We all know that corruption has a significant impact on economy and business. But in a recent study conducted by KPMG, ( Survey on Bribery and Corruption ) over 50% of the respondents also felt that despite certain measures such as the Central Vigilance Commission’s (CVC) proposed National Anti-Corruption Strategy and the Right to Information Act, 2005 corruption is expected to remain at the same level in the next two to three years.
While rumours in the marketplace are sending out strong signals of positive change and course correction, India has also witnessed a rapid growth in its middle class who have emerged alongside the technological and information wave that is pushing the world forward into the future. This has reduced human interaction and therefore enabled greater transparency. In addition, civil society is becoming increasingly vocal, with protests receiving huge visibility and media support in the public domain. Experts believe that this positive trend is but a precursor to the much needed changes in the system.
However, the KPMG study also evaluated the prevalence of corruption across certain leading companies and segments including the real estate and construction industry. Since levels of corruption here are common knowledge (regular Bribe Reports on ipaidabribe.com stand testimony to this), excerpts from the study are published below:
a) Disproportionate growth of the industry
The opening up of the sector7 to private players has resulted in a scramble, where every player has an eye on the high growth opportunities. Many new players, with little or no experience, have entered the sector in recent years. This has only skewed the demand- supply situation with many players competing for fewer resources resulting in some of the players using unfair practices to compete.
b) Multi-layer complex contractual structures
As projects grow large and complex, so do the associated contracts, starting with environmental clearances, multiple vendor agreements, regulatory compliance requirements etc. This often results in companies unintentionally overlooking some aspects of compliance – both at the regulatory and contractual levels – resulting in possible bribery and corruption related exposure.
c) Lesser developed internal processes and controls
This stems from the fact that the sector has a severe shortage of resources including lack of skilled manpower – both at the management and labour level, resulting in internal controls being compromised.
d) Increasing cost pressures
The sheer number and scale of infrastructure projects in the country today have resulted in players competing to bid and win as many projects as possible. This has resulted in players promising lower costs and tight deadlines to win projects. Subsequent delays in project execution and cost overruns may again push owners to bribe authorities and get clearances for the next stage in the project execution cycle.
While the above factors are inevitable for a growing economy like India, the role of Government in reducing the time and procedural complexities may significantly help in containing corruption.
Some of the measures taken by Government and Non-governmental organisations (NGO’s) in addressing corruption in the construction sector are given below:
a. Initiating the national e-governance plan for procurement and requiring contractors to sign up integrity pacts for public infrastructure projects. Though these efforts are in the nascent stages of implementation, in the long run this could reduce the extent of the involvement of government officials, resulting in fewer opportunities for corruption.
b. The Government of India is contemplating bringing public private partnership (PPP) ventures in the infrastructure space under the Controller and Auditor General (CAG) review.
c. Further, Transparency International along with the Global Infrastructure Anti-Corruption Centre (GIACC), an independent, non-profit organisation, has developed the Project Anti-Corruption System (PACS), which is an integrated and comprehensive system designed to assist in the prevention and detection of corruption on construction projects. PACS recommends anti-corruption measures such as independent monitoring mechanism for construction projects, adequate pre contract disclosure procedure and regular audits to identify inconsistencies/ red flags.
Therefore, to summarise the above KPMG also offered suggestions on how to combat this all prevailing issue.
The KPMG Perspective
The need of the hour is structured reforms in combating corruption. Structured reform shall cover the following key aspects:
a. Increased awareness on laws and regulations: Our survey indicates that lack of awareness of law is one of the deterrents for anti- corruption enforcement.
b. Increasing the sphere of current legislations: Indian legislation covers primarily the receiver of the bribe. Expanding the legislation to cover the private sector may aid in preventing the payer’s side of bribery. Additional responsibility to the Auditor General for specific areas prone to corruption in the public sector will complement the other initiatives.
c. Strong law enforcement: Zero tolerance approach towards bribery and corruption is the most effective way to combat corruption. Stronger enforcement of regulations would act as a deterrent and help reduce corruption levels.
d. Collective effort by the private sector: Only a collective effort made by the private sector can help eliminate corruption. Adopting anti - corruption measures and an improved governance structure can thereby ensure transparency in business operations.
So what should we do now ?
A decline in corruption not only affects all business and industry across the board, but it also gives India an edge while competing in a global arena. It is now up to corporate houses to adopt and implement processes that will increase transparency and reduce scope for corrupt practises that corrode the system, thereby attracting greater investment and growth opportunities.
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