Corporates need to have robust risk management system in place to guard against grey practices that "represent a sizable and often overlooked source of risk to companies doing business in India", says a report.
"Designed to maximise profit through deception, grey practices are the day-to-day schemes involved in the use of mass registration addresses, shell or one day companies, opaque ownership structures and cash generation tactics," according to global risk consultancy Control Risks.
In its white paper titled 'Grey Practices: fuelling fraud and corruption in the Indian business environment', the firm said that grey practices pose a significant risk to companies doing business in the country.
Control Risks Director (India and South Asia Corporate Investigations) James Owen said grey practices can turn what might at first sight seem like a legitimate business deal into a situation fraught with legal, regulatory and reputational risk.
"Neither clearly nor explicitly illegal, grey practices are short-cuts... and financial sleights-of-hand employed by many individuals and companies to conceal more serious fraudulent and corrupt activity," the white paper said.
Malpractices in particular have been noticed mainly in sectors such as pharmaceuticals, construction, engineering, infrastructure and liquor, it said.
"They (grey practices) flourish Ė like elsewhere around the world Ė in a business environment creaking under weight of burdensome red tape and bureaucracy and where the nexus between business and politics is extremely close," the white paper said.
With regard to pharma sector, the report has cited various kinds of malpractices including stealing of intellectual property leading to the production of counterfeit and generic medicines.
However, Owens said that changes are taking place.
"The rules of the game are slowly starting to change. Whether the catalyst is popular indignation against bad governance, a tightening in domestic anti-corruption legislation or the example being set by some of India's multinational brands, the overarching goal seems to be one of greater accountability," the white paper said.
The enactment of the Companies Act 2013, for the first time defined fraud and gives specific penalties, requires higher standards of governance, it added.