1. Graft Craft

Graft Craft

Making doing business in India easier can curb corporate graft

By: | Published: May 25, 2015 12:17 AM

Is corruption necessary for businesses to be competitive in India? As per EY’s Fraud Survey 2015, 66% of Indian respondents believe that some form of bribery is indeed acceptable. Over a third felt that enforcement of companies’ anti-corruption measures would indeed retard their businesses’ competitiveness. No wonder then—if such perceptions are indeed translated into corporate practice—that India ranks sixth among 38 countries, where EY conducted its survey, for unethical business practices.

Such cynical faith on corruption in India shows how systemically ingrained graft is in the country. The numerous government controls across sectors have spawned a culture of red tape which frequently stalls business operations. In fact, India’s poor showing in the World Bank’s Ease of Doing Business points squarely at this; against key criteria like ‘starting a business’, ‘dealing with construction permits’, ‘enforcement of contracts’—all of which entail significant business-government official interface—India ranks almost uniformly poorly, thanks to the stretched out bureaucratic processes. A company, therefore, becomes compelled to offer illegal incentives to cut through the red tape. In the process, businesses opting for the ethical way are frustrated further and a vicious cycle is perpetuated, with companies—faced with stiff competition—becoming prone to manipulating financial statements and misreporting key figures. As per the Fraud Survey, 59% of the Indian respondents said local companies fudge figures to show better-than-actual performance, even as 81% said that managers were under pressure to come up with new sources of revenue. Amidst such pressure, and the retarding effect of bureaucratic processes, businesses become more likely to bank on unethical processes. Apart from regulatory changes, viz. the new companies law and Sebi’s new policy on whistle-blowing in corporates, improving the ease of doing business in India could help check corporate corruption.

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