India must address perceptions of widespread corruption that impact ease of doing business
India needs to address perceptions of widespread corruption that impact the ease of doing business. It ranks 76 in the International Corruption Perceptions Index 2015, and 130 in the World Bank’s Ease of Doing Business Index 2015. These statistics matter.
Article Courtesy: Mukund Rajan, The Economic Times - Blogs
IMF research shows that investment in corrupt countries is almost
5% less than in relatively corruption-free countries. India needs to generate employment for over 12 million youth every year. And jobs need investment.
Increasingly, the party political system is recognising that jobs are a priority. It is more responsive to the call of corporate institutions for increased levels of transparency and ease of doing business. So, it is timely for corporate India to evaluate how it can contribute to the debate on rooting out corruption in public life.
India Inc needs to first demonstrate its commitment to putting its own house in order. A good place to start is with the adoption of a Code of Conduct by each corporate entity.
A Code guides the behaviour of the people within the corporate house. Its coverage can also be extended to value chain partners, thus increasing its impact. And it sets in motion industry dynamics that create a kind of competition to do good, reflected, for instance, in the integrity pacts that corporate entities have entered into in some overseas markets.
Once a baseline is set with a Code, it also creates sustained pressure on the institutition to keep improving on its own standards.
A key element in ensuring a Code is taken seriously is to encourage employees to speak up when they observe its violations. Such whistleblowing is all too often received badly within organisations. This has to change.
One of the principal reasons for corruption in India is the need to generate funds to fight elections. The legislated limits on spending per constituency by candidates – Rs 70 lakh in bigger states for general elections – are widely acknowledged to be breached by most parties.
Corporate houses now have more transparent alternatives to fund political parties in the form of electoral trusts that enjoy the sanction of the law. The operations of these trusts can be scrutinised by stakeholders.
By defining predetermined formulae for allocation of the trust funds, corporate entities can put in place transparent, non-discriminatory and non-discretionary mechanisms that can significantly insulate them from political pressure.
With increased public vigil, including demands to open the books of political parties to public scrutiny, electoral trusts may eventually lead the way to state funding of elections.
A wide cross section of India Inc is not fully aware of the reach and extraterritorial jurisdiction of legislation covering bribery and corruption across countries, including the Foreign Corrupt Practices Act (FCPA) in the US and the UK Bribery Act.
Indian companies are being increasingly questioned on the adequacy of their internal anti-bribery and anti corruption frameworks by potential or actual business partners, particularly from the US and Britain.
The actions of Indian companies could expose the foreign partner to unwanted litigation, scrutiny and reputational risk. We are already seeing a rising trend in FCPA enforcements and actions involving the Indian operations of US companies.
The old adage of ‘what gets measured, gets improved’ holds just as true in the field of ethics and values. At the recent B20 Anti-Corruption Forum meeting in Shanghai, it was clear that the agenda of the most-powerful industrial economies is increasingly focusing on two key areas: identification of beneficial ownership of legal entities and making government procurement more transparent through the use of technology.
At the Brisbane Summit in November 2014, the G20 leaders adopted high-level principles on beneficial ownership transparency, describing financial transparency as a ‘high priority’ issue. This question has acquired greater urgency following the leak of the Panama Papers.
With the advent of new technological tools, the calls are increasing for automating government procurement and public services.
E-custom clearance programmes and e-procurement processes for public procurement are helping to simplify policies, procedures and rules and removing discretion in these areas. Some countries are pushing for adoption of the HLRM (High Level Reporting Mechanism) – a channel for companies to report corrupt behaviour in public procurement.
The idea is then to identify and rate companies based on a ‘corruption index’. Corruption increases uncertainty and leads to wastage of public resources and fundamentally undermines the rule of law.
It is time for corporate India to play a leadership role by engaging in advocacy around the key issues to be resolved. This may be one of the greatest contributions an Indian corporate entity could make towards nation building.