Corruption continues to present large-scale problems for businesses and communities across the world. The World Economic Forum says it is the second most challenging factor in doing business in India. James Cottrell discusses the possible steps to improve the system. Excerpts:
Q. How much will corruption impact the Narendra Modi government’s ‘Make in India’ initiative?
Foreign investors who want to invest in India are not concerned about whether they can make money here, but how difficult it is to establish their business. To get a licence to build a building or factory, it takes 10 times more than in other investment-friendly nations. The papers move through a large number of people, thus increasing the opportunity for bad practices. We also need to remember that foreign companies need to comply with stringent anti-corruption laws in their home countries. If the situation on the ground does not improve, corruption could come in the way of ‘Make in India’ succeeding.
Q. What is the way forward?
The government needs to change its approach to dealing with corruption. There are two sides to corruption: The demand side and the supply side. This problem can be effectively addressed only if both sides are addressed. This means having rules that prosecute both the giver and the receiver. In India, that equity is missing; receivers of bribes are seen more corrupt than the givers. There is need to have an anti-corruption law that levels the playing field. Adopting the OCED Anti-Bribery Convention will enable India achieve that. I do not know what is preventing the government from adopting it.
Q. How does one create a level-playing field to tackle corruption?
Key components that create the level-playing field are a well-defined anti-corruption and anti-bribery Rule of Law; consistent, visible enforcement of the laws at all levels—from the most senior levels to the most junior levels; a robust, effective anti-corruption programme within governments, corporations and other organisations; and a strong communications programme that is internally and externally focussed.
Q. In India, to what extent does lack of proper enforcement cause rampant corruption?
It has generally been recognised that in India, a notable part of the transparency challenge is related to enforcement. One effective way of designing corruption out of the system is the use of technology that simply reduces opportunities for human interaction, and thus corruption. Examples include: Setting up a business corruption hotline to report corruption issues, installment of an electronic system for quotation, tendering, ordering, and payments, and reduction of agents in business-to-government transactions.
Q. Which sectors are the most prone to corruption?
There are many sectors that are prone to corruption, both public and private. But the ones with many human touch points, opaque processes and high values at stake are typically more prone to corruption. Historically, sectors such as telecommunications, metals and mining, aerospace and defence, and infrastructure and real estate are seen as the most corrupt.
Q. How should companies manage corruption risk in India?
Companies should first manage internal risks and make sure their own house is in order. They should have a board comprising a meaningful number of independent directors as a percentage of the total number of directors, install mandatory ethics and compliance functions, including internal audit and compliance reviews, and give adequate training in ethics and anti-corruption. The companies should also analyse their supply chain, working with customers and suppliers to identify and assess corruption risks.
Moreover, they can engage in industry discussions and join collective action initiatives that are effective in addressing industry concerns. A good example is the Confederation of Indian Industry, which has in place a range of best practices, including suggested anti-corruption guidelines, policies and practical support around anti-corruption initiatives. The key, however, is effective communication, enforcement and implementation of these programmes; so called ‘walking the talk’.
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(This story appears in the 03 April, 2015 issue of Forbes India. To visit our Archives, click here.)