The Decentralisation Paradox: How Bringing Government Closer Increases Corruption

The assumption that decentralisation reduces corruption is widely held yet poorly evidenced. This article examines whether transferring the management of drinking water utilities from state government to local government increases or decreases corruption in central India. Drawing on longitudinal survey data collected between 2006 and 2010 across 122 utilities in Madhya Pradesh and Chhattisgarh, the study employs a difference-in-differences design to analyse a natural experiment. Experience-based measures of bribery are used in preference to perception indices, which are shown to be unreliable in dynamic settings. The results indicate that decentralisation significantly increases corruption across all transaction types examined, including bill manipulation, repair expediting, new connections, and contractor kickbacks. However, the effect diminishes over time, suggesting that local bodies develop institutional capacity through learning by doing. These findings challenge the orthodox view promoted by international development agencies and point to the importance of contextually grounded, longitudinal analysis in governance research.