Corruption is not exactly new in India. Quite apart from the extensive historical evidence of its spread, during and after the "mixed economy" period of state planning, the "licence-permit raj" was regularly accused by commentators of breeding graft, constraining economic activity and forcing citizens to be at the mercy of corrupt officialdom at all levels.

So if this is an old problem, why has it suddenly become such a hot political issue? Has Indian society now come of age, as the citizenry demands official transparency and freedom from corruption? This is partly true: the movement for the Right to Information (which culminated in a law) does reflect to some extent the social mobilisation and citizens' awareness necessary in mature democracies.

But this does not explain the recent eruption of either the problem of corruption or the social reaction to it. All indicators suggest that economic illegality, fraud and corrupt practices have ballooned in recent times in India. Increasingly, this is felt as a great betrayal by a populace that had been told that the era of neoliberal economic policies would end vices that were supposedly associated with greater government involvement in economic activity.

Scams and scandals have become a staple of the economic environment. The numbers keep growing, as hundreds of billions of rupees are extracted in various ways: through government spending on mega-projects or big events (such as the recent Commonwealth Games in Delhi); through often illegal and inadequately compensated expropriation of land to benefit large private players (for industries and real estate projects); through the gratuitous takeover and handing to favoured parties resources ranging from water and minerals to spectrum (the allocation of which was at the centre of one recent high-profile scam).

One reason for the public anger is that the period of market-oriented reforms has delivered higher aggregate growth but also significantly increased economic inequality and material insecurity for the majority of India's population. As the elites and burgeoning middle classes become more confident, they become more brazen in flaunting their consumption to a population that is generally denied any such access and may even be facing worsening prospects. So the collusion between economic power and political/bureaucratic power that leads to the rapid enrichment of a few is resented even more.

Many recent analyses of such corruption have seen it as a brake on India's growth potential. In fact, however, such graft and the "crony capitalism" associated with it have been an integral part of India's growth trajectory. The last two decades have seen strongly "corporate-led" growth, with huge rises in the ratio of profits and interest to GDP. Much of this is related to what Marx called "primitive accumulation" – the use of extra-economic means to extract resources and surpluses. The Indian state has played a crucial role in this.

The animal spirits of entrepreneurs tend to be unleashed by such avenues of surplus generation, and this contributes to buoyant economic growth. But this is raw, wild west-style economic dynamism – unfettered by adherence to any rule of law that treats all citizens as equal, and reliant on close relations between capital and the state to ensure high levels of surplus extraction.

The extreme dependence of large corporate capital on these relations, and therefore the extent to which they are deeply implicated in the corruption that they openly deplore, is usually missed by observers. Most of the media and even the citizens' movements against corruption add to the obfuscation, by presenting the problem solely in terms of the corrupt behaviour of politicians.

Consider the two protests that are currently exercising the media and the government in Delhi. One of them is led by Anna Hazare, a self-styled Gandhian social worker with some success in water harvesting and other development activities in his village of Ralegan Siddhi, in Maharashtra. He combines personal integrity with a puritanical, and even slightly authoritarian, streak. Hazare went on a fast to demand (eventually conceded by the government) to be part of a panel to draft a bill for a public auditor to monitor the activities of top officials.

Hazare's associates pride themselves on being "apolitical" (as if that itself were a badge of honour), and persist in seeing the problem entirely in terms of the government – politicians and bureaucrats – without noting the connection with corporate power. Their demand for yet another law conveniently ignores the point that the lack of genuine implementation of existing laws is often the most obvious way in which corruption occurs.

Recently, another figure has emerged. Baba "Swami" Ramdev is an entrepreneurial yoga instructor who has built up a significant business empire based on yoga camps, traditional medicines and TV channels. Unlike Hazare, Ramdev openly declares political ambitions and plans to float a political party, and he has a large mass following. Many businessmen and bureaucrats are also impressed with his skills, despite his often socially reactionary views.

The central government behaved in an extraordinary fashion with Ramdev. First, they greatly elevated both him and his demands by sending four senior cabinet ministers to meet him at Delhi airport and whisk him off for private talks. Then – when this did not succeed – within two days they sent riot police to break up his peaceful camp of tens of thousands of followers, injuring women and children.

Such peculiar and often contradictory responses of the central government have been attributed to the possibility that senior figures in the administration and the ruling Congress party are deeply involved in many scandals and is reportedly stashing "black money" in accounts abroad.

But it might be that these strange responses reflect a deeper and genuine dilemma. Perhaps the government knows something that is not yet explicitly recognised in the media: that the Indian growth story has been reliant on corruption, and that reining this in will also rein in the extravagant growth that has become so necessary not just for the survival of the government but for the self-image of the country's elites.

This article was originally published in The Guardian on 17th June, 2001
http://www.guardian.co.uk/global-development/poverty-matters/2011/jun/17/india-anger-over-corruption