion and compare me to Horses “‘A horse that can count to ten is a remarkable horse, not a remarkable mathematician’ – Samuel Johnson”  and Taxi drivers and hair dressers, “George Burns once said  “ It’s really too bad that all the people who know how to run the nation are busy either driving taxis or cutting hair”, it seems that you lost the plot.

    Let me reproduce the keynesian multiplier this time as the PPT that you may peruse.

    Also, Prof. Pinaki was not quoted by me ‘randomly’ – he was quoted by me to prove that corruption INDEED DECREASES AUTOMATICALLY when GDP increases – something that i been screaming in my post, but of course have NOT yet bothered to tell my children about!! Thanks to your reminder, I will.

    Check the PPT and Prof. Pinaki’s graph as under:

     

     

    And, here is Prof. Pinaki’s graph taken from – https://www.multiplier-effect.org/?p=1481

     

    Please also advise me what next I should be telling and doing with my kids….!

  178. Dear alok,

    I want to examine the argument from this point onwards

    ” The 2 police walas who take bribes – Rs 9 and Rs 6 = Rs 15 ACTUALLY FURTHER SPEND MONEY ON EATING PAAV BHAJI FROM MY NEIGHBOR, thereby again increasing the cash circulation!!! (source of money which I did not care to cover because if I ever said that bribes are good for the economy, then I would be killed).”

    What happens when the policewala decide to spend Rs 2 on food, Rs 3 on buying a flat in Greater noida, Rs 1 on touring the world and the rest stashed away in a swiss bank. What happens to these Rs 9 …. 

     

  179. Its funny that you broke it down:

    Rs 2 spent on food is expenditure that goes back to the economy

    Rs 3 is a capital expenditure that builds capital in the country – via a flat – the builder has to pay for cement, bricks, worker wages etc etc to build the flat

    Rs 1 in touring the world – depends who he buys the ticket from..

    ‘Rest’ – stashed in the swiss back – thats the killer – its DEAD capital. Funny coz it DOESNT MATTER if its Swiss Bank or State Bank of India! ITS DEAD money. 

    But to negate all your doubts, check this graph and read the link that PROVES that Corruption DECREASES when GDP increases 🙂

    Prof. Pinaki’s graph taken from – https://www.multiplier-effect.org/?p=1481

     

  180. Thanks..I am really getting educated. Being a science student never saw the world from this angle. Can we take one more step in the same argument. This police wala gives bribe, pays for a second flat in cash, and splurges… all in cash from the same bottomless magical pit of Rs 9 stashed away……it never touches the economy by all handlers in the chain…..is this healthy for the economy…

     

  181. I am so happy by the noble effort you are making to learn economics! I wish there were many more like you!

    Now to your answer:

    – You are confusing expenditure and its benefits with ‘white’ (tax audited) money and ‘black’ (unaudited) money.

    As long as there is EXPENDITURE (Black or White), there is a multiplier!

    Only tax collections suffer!

    The problem is HOARDING of money – thats when the magical multiplier does dead. 

    Most common people like you and me HAVE TO spend money, so its fine.

    2 examples:

    – Lots of economies in India are heavily ridden with ‘black’ money. Examples – Textile, plastics, local jewelry business etc.

    Why was black money created?

    Because people dont want to PAY TAX!

    Imagine if there was no tax in India – we would have a white economy, because wealth becomes easy to manage – you can save in a bank, cut cheques etc.

    Now, Black market economies – BOLLYWOOD for instance create MAJOR GDP and growth! Its just that its players live on the edge – afraid of getting caught!

    Take the IT industry – the government made EXPORT tax free – hence that whole trade became ‘white’.

    Trust me, if it were like any business, we would have have parallel economics in IT and Garment exports also!

    Finally, there are so many professionals amongst us who like to be on ‘contract’!

    WHY?

    To save TDS! (Tax)

    ARE ALL THESE PEOPLE HONEST TAX PAYERS??

    Nooooo!!!

    If the IT dept examined their PERSONAL books, so many of their expenses would be ‘in-admissable’ and they would have to pay back taxes and penalties!

    BUT, are these friends and people you and I know NOT contributing to the economy??

    Of course they are!

    ANY EXPENDITURE IS GOOD EXPENDITURE!

    also check – https://www.therodinhoods.com/forum/topics/the-3-simple-truths-about

    Jai Hind!

  182. Alok:

    While the economics of your argument might be correct, a google search for  “positive effects of corruption” provides various research papers, articles and discussions about the ‘good’ effects of corruption.

    The thesis seems to be that when institutions are weak, corruption is good. The hypothesis is intuitive. The pav bhaji stall entrepreneur will waste his/her time waiting for a BMC license. It is better to pay the local cop and start operations and create a virtuous cycle of growth.

    From the Google search, I found the following paper pretty good – https://tinyurl.com/9b3ux88

    The paper summarizes that corruption is of two kinds – Bad Corruption – correlated with poor institutions and Residual or Idiosyncratic Corruption.

    I quote – Bad Corruption always has negative effect on development whereas residual corruption has negative effect in countries with good regulation and positive effect in countries with poor regulation.

    In the summary, the author makes the point to policymakers about what they should be doing about corruption (which, in essence, is what you are doing to Arvind Kejriwal) – “...this might imply that curbing corruption without improving other institutions would have a negative effect on economic development. Another interesting finding is that residual corruption has a different effect on development in different countries: a positive effect in countries with poor institutions and negative effect in countries with developed institutions.”

    From what I see, you are touting the positive effects of residual corruption (going with the definition of that author) in an environment with poor institutions. While your argument is correct by itself – use corruption, if required, as a tool to grow economy. The generalization that the readers have drawn (that corruption always increases economic growth), and you have not explicitly refuted, is wrong.

    To add to this, I came across this wonderful piece by Swaminathan Aiyar – https://swaminomics.org/?p=1668.

    In his conclusion, he also is saying something similar:

    “Finally, the quality of institutions seems to be very important. Where institutions work even moderately well, progress is possible even if money is skimmed off at the top. But if institutions are incapable of enforcing any rights, corruption will hasten economic collapse.

    What are the implications for India? First, we can sustain 6 % GDP growth despite considerable corruption. Second, growth will be fastest in states where institutions are strongest and decision-making is least arbitrary.“

    If Arivind Kejriwal (or an equivalent) does not fight to create better institutions (includes an efficient government and also an effective corruption fighter like Lok Pal), growth will NOT happen. 

    What do you think?

  183. If Arvind Kejriwal cannot even convince his MENTOR of his method, how can he convince the country?

    This is what I think!!!

    Let Economics be damned!!

  184.  You are picking up on my reference to Arvind K in the last para of the post and responding on that. 

    What about the part before that? 

  185. Here is my reply: 

    No google, no googly, no blog, no slog.

    PURE PROOF OF INDIA BY THE MOST RESPECTED ECONOMIST AROUND

    Pinaki’s graph taken from – https://www.multiplier-effect.org/?p=1481

     

  186. Correlation does not imply causation. Prof Pinaki is not implying the same.

    Read this excerpt from the same paper at the link you have given:

    “Is the intensity of corruption the same across India? The 2005 “Indian Corruption Study,” by Transparency International (TI) and the Centre for Media Studies (CMS), is the largest corruption survey, with 14,405 respondents, spread over 151 cities, and 306 rural areas within 20 Indian states.  The study revealed that there have been substantial variations in levels of corruption across Indian states. The survey focused on corruption in the public sector. More specifically, it captured the level of “petty corruption” encountered in securing 11 different public services: the income tax bureaucracy, municipal services, the judiciary, the Rural Financial Institution (RFI), Land Administration, police, public schools, water suppliers, electricity suppliers, government hospitals, and ration cards. According to this survey, Kerala is the least corrupt state and Bihar is the most corrupt, with an index value of corruption at 2.4 and 6.95 respectively. What explains this variation within the same institutional structure—have Anna and his team considered this?

    If we plot this corruption index against per capita state income and literacy we do see a negative relationship between the two (See Figure 1 & 2). In other words, with higher levels of income and education, corruption does come down.”

    The paper goes on to say this:

    ….robust econometric estimate that corruption in India is negatively related to development and decentralization……

    So what is the solution? The solution lies in empowerment of people through massive public investment in basic health, primary education, and infrastructure to ensure equitable development to unleash the growth potential and economic opportunities for those who are still excluded from and get exploited by the system. With our without JLPB, empowerment of people would bring down corruption substantially.”

     

  187. cool.

    So, Pinaki is wrong, Keynes is wrong, correlations means nothing.

    We are all wrong.

    Arvind Kejriwal is right, and he is going to lead us down heaven’s path!!

    So help us lord!

    (chuckle heard in the background)!

  188. Thanks for the informed set of views. 

    Another thing that is bothering me is yesterdays reforms. FDI in pensions is not understood.

    ok let me start a new thread

    this forum is “informative ” better than the set of paid talking egg heads on all channels….selling their personel agenda….

  189. Nicely said!!

  190. CHECK OUT KANWAL REKHI’S STATEMENT IN TODAY’S ET (JAN 10, 2014) [Alok just shared this on his fb page]

    “What do you think of the AAP party?

    I think they are stumbling. Corruption is not a problem. It is a symptom of a problem. Today people have no trouble buying airline tickets, car, train tickets, a phone. You know why? The markets opened up; which is the point I want to make to the AAP — open up the markets fully. Indian liberalisation is of the elite, by the elite and for the elite. They have liberalised air travel, automobile, financial sector, capital freedom but  they did not liberalise (for the ) poor—farm sector, labour sector. They think they are helping the poor. They’re not. They’re preventing jobs from being created. All the power in a train is actually the locomotive, entrepreneurs are like locomotives. They start the train. For people at the lower end to have jobs, people with entrepreneurial skills should start companies.”

  191. @Alok Kejriwaal Don’t you people Forget the Corruption in Police and Sarkari Departments..Corruption from Business Will Also reflect in Judicial System and Policing and Health system…….if some goon , Kick You…….then goon will give 10% Bribe and Run Away…..
     
    Why we don’t talk about. Public Education, Health , Judicial System, Policing system……….Aren’t they Part of Development…….

  192. Ok, so let me lay it on THICK. I am BETTING that in the next 10 years, my argument in the MOST RESENTED BLOG of mine is NOW gonna come true :))))

  193. Yes Alok I truly agree with you. It is important to create opportunity to do business. One should create parth so that people can easily start business and run it. Like starting a PVT Ltd company has so many obligations, formalities and cost. I am not concerned about cost, I am more concerned about formalities. 

    Look at the TAX system. Do you think the new government should consider looking at it. I had sent an email to Mr. Narendra Modi’s Office and I would wait for his response. Lets see what does the government reply.!!!

  194. A bit more introspection?

    The rather “noisy” gentleman called Arvind raised the ANTI CORRUPTION IDEA and tried to win an election on that promise. Now, WHO voted? The AAM CITIZENS OF THE COUNTRY – who actually are the most affected by corruption! They gave him LESS THAN 0.75% of the total VOTES cast!!

    Verdict – Growth over Corruption!

  195. Hi Alok The point you raise is valid. Work needs to be done on BOTH fronts – increasing GDP and reducing corruption. However your example and calculations are wrong on one big aspect – you take the opportunity cost of not allowing an entrepreneur to do business and compare it with the actual cost of bribes. This is comparing apples to oranges. Your example is also simplistic and ignores some of the biggest impacts of corruption.

    It has been my experience that corruption does not increase cost by percentages, it increases costs by multiples. Government contracts are routinely handed out for 10 to 20 times the cost at which things actually get done. The ‘hafta’ brand of corruption is not even significant in the totality of Indian economy. I believe your assumption of 10% towards cost of corruption is wrong.

    Secondly, all the money collected through bribes DOES NOT come back into the economy. So the multiplier effect is not that much. That is why we have the black money parallel economy – which is estimated to be equal in size to the white money economy. This black money also contributes in various ways towards jacking up inflation which further reduces the multiplier impact of the white money economy.

    To do a fair comparison you need to calculate what amount could have been generated through entrepreneurship in a corruption free society; what profits could have been earned if bribes were not a factor at all; how many more people could have started businesses if cost of land etc had not been jacked up by the black money economy and THEN compare it with the Rs. 875 figure in your example. You need to calculate the opportunity cost of giving bribes with the opportunity cost of increased GDP to get a real answer.

    Having said that, I understand your recommendation of focusing on initiatives other than corruption and second it.

    Regards

    Vinayak

  196. DEDICATED TO ALL THE IIM A “MORONS” who argued with me on my definition of GDP :)) https://on.ft.com/1s7UmIQ

  197. Alok

    You seem to have missed out the most important line from Wikipedia – 

    The third way to estimate GDP is to calculate the sum of the final uses of goods and services (all uses except intermediate consumption) measured in purchasers’ prices.

    Please note – it mentions “final uses” of goods and specifically excludes intermediate uses.

    Your basic assumptions are not correct and the same with goes for the conclusions drawn from it.

  198. Who cares about the 3rd way? The discussion started by the Keynesian Multiplier Effect and its effect on GDP!

    If you now tell me that ANY INCREASE IN EXPENDITURE HAS NO IMPACT on GDP, then I rest my case 🙂

    Ps – and the people have anyway decided on Mr. Kejriwal’s case too 🙂

  199. The third way is what you have quoted in your comment – it is the “Expenditure approach” that you mention in your previous comment alongwith the link of wikipedia. You brought it into the discussion. I am just pointing out that you have left out a very important line which substantially changes the meaning of the argument put forward by you. Check out the screenshot (with my previous comment) of the paragraph from wikipedia that you have quoted in your comment.

    Secondly, I am NOT “telling you that any increase in expenditure has no impact on GDP”. I am telling you that increase in GDP is not the simple sum of increased expenditure by all people involved. Increase in GDP is measured by the “value added” at each stage.

    Thirdly, the fate of Arvind Kejriwal is irrelevant to this discussion. What I am bothered about is that you are an opinion maker and lots of people read what you write. Your article trivializes corruption because of the wrong logic used. This should not happen. You should correct your understanding.

     

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