Corruption as a driving Factor of Economy Vol. 2

In last post i talked about how we feel about corruption. However i ended my post with the benefits from whole corruption industry. Now let us look at it more figuratively. Before that i will like to introduce a term Marginal propensity to consume. And this consumption will be more for the corrupt people. But again on being safer side i will stick with INDIA’s average propensity to consume.

In economic, the marginal propensity to consume (MPC) is an empirical metric that quantifies induced consumption, the concept that the increase in personal consumer spending (consumption) that occurs with an increase in disposable income (income after taxes and transfers). For example, if a household earns one extra dollar of disposable income, and the marginal propensity to consume is 0.65, then of that dollar, the household will spend 65 cents and save 35 cents.

Mathematically, the marginal propensity to consume (MPC) function is expressed as the derivative of the consumption (C) function with respect to disposable income (Y).MPC= dC/dY, where ΔC is the change in consumption, and ΔY is the change in disposable income that produced the consumption

This simply means if a person earns Rs 100 extra he spends something around say Rs 50 extra. This Rs 50 extra is someone else extra earning who spends 25 extra and so on. If you see this Rs 100 grows to something more than it is.

In total it increases over all earning and consumption.  Increased consumption means more production and thus more GDP. Now let us go by simple funda of G.P. Also, expense by someone always brings earning to other. So on a whole and extra income of 100 will add on a lot like the following. We know that marginal propensity to consume in India is 0.6 (Down from 0.75).

So for every Rs 100 as a bribe, net increase in national income is:

100 + 100*0.6 +100*0.6*0.6 +100*0.6*0.6 . . . . . .  Infinity = 100/ (1-0.6) = 250

Based on this a total corruption industry generates an income of 0.25/ (1-0.6) =.625 trillion (half of current INDIAN GDP). I understand this figure lacks so many things. Like, Most of black money is saved outside India.  Second Our GDP calculation doesn’t take this black money into account while calculation GDP. For example when a retailer pays to distributor who in turn pays to industry, there are many transactions which are not shown as bill to avoid taxes. These amounts are not part of GDP but a part of our production process. So they don’t officially figures in Income calculation but it contributes to it. Just imagine what would have happened to Indian GDP without corruption.

P.S: This calculation is a wildest simplification with no economic meaning. It is simply an eye-opener. That even though i can’t reach a definite figure, and the figure