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India is witness to unprecedented cases of corruption as public money is being looted mercilessly and laws being flouted with impunity. Despite having many legislations, the Indian private sector finds itself neck deep in corruption. Read on to know the complete story
Six decades after independence, India today stands at an important juncture when there is a lot of debate and questioning taking place over its sorry state of affairs. Perhaps, the idea of India that galvanized into a revolution liberating it from the shackles of imperialism needs to be revisited. The country of more than a billion population has become restless at the continuing apathy, misdemeanor and misconduct of its public and private bodies. With some of the biggest names from the government and the private enterprises indulging in unashamed impropriety, the trust of the people in the government and the private enterpriseshas severely dipped. We are witnessing some of the worst forms of public and private bungling even as the millions are toiling to earn two squares a meal every day. Today politicians and businessmen are without any doubt most hated and looked down upon. The nexus between the two have grown bigger than a common man’s perception, and their desire to indulge in misdeeds knows no boundaries. There is a trust deficit but is the government or the people from the private enterprises concerned?
Joseph Heath, Director, Centre for Ethics, University of Toronto says in an interview to the Economic Times that there are two kinds of businessmen, one is promarket and the other is pro-business. The people who are pro-market think that a properly regulated, well functioning market economy is desirable, because it creates significant benefits for all of society. And the people who are pro business, while preaching virtues of free market, their real allegiance is to the managerial and property owning classes in society. And the difference between the two becomes obvious when there is some flaw in the market, which is profitable for corporations but creates outcomes that are generally bad for society. Firms discover new ways of gaining advantage that are contrary to the public interest.
Yet, when some of those leading and respected names from India incorporation recently wrote to the Indian Prime Minister about the governance deficit and policy logjam, the desperation reflected the thinking that the malaise of corruption is now becoming a multi-headed hydrawhich is going to paralyse the entire system which, if not curtailed now, would lead to disastrous consequences.
The deficit in governance, both in public and in private, is a matter of serious concern for all concerned citizens whether in the government or outside. Corruption is bad and it affects the whole of India, not just businesses. India is a thriving democracy and one of the fastest growing economies, and the entire world looks up to India to take on the mantle of leadership at the global level. But the recent events of cases of corruption and a lack of direction or clarity due to competent and conflicting interests have severely dented the image of India. Howsoever good our policies may be, if the malaise of corruption is not removed the success story of India shining will be cut short.
We are an economic power house, but we are not as good when it comes to maintaining ethics in business and governance. Even as we are among the top countries in the strength of institutions,business sophistication and innovation, we miserably fall short by miles when ethics is the yardstick to judge us. In Transparency International Corruption Perception Index 2011 , India stands at the 95th position out of 183 countries . The index shows the demand side of corruption and refers to perceptions of the degree of corruption as seen by business people and country analysts. But in the supply side of corruption we are as worse. In their Bribe Payer’s Index 2011, India’s position is 19 out of 28 countries. This shows that Indian businessmen are very much prone to bribing foreign official when doing business outside India.
The KPMG India Fraud Survey 2010 suggests that today India is faced with a different kind of challenge. It is not about petty bribes but scams to the tune of thousands of crores that highlight political and industry nexus.
According to Kroll Global Fraud Report, 2011, corruption and information theft, loss or attack are key challenges for companies in India. 78 percent of companies indicated that their organisation is highly or moderately vulnerable to corruption and bribery. Fewer than 50 percent invest in anti-fraud measures, such as employee background screening and risk management, even though 59 percent of those that suffered from fraud said it was an inside job.
The economic reforms and policies are important, but so are the cleaning and pruning the system and society of their ills. The present UPA government does seem to be serious about taking forward the reform processes started in 1992 by NarasimhaRao government. It has even brought in much awaited FDI in multibrand retail, even at the cost of facing serious opposition from those who are ever ready to play spoil sport. However, of all the evils, corruption stands out as one which is most sever and rots the society from within. It is a serious economic issue as it adversely affects the country’s economic development and achievement of developmental goals.
According to Survey on Bribery and Corruption, released by Washington-based Global Financial Integrity, India lost a whopping $462 billion in illicit financial flows due to tax evasion, crime and corruption post-Independence. The survey stated that 68 per cent of India’s aggregate illicit capital loss occurred after India’s economic reforms in 1991, indicating that deregulation and trade liberalization actually contributed to or accelerated the transfer of illicit money abroad. Another study estimates that Indian government loses about Rs. 2 lakh crores annually due to tax evasion while about Rs. 40,000 crores is lost due to delay in projects. Transmission and distribution losses in the power sector are estimated to be about 50 per cent, out of which about 30 per cent is attributed to theft in connivance with the Electricity Boards employees. Rising corruption in India has led to social discontent amongst the middle-class and a volatile political environment.
What are the serious issues which concern private sector as far as private sector corruption is concerned?
The issues of corruption in public life and corporate enterprise are inter linked in some aspects. If the private enterprise follows high standards of conduct , some instances of Public life corruption can get rooted out . The UNCAC and the OECD conventions are about addressing corruption in private enterprise and the signatory countries have taken the issue seriously by adopting appropriate legislative or administrative measures
What mechanism would be the best to minimise the corruption? The PM has said recently that it was considering making private sector bribery a criminal offence? Do you think such legislation will help?
In India, an anti bribery legislation can help if an appropriate implementation mechanism is also available to support the same. The legislation could also be implemented by making certain acts punishable even if performed by people, who do not hold public office. One would note from our recent experience of the 2G investigations that, if there was a strong control of corruption at the level of private enterprise, then the public aspect of the scandal could have been perhaps limited . Therefore a specific legislation could set the ball rolling in the right direction.
How does your own company ensure that no corruption take place in your company?
Novartis follows high standards of ethics, Integrity and behavioral compliance. Our Code of Conduct (applicable to all employees and stakeholders) reflects the commitment to be responsible corporate citizens and fundamentals of ethical business conduct . We have well defined governance policies and all employees are evaluated on their values and behavior, annually.
We have plenty of laws and institutions to address issues that may be at the root of facilitating corruption. But the corruption has persisted despite strong legal framework and policies. We have Prevention of Anti Corruption Act and CVC Act that deal with the corruption in the public sector and cover all government bodies. We have Companies Act 2008 that provides legal framework to address issues of governance in corporate bodies. We also have institutions such as CAG, CCI, CIC and SEBI which ensure fairness and fair play in business. But despite all this,corruption has continued no end. Be it Satyam which was a corporate fraud of the highest order or the 2 G scam where some leading private houses in collusion with politicians looted public exchequers of billions of rupees, we see law being flouted with impunity. One feels that while poor implementation is an issue, there is a lack of legislation that deal with the private sector corruption. The private sector which is the supply side of corruption has been largely untouched by legislation. The Indian PM has recently said that the government is considering bringing a new legislation which willcrimnalize an act of bribery by private sector. The Transparency International’s Bribe Payer Index shows that Indian firms are perceived by international business as highly likely to engage in bribery when doing business abroad. We have seen an increase in recent times in the number of Indian private sector employees and employers facing the trial at different courts. In the 2G scam presently there are many high flying executives belonging to some top companies in India who are behind bars.
According to AnupamaJha, Director, Transparency International India, “The Prevention of Corruption Act 1998 does not cover private sector. Recently, a strategy developed by CVC in association with CSOs, private sector, audit companies, called National Anticorruption Strategy has expressed concern that the Prevention of Corruption Act does not expressly seek to punish corrupt acts of private parties, except through Section 9 and Section 12. However, there is no direct provision prohibiting a private person from offering a bribe or engaging in corrupt practices. Such a provision is required to ensure that all parties engaged in corruption are dealt with equally.”
The increase in corruption in India has to be seen in relation to an increased collusion between politicians and private sector. A lot of multinationals are coming to India and business are getting globalised and so is the corruption. A private company’s motive is to make profit, at whatever cost. They don’t want to bring improvement in the governance as they would argue that it is not their job. But this is looking at a short term gain for the businesses. There is enough business case for being compliant with law and being ethical in business dealings. Ethics in business leads toenhanced reputation, attracts investment from ethically oriented companies and creates a level playing field for all. Companies can get a lot by engaging in social construction. For example, a large area of Chattisgarh can be developed as a market if private sector engage in CSR activity and improve governance there. They might argue that law and order is a problem and it is the government’s job to improve this. But my contention is that they also have a role to play in improving governance and empowering people. They have a role and a stake in creating an equitable society.
As far as legislation is concerned, our existing laws are not adequate enough to eradicate private sector corruption. The Prevention of Corruption Act 1998 does not cover private sector. Recently, a strategy developed by CVC in association with CSOs, private sector, audit companies, called National Anti-corruption Strategy has expressed concern that the Prevention of Corruption Act does not expressly seek to punish corrupt acts of private parties, except through Section 9 and Section 12.However, there is no direct provision prohibiting a private person from offering a bribe or engaging in corrupt practices. Such a provision is required to ensure that all parties engaged in corruption are dealt with equally. India Chapter of Transparency international was part of the exercise. India has ratified UN Convention against Corruption which talks of international cooperation in matters relating to corruption and asks states to take measures to prevent private sector corruption. It also talks about recovery of stolen assets. In my view, corruption cannot be curtailed unless there is a political will. And democracy gives us an opportunity to create a political will, by garnering public support to put pressure on politicians and administrators to check corruption. If governance improves, corruption can be curtailed. The private sector, besides government, also has a duty to get actively involved in improving governance.
Microsoft tries to ensure that none of its employees is doing anything stupid that would bring Microsoft on the headline of Wall Street Journal. This could be anything from FCPA related risks to getting deals through noncompliant ways. Therefore, what matters to us is that all our employees adhere to a standard of business conduct which is notch over the standard regulatory guidelines issued by the statutory bodies. There are so many organisations, especially in India, who believe that there is no fraud going in their company. But they are wrong. Microsoft started as back as in 2002 a special department known as Financial Integrity Department within the internal audit with a sole purpose of looking into finance related fraud within the company and which has global charter and 14 people working across the world. It has 2 people each in India and China, 1 each in Russia, Prague and UK and rest are in Redmond, USA .This has helped maintained a compliant culture. Legislation like making private sector bribery a criminal offence would definitely act as deterrent for the fraudster. They will think twice before doing any fraud.
It may be appropriate to recall what a vacation bench of Justice BS Chauhan and Justice Swatanter Kumar observed in June this year, “ In this country, if there are two laws that need to be changed or amended to act as a deterrent, they are laws relating to anti-corruption and sale of spurious drugs,”
Even Central Vigilance Commissioner Pradeep Kumar in an iterview to PTI in September this year had said that it favoured bringing private sector under the ambit of Lokpal. “Lokpal should cover corruption in higher bureaucracy and among political executives. There may also be a provision, as in UK bribery law, where a bribe giver is punished. We are also not against bringing corporates under the purview of Lokpal,” he said.
While there are some serious larger issues related to corporate and government corruption which are affecting whole of India and its prosperity, there are day to day corruption which a common Indian is unfortunately most often involved in. Corruption of all sorts is bad for a holistic development of country. As for companies, they must invest their resources in ensuring that there is complete compliance of statutoryguidelines and no corrupt practice is taking place in the company. The cost of corruption is too high to bear, as many would know, especially yesteryear’s heroes like Rajat Gupta or Ramalinga Raju, or a company like DLF who indulged in distorting real estate market . Or perhaps Tata , Reliance, Unitech and Swan as the case on 2G nears judgment . Yesteryear’s heroes become persona non grata because of their unmindful, non compliant, unethical action, even as we ask in wonder: is greed such an overpowering feeling or is money everything in life?
India must deal with corruption by plugging the loopholes in its regulatory framework and their implementation at the ground level. The need for change in the policies to bring it in line with International obligation like UN Convention Against Corruption (UNCAC) and OECD convention to which India is a signatory is very important. In the domestic front the move forward to bring forward more stringent policies related to public procurement, competition and private bribing are a welcome step.
The LW Bureau is a seasoned mix of legal correspondents, authors and analysts who bring together a very well researched set of articles for your mighty readership. These articles are not necessarily the views of the Bureau itself but prove to be thought provoking and lead to discussions amongst all of us. Have an interesting read through.
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