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Bribery and Corruption - The India perspective

Published on Tue, Aug 23,2011 | 20:15, Updated at Tue, Aug 23 at 20:52Source : Moneycontrol.com 

By: Deepankar Sanwalka, Executive Director & Head - Risk Consulting practice, KPMG India

Evolution so far...

In today’s competitive and global business environment, the modern and liberalized India has emerged as a hotspot for Foreign Direct Investment (FDI). The country’s economy is soaring towards a 9% Gross Domestic Product (GDP) and the workforce here is the biggest impetus that any nation would desire to make its mark on the global economic platform. While we are scoring good growth rates and are getting a positive international sentiment, the Indian financial system is still facing some significant challenges; the rise in the level of bribery and corruption cases have cast a dark cloud over the hard earned success achieved by the country over the last two decades.

From what started as petty payments demanded by babus (1) during the license raj (2) days, corruption has taken a much larger form and scale today. Post liberalization and technological revolution, India has been able to eliminate middle men in certain areas such as tax filing and refunds, telephone connections or acquiring commercial permits amongst others, thereby containing corruption, to a limited extent, at the lower level. However, today India is faced with a different kind of challenge. It is not about petty bribes (3) anymore but scams to the tune of thousands of crores (4) of Indian Rupees that highlight a political/ industry nexus, which if not checked could have a far reaching impact.

World Bank’s “Doing Business report 2010” estimates that 60–80% of building projects (construction) in developing economies are undertaken without adequate permits and approvals – this in itself is a big area of public corruption.

Indian legislative frameworks and some key initiatives

While India has taken a number of initiatives towards containing corruption, these measures have not been able to achieve the desired results. The existing key regulatory frameworks on corruption have their set of challenges and limitations. For example the Prevention of Corruption Act, 1988 (PCA), which is the federal law enacted by the Parliament of India to combat corruption does not provide any form of public participation in the process of curbing corruption. The Act does not have an extra territorial approach and is applicable only to Indian citizens across the Indian Territory. In addition, it does not extend itself to the private sector; and prosecutes the bribe-taker (demand-side as referred in Corruption Economics), while the bribe givers can be charged for abetment. Likewise, the Central Vigilance Commission (‘CVC’), the independent apex supervisory body in India set up by the Government, is mandated to undertake inquiries on crimes involving certain categories of public servants. It has supervisory powers over the Central Bureau of Investigation (‘CBI’) (5) however it does not have authority to prosecute individuals for violations since it has not been provided with enforcement powers. Similarly, the State LokAyuktas (Ombudsman) advise the State Government departments on the action to be initiated against the offending Government officials. They are fully empowered to initiate investigation proceedings against any public functionary. While they can recommend punishments, they do not have any powers to punish anyone. Such factors have made it challenging for authorities and civil bodies to fight corruption.

Apart from the above mentioned governmental initiatives, India has also initiated various other measures to combat the menace of corruption such as: Right to Information Act, 2005, Whistleblower Policy Resolution, CVC’s National Anti Corruption Strategy, National e-governance plan etc.

Currently, few bills have been proposed to bring the Indian regulatory framework in line with international requirements e.g. ‘The Prevention of Bribery of Foreign Public Officials (FPO) and Officials of Public International Organisations (OPIO) Bill 2011’.  Further, ‘Lokpal Bill 2010 (Citizen's ombudsman Bill)’ is currently being debated which may assist to bring in more transparency and accountability in governance.

On the whole, by signing the G-20 Anti Corruption Plan, which requires India to ratify and fully implement the anti-corruption convention by taking on an obligation to check corruption in the private sector, the country has clearly signalled to the world its commitment to tackle this issue. It is a fact that bribery and corruption is a growing threat that has the potential to adversely impact India’s economic growth and image to the world. Very little change can be expected unless concrete steps are taken in the enforcement of existing provisions under law to prevent bribery and corruption.

Corporate perception of Bribery & Corruption in India: an insight through KPMG India survey
Keeping in view the significance to address and tackle the issue, KPMG conducted an extensive survey in 2011 among leading Indian corporates to gain an insight into the challenges faced by them due to corruption.
Here is a glance at some of the top findings of the KPMG 2011: Bribery and corruption survey. You can find this survey report on: www.in.kpmg.com

• 51% of the survey respondents fear that rising corruption will make India less attractive for foreign investment
• 68% of the survey respondents believe that India can achieve more than the projected  9 per cent GDP growth if corruption is controlled
• 68% of the respondents believe that in many cases corruption is induced by the private sector
• Majority of the respondents feel that the corruption level in India will remain at the same level irrespective of the legislation
• 84% of the respondents believe that Indian government has not been very effective in enforcing anti-bribery and corruption laws
• 90% of the respondents felt that corruption negatively impacts the performance of stock markets by increasing volatility and prevents institutional investors from making long term investments
• 99% of the respondents felt that the biggest impact of corruption on business was its tendency to skew the level playing field and attract organisations with lesser capability to execute projects
• Among the various measures taken by the government, the Right to Information Act emerged as the most effective in fighting corruption

Among other things, respondents firmly believed that a solid, foolproof mechanism should be put in place by the government to check and address the rising cases of corruption and bribery.  Strict enforcement of existing provisions under law, for both the taker and giver of bribes, is believed to be the need of the hour to prevent further erosion of trust and credibility of India’s economic success. The industry appeared poised to actively participate by willing to support a legislation, which will deal with the bribe-giver with equal strictness as that with the bribe-taker.

Steps forward

While stringent compliance programs, upgraded controls and regular monitoring could help prevent corruption; social control like building an ethical culture in the organisation, is one of the best ways to prevent any form of unethical practice including bribery and corruption.

Further, in order to curb corruption, organizations could adopt the following preventive mechanisms:

• Draw up a comprehensive code of conduct and ensure strict enforcement of the code communicating zero tolerance towards corruption.
• A structured whistle blowing mechanism to report potential bribery/ corruption issues.
• A complete and periodic risk assessment mechanism – including third party audits with specific reference to corruption related risks.
• A regular monitoring mechanism to address issues arising out of bribery/ corruption.

In the last two decades India has surged forward in its rank as an emerging economy. Curbing the menace of Corruption and Bribery will help it move further up: from a developing nation to the league of the developed.

1. Babu: India Native clerk, but often used derogatorily (Source: www.britishempire.co.uk)

2. License Raj: License Raj refers to the elaborate licenses, regulations and the accompanying red tape that were required to set up and run businesses in India between 1947 and 1990. (Source: Social Issues of India, Book by Smarak Swain)

3. Bakshish: A gratuity, tip, or bribe paid to expedite service (Source: Merriam-Webster )

4. 1 Crore = Ten Millions

5. Central Bureau of Investigation (CBI): Central Bureau of Investigation is an investigating agency and law enforcement agency of India which has capability, credibility and legal mandate to investigate and prosecute offences anywhere in India

(The views expressed in this article are personal)

 
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