Corruption in India

Low labour costs and a stable political climate make India one of the most popular countries for foreign investment. Its economy has been liberalised over the last 20 years and successive Indian governments have actively pursued business-friendly policies. It has an efficient financial system, good railroads and a convenient location on a number of shipping routes, making it highly attractive to global businesses wishing to expand into new markets.

However, a combination of cumbersome bureaucracy and byzantine regulations that date back to independence has rendered India particularly susceptible to widespread corruption. Public procurement, license and public utilities, tax and customs administration, the police force and the judiciary are particularly prone to corruption. Political corruption is also widely perceived to be rife with rigged elections and vote-buying. As a consequence, demands for bribes are commonplace.

In the 2013 Transparency International Global Corruption Barometer, individual and household respondents stated that within in the last 12 months, 62 per cent had bribed the police, 61 per cent bribed registry and permit services, 58 per cent bribed land services, 48 per cent bribed utilities services, 48 per cent bribed educational institutions, 41 per cent bribed tax revenue services, 36 per cent bribed the judiciary and 31 per cent bribed medical & health services.

These bribes are most often paid for the most basic of services such as the provision of electricity or clean water. It is therefore not surprising, perhaps, that businesses routinely face similar demands. Prior to the economy opening up in 1990, bribes were regularly paid to government officials, most often to ensure that a failure to comply with regulations was overlooked or in response to a demand for a pay off. Post the 1990s, bribes have most often been paid to ensure that work is unfairly expedited.

However, recent multi-billion dollar scandals such as the mis-selling of telecoms licences, the fixing of government appointments and the alleged corrupt purchase of defence equipment/helicopters would indicate that corporate corruption has escalated to reach epic proportions. Even the revered sport of cricket is dogged by allegations of match fixing.

Transparency’s Global Corruption Barometer 2013 reports that 71 per cent of Indian respondents felt that corruption had increased in the country in the past two years, with 40 per cent of these reporting that it had increased ‘a lot’. In fact the high profile scandals seem to have made matters worse: if politicians and senior civil servants higher up in the pecking order are clearly getting away with such large scams why shouldn’t officials lower down the ranks make similar if smaller demands?

The good news for businesses is that there are signs that things are starting to change. The Right to Information Act (RTI) has empowered any individual interested in uncovering corruption with the tool to demand all related information to a government decision, allotment or deal. The fear of being put under a microscope in the case of an RTI request is a potential deterrent to misbehaviour. There have been investigations as a result of these requests, but the long drawn out process often fails to impose sanctions.

What is interesting is the emergence of a large-scale mass-movement of public outrage that is forcing the government to acknowledge that corruption is a major concern for the Indian public. In the past two years, hundreds of thousands of Indians, including those of the burgeoning middle class, have taken to the streets in peaceful, Ghandi-style protests demanding accountability, reform and legislation to combat graft.

There are signs that this is starting to have an impact on Government. In February 2011, the Supreme Court ordered all trial courts to expedite corruption cases and ordered state High Courts to seek quarterly reports from lower courts on the progression of corruption cases. In addition, there have been changes to the country’s anti-corruption legislation, which have encouraged disclosure, made bribing foreign public officials illegal and given greater powers to investigate to the Indian Serious Fraud Investigations Office. The Lokpal bill in particular, which aims to establish ombudsmen to bolster the implementation of the legislative framework, is expected to increase prosecution levels.

However, although 75 per cent of respondents to Ernst & Young’s Indian Fraud Survey 2012 represented multi-nationals, less than half of them were aware of international anti-graft legislation such as the US FCPA and the UK Bribery Act, both of which have extraterritorial reach.

So what can corporations do to avoid paying bribes but still operate in India?

Most often bribes are paid to overlook improper conduct or process.

  • The first rule for corporations to avoid paying bribes is to abide by the regulations and rules of doing business in India. Even in the face of unanticipated regulatory obstacles, ensure that the company does not resort to bribery.
  • Put in place a zero-tolerance policy to corruption in line with the strictest standards of the United Nations Convention against Corruption, the United Nations Global Compact and the World Economic Forum Partnering Against Corruption Initiative. The policy should be a comprehensive compliance policy. Within the Indian context, be especially clear about the guidelines regarding gifts and hospitality.
  • Indian law is broad when it comes to payments, gifts or other benefits. It is illegal to offer a bribe or a gift in order to influence an official, regardless of whether it is accepted or later withdrawn, irrespective of whether the service requested is delivered. Any valuable object granted to a public servant with whom one has official dealings may be constituted a bribe. There is no prescribed value up to which a payment or gift is permissible under Indian law, but any payment to influence or obtain an action is illegal.
  • Hospitality or gift items of nominal value, not intended to influence an official, are exempt.
  • Ensure that the zero-tolerance policy is applied throughout the supply chain. Educate all employees and suppliers about the corporate policy against corruption, as well laws and regulations covering graft and fraud.
  • Conduct due diligence checks on suppliers and partners prior to contracting with them and on an ongoing basis to ensure that all attempts are being made to ensure that third parties are also held accountable for anti-corruption practices.
  • Have a clear process for reporting incidents and a clear process for responding to them. There should be consistent disciplinary outcomes and a process to investigate root causes.
  • A post investigation report should be produced to identify and eradicate root causes and vulnerabilities. Where relevant, this should be circulated to alert other branches within the business. The business should ensure that unanticipated regulatory hurdles do not incentivise engagement in corruption.
  • Establish a confidential hotline to report corruption, with anonymity to the whistleblower. Protect them against retaliation within the company. Open and safe channels for whistleblowing will aid detection along with effective auditing of business processes. Transparent reporting will also make it clear to government and other business partners that anti-bribery policies are taken seriously and strongly implemented by the corporation.
  • Set up an effective internal monitoring mechanism to check illegal acts and conduct periodic external audits to ensure compliance, uncover illegal activity and raise awareness.
  • Report finding to stakeholders and the authorities
  • Use the GoodCorporation Anti-Bribery and Corruption Framework as a checklist of adequate procedures

None of this is virgin territory in India and companies can make headway with the implementation of policies and procedures. However, while companies and individuals feel they are unlikely to be prosecuted, India will struggle to reduce its corruption levels and people will continue to think that they are exempt from the rules, so businesses should remain on high alert.

Training and monitoring are essential if an organisation wishes to feel properly protected. This may seem burdensome, expensive and time-consuming, but with public opinion expressing outrage at India’s high corruption levels and government initiatives to encourage disclosure and expedite prosecution, companies should be aware that the corruption landscape in India is changing and ensure that their anti-corruption procedures have been tightened up accordingly.

Written in consultation with our GoodCorporation India colleague Yumna Hari Singh

To find out how GoodCorporation can help protect your businesses from corrupt practices in India email contact us