The suggestion will open Pandora's box. Nobody can well define what 'small' means. For some, even ten lakh rupees may be small. The legal system takes care of 'small' and 'big'. The punishment for 'small' offences is lighter than the 'big'. The suggestion is ridiculous.
Well, from what little I heard about this on the news channel, my impression is that even Narayana Murthy became so frustrated with all the bureaucracy that is unable to move a file across the table without paying some bribe, he made this comment as a taunt to the government!