Bribery and Corruption Weakening IndiaKPMG

Over the last 2 years, India has seen an increase in the number of scams spanning across the public as well as the private sector. These scams to some degree have highlighted the prevalent levels of bribery and corruption in the country. With this backdrop, KPMG in India conducted a Survey on Bribery and CorruptionImpact on Economy and Business Environment with certain leading Indian corporates. A majority of the respondents believe that India can achieve a higher growth rate if corruption could be contained. However 50% of the participants believe that despite certain measures such as the Central Vigilance Commissions (CVC) proposed National Anti-Corruption Strategy and the Right to Information Act, 2005, corruption is expected to remain at the same level in the next 2-3 years.

Potential Risks to Growth

The survey also underlines that corruption poses a risk to Indias projected 9% GDP growth and may result in a volatile political and economic environment. The respondents also outlined various ways in which corruption could result in lowering the GDP growth, namely lesser Foreign Direct Investment (FDI) into the country, negative impact on the performance of capital markets, and a volatile political and economic environment.

Short Term Gain, Long Term Pain

It further says that corruption skews the level playing field, attracts less capable and inefficient organizations to execute projects thereby leading to increase in the cost of operations. The survey also highlighted that in many cases corruption is induced by the private sector.

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Ninety nine percent respondents opined that the corruption attracts organizations with lesser capability to execute projects. Such practices could have a serious impact on efficiency and the quality of delivery resulting in increased costs. Another interesting insight is that 68% of respondents believe that in many cases corruption is induced by the private sector.

Surprisingly, a majority of the respondents stated that corruption has not impacted the organizations ability to access funds from domestic or international markets.

Another key area where business is impacted is in the area of mergers and acquisitions. Nearly 37% of the respondents opined that corruption could impact the valuation of a company thereby denying shareholders of a fair price. Moreover, it could also make it difficult for them to find a suitable business partner, thereby seriously impacting the growth prospects of the business.

Perceiving Corruption

Some industries tend to have relatively higher instances of bribery and corruption than others, primarily due to the link they have with multiple partiesboth in the government as well as private realm. Approximately 50% of the respondents are of the view that real estate, construction, and telecom sectors are most prone to corruption followed by the social development sector. This does not come as a surprise, since in all of these sectors government and political intervention is considered higher. Large capital investments, multi-level approvals, complex processes, and huge projects gives immense opportunity for corruption in these sectors.

Fighting the Menace

Respondents also stated that corruption levels are expected to remain at the current level irrespective of the current and impending legislations. The Prevention of Corruption Act came into force in 1988. However the number of convictions under this act are considered abysmally low. No wonder 84% of the respondents believe that the Indian government has not been very effective in enforcing anti-bribery and corruption laws. The Right to Information Act (2005), a landmark legislation, under which one can seek specific information under the control of public authorities with the objective of promoting transparency and accountability of those holding public positions. This act in recent times has helped unearth certain prevalent malpractices in the country.

India has been facing governance challenges at various levels for a long time. Rigid bureaucracy, complex laws and long drawn processes of the legal system deters people from considering legal recourse in corruption cases. India has around 35 mn court cases pending to be resolved. Factors such as inadequate infrastructural facilities and manpower were identified as the key reasons for such delays. Moreover, the legal framework around bribery and corruption lacks teeth. All these factors have impacted the power and independence of the judiciary.

Amongst the various measures taken by the government, the Right to Information (RTI) Act, 2005 has emerged as one of the most effective initiative in fighting corruption. This is followed by the bill on public interest disclosures and protection of informer (Whistle Blower Resolution) and the Central Vigilance Commission (CVC).

This may have to do with the observation that many large scams in the recent past have been unearthed as a result of either the RTI or the PIL being invoked. Simplicity of the process and power provided to the common man are the main reasons for RTI having emerged as an effective tool for fighting corruption. This proves that if one needs to fight corruption one should empower people as well as the legal system. Sixty eight percent of the respondents stated that in many instances corruption is induced by the private sector. Echoing the same sentiments, a majority (42%) of the respondents to the KPMG India Fraud Survey 2010 indicated that bribery is considered as an acceptable behavior in their industry.

On account of these factors, regulators in developed countries are striving to bring the private sector within the ambit of the regulations pertaining to anti-bribery and corruption. US Foreign Corrupt Practices Act (FCPA) and the recently formulated UK Bribery Act 2010 are 2 examples where the government is tightening its noose on the private sector for paying bribes. The Indian government is readying a law to meet the conditions of the United Nations Convention Against Corruption (UNCAC). The proposed law will deal with corruption and bribery in the private sector. At the G-20 summit last year, India signed the groups anti-corruption action plan, which requires it to ratify and fully implement the anti-corruption convention taking on an obligation to check corruption in the private sector. Though a majority of the respondents feel that the corruption levels in India will remain the same irrespective of the legislation, a significant number also believe that it will reduce in the next 2 years.

Recent disclosures by media on some of the large scams as well as ongoing enquiries of some of the senior government officials indicate that there is a silver lining. Public furore over the recent scams, extensive media coverage, and outcry indicate that as a nation we are starting to realize that eradicating corruption must be one of the priorities, if we are to attain sustainable growth.

Conclusion

It is a fact that bribery and corruption is a growing menace that has the potential to adversely impact Indias economic growth, and image to the world. By signing the G-20 Anti-corruption plan, India has signaled to the world its commitment to tackle this issue. However unless concrete steps are taken in the enforcement of existing provisions under the law to prevent bribery and corruption, little change can be expected.