The turning tide against corruption in India

Signals from the new government in Delhi suggest the country is taking seriously the deep-rooted problem. It’s a tough fight, but members of the business community believe the will to win is there.

Bharatiya Janata Party supporters pour milk on a cut-out of Narendra Modi. The milk is a Hindu tradition of purification, as it is hoped he will fight corruption in government. Rajanish Kakade / AP PhShow more

From a supervisor paying a small bribe to complete a job quickly to multibillion dollar scams at a government level, India has garnered a reputation for widespread corruption.

The hope is, though, that with a new government in power and increasing efforts to tackle corruption in the business world amid tightening international regulations, India will be able to crack down on such practices – a shift that is imperative as the country strives to attract foreign investment and revive its economic growth from decade-low levels.

“I think that if corruption is diminished, India will add a minimum of 2 per cent to its GDP growth rate,” says Prasad Chandran, the founder and chairman of Social Enterprise for Ethics, Governance and Organisation Strategies (Seegos) and the former chairman and managing director of Basf India, part of the German multinational chemical company. “My own feeling is that now, with a very forceful, clear majority, right-of-the-centre government in place, we will be able to do that. It’s not easy but it can be done.”

India is ranked 94th of 177 countries and territories on a corruption perception index compiled by Transparency International. India’s score for last year was 36 on a corruption scale, where 0 represented “highly corrupt” and 100 was “very clean”, according to the organisation.

A survey conducted by the professional services firm EY last year revealed that 83 per cent of respondents in India felt that bribery and corruption could hamper foreign direct investment into the country. Half of respondents said that their companies had lost out on business because of competitors’ unethical conduct.

“We found that corruption – real or perceived – is having a detrimental effect on India’s economy,” according to EY. “On the one hand, it is forcing investors to rethink their India entry strategy, and on the other, it is distorting the function of the free market and creating unfair competition in it.”

Analysts say there are already signs of a shift under Narendra Modi’s Bharatiya Janata Party.

“This government’s coming with a mandate for change and at least in part it ran its election campaign on an anti-corruption platform,” says James McAlpine, the managing director in India and South Asia for Control Risks, a global risk consultancy. “The early signs are positive. They are reducing groups of ministers. They are trying to cut down the bureaucracy. One of the most encouraging things was the very first cabinet meeting that the new cabinet held – one of the very first things they did in power was to constitute a special investigation team to look at the issue of black money.”

Untaxed black money has become a major problem for India and a drain on the economy.

“It’s one of the methods and schemes by which people can hide their revenue,” explains Mr McAlpine. “They can move it outside of the country, they can avoid paying tax on that income, they can circulate it back into the country and launder that money. That was a very good early indication that the new government is taking the issue of grey practices very seriously. They recognise that it’s a factor that’s significantly damaging to the Indian economy. Crores [tens of millions] and crores of rupees are being brushed offshore in black money that they are trying to get back and that in itself could have a big impact on improving the economic environment here.”

Control Risks highlights that there are a number of other shady practices, or “grey practices”, to be found in India, such as opaque management structures and cash generation schemes, that often lead to or mask larger scale fraud and corruption.

“They emerge from a business environment in India where there is a high degree of opacity, as a result of high degree of red tape and bureaucracy, that in many ways is a legacy of the “Licence Raj”, which was put in place to clamp down on these practices, not, as it has turned out to be the case, encourage them,” says James Owen, the director of corporate investigations at Control Risks in India and South Asia. “It emerges from an environment where there is an informal basis in the way business is done, often a family basis. It also emerges from a uniquely Indian cause and that is the innovation, the imagination, the improvisation that exists at the core of the Indian business environment. In order to get things done in this country, many people – simply for survival – have to circumvent the rules.”

With corruption so prevalent in India, changes are not expected to occur overnight.

“I do not expect the government to be able to solve too much in a limited time, but every step in this direction will count,” says Kamal Sen, the president and chief executive of Cogitaas, a consultancy.

UAE companies have been among the investors burnt by corruption. Etisalat inadvertently became entangled in the US$40 billion “2G scam”, involving politicians. In this case, telecoms licences in India were issued in 2008 but were later revoked because they were allegedly sold at cut-price rates. Etisalat had entered the Indian telecoms market in 2009 through its acquisition of a stake in Swan Telecom. Swan bought the disputed licences in 2008. The licences were cancelled in 2012 as part of the corruption investigation, resulting in a Dh3bn impairment charge for Etisalat and the company being forced to withdraw from the market.

Emaar has also faced difficulties with its joint-venture in India, Emaar MGF, because of graft. It was caught up in allegations of large-scale corruption surrounding the development of the Commonwealth Games village in New Delhi.

In another high-profile government scandal in India, dubbed “coalgate”, government auditors in 2012 compiled a report alleging the country lost out on more than $33bn because of undervalued sales of coalfields between 2004 and 2009. Such scandals drained revenue from the economy and hampered government reform efforts.

Mr Chandran points out that the coalition format in government was partly to blame. He adds that at a global level, with measures such as the UK Bribery Act, more is being done to stamp out corruption and India is starting to follow suit, with more legislation coming into place to reduce graft, beginning under the previous government.

“There are a plethora of checks and balances on the larger organisations,” he says. “With the new legislations like the whistle-blower policy [and] companies law, it has become increasingly difficult for companies to engage and be in business if you enter into corruption.”

A combination of technology, increased transparency, laws, and support internationally, are already helping to bring about a shift, he adds.

“Now the time is very ripe,” Mr Chandran says. “Captains of industry in India must hold on and change at the top – we must not exercise our power for easy gains. Is there corruption? Of course there is a lot of corruption. Is it easy to do business in India? Of course not. Is it possible to do business in India without corruption? Yes.”

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