Bribery and corruption: ground reality in India

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Bribery and corruption continue to pose a significant challenge in India. The 2012 Transparency International Corruption Perceptions and Bribe Payers Indices rank India 94 (out of 176) and 19 (out of 28), respectively, indicating the severity of the issue.

Empirical evidence suggests that corruption invariably increases:

  • Transaction costs
  • Uncertainty in the economy
  • Lowers efficiency
  • Inhibits the development of a healthy marketplace
  • Distorts economic and social development

Our latest survey provides an insight into the impact of bribery and corruption in India. The principal respondents belonged to business functions such as Internal Audit & Finance, Legal & Compliance, and Vigilance & Risk Management.

We believe the recent steps taken by Government of India to improve governance standards in the country are encouraging and are garnering support of various sections of society, e.g., investors, corporate organizations and general public.

Key findings

Some of the specific findings of our survey include:

  • Sectors perceived to be most vulnerable to corruption:
    • Infrastructure & real estate (85%)
    • Metals & mining (76%)
    • Aerospace & defense (64%)
    • Power & utilities sectors (51%)
  • Strain on ethical behavior: Alarmingly, a large number of respondents appeared to be comfortable with (or were aware of) unethical business conduct. These include irregular accounting to hide bribery and corruption, gifts being given to seek favours.
  • Taking the easy way out: More than half of the respondents agreed that it is the lack of will to obtain licenses and approvals the “right way,” which leads to bribery and corruption.
  • Challenging times ahead: Around 83% of the respondents felt that cases of bribery and corruption can negatively impact FDI inflows
  • Need for greater enforcement of laws: Around 89% of the respondents felt that there should be greater enforcement of laws to curb the proliferation of bribery and corruption.

Sector - wise corruption risk heat map
EY - Sector - wise corruption risk heat map

According to a recently released biannual country update by the World Bank, the overall outlook for India remains positive with its economic growth expected to accelerate to 6.1% in FY2014.

Impact of bribery and corruption on India’s economy

According to a recently released biannual country update by the World Bank, the overall outlook for India remains positive with its economic growth expected to accelerate to 6.1% in FY2014.
However, our survey respondents believe that increasing corruption can act as a speed-breaker in the India growth story.

  • Around 83% of respondents felt that the recent spate of scams can negatively impact FDI inflows into the country
  • Seventy-three percent of investors are expected to bargain hard and factor in the cost of corruption at the time of entering transactions
  • Around 77% of the respondents think that it is the responsibility of the Managing Directors to handle the bribery and corruption-related issues in the organizations
  • Nearly 50% of the respondents said their companies have lost business to their competitors because of the latter’s unethical conduct
  • According to 73% of the respondents from PE firms, a company operating in a sector that is perceived as highly corrupt, may lose ground when it comes to a fair valuation of its business.

Remedial measures

  • Companies Bill 2012: Two-thirds of the respondents are optimistic that new regulations such as the Companies Bill 2012 will make a difference and help in reducing fraud, bribery and corruption.
  • Strengthening anti-graft laws – At present there are no legal provisions to check graft in the private sector in India. Government has proposed amendments in existing acts and certain new bills for checking corruption in private sector, such as
  • Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations’ Bill, 2011
  • Prevention of Corruption (amendment) Bill, 2008
  • Public Procurement Bill 2012

Conclusion

  • Acknowledge: There are diverse risks for different divisions and geographies and the one size fits all approach is not effective.
  • Being alert: Constant updating is required on current bribery risks in a country, sector, transaction, business opportunity and business partnership.
  • Taking the right approach: Action taken on policies and procedures should be proportionate to the risks faced and the complexity of the nature, location and scale of commercial activities.
  • Defining “zero tolerance”: Clear communication of what this means for the business.
  • Not being ambiguous: Providing clear guidance on gifts, hospitality, political and charitable donations, and demands for facilitation payments.
  • Performing due diligence: Carrying out systematic risk assessment of third parties, undertake site visits, perform information searches in the public domain and conducting local interviews to collect information on identified vendors.
  • Conducting tailor-made training: A continual and relevant training process need to be in place on day-to-day issues employees are likely to face, to guide them effectively on addressing these effectively.
  • Employing a dynamic approach: Making required adjustments as business risks change.