The recent spate of scams will negatively impact FDI inflows into India. Most people are aware of unethical business conduct in their organisations, including irregular accounting to hide bribery and corruption, gifts being given to agents and third parties being used to pay bribes. And it is the responsibility of the managing directors of companies to handle the bribery and corruption-related issues in their organisations. This is according to a FICCI and EY report titled ‘Bribery and corruption: Ground reality in India’ released at the FICCI National Executive Committee meeting here today.
The report says that corruption – real or perceived, is having a detrimental impact on the country’s economy. Around 83% respondents feel that the recent spate of scams will negatively impact FDI inflows in India. Around 77% respondents think that it is the responsibility of the managing directors of companies to handle the bribery and corruption-related issues in their organisations.
According to 73% of the respondents from private equity firms, a company operating in a sector that is perceived as highly corrupt, may lose ground when it comes to a fair valuation of its business, as it bargains hard and factors in the cost of corruption in the sector during a transaction. Some of the specific findings of the survey reveal that the sectors most vulnerable to corruption include the government & public sector, infrastructure and real estate, metals and mining, aerospace and defense, and power and utilities sectors. More than half of the respondents felt that it is the lack of will to obtain licenses and approvals the 'right way', which leads to bribery and corruption. Complicated taxes and licensing system also fuel corruption.
According to 73% of the respondents from private equity firms, a company operating in a sector that is perceived as highly corrupt, may lose ground when it comes to a fair valuation of its business, as it bargains hard and factors in the cost of corruption in the sector during a transaction. Some of the specific findings of the survey reveal that the sectors most vulnerable to corruption include the government & public sector, infrastructure and real estate, metals and mining, aerospace and defense, and power and utilities sectors. More than half of the respondents felt that it is the lack of will to obtain licenses and approvals the 'right way', which leads to bribery and corruption. Complicated taxes and licensing system also fuel corruption.
The Government has proposed amendments in existing acts and certain new bills are on the anvil that are aimed to check corruption in the private sector. However, enforcement of laws is equally important to arrest this inimical growth. Around 89% respondents felt that inadequate enforcement of laws is resulting in bribery and corruption proliferating in the country.
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Arpinder Singh, Partner & India Leader – Fraud Investigation & Dispute Services, EY says, “Through this report, we set out to ask corporate India their perception about corruption and its impact on country’s future and the results made for an uncomfortable reading. On one hand, it is forcing investors to rethink their India entry strategy, and on another it is distorting free market and creating unfair competition.” He furher added that though many companies show awareness of the risks and have intensified their anti-corruption compliance initiatives, the results of this survey show there is still much to be done. Companies will have to ensure high level of transparency in business conduct and take a steadfast long-term view to resist the pressure or temptation to pay bribes.
Majority of the respondents were optimistic that new regulations such as the Companies Bill 2012 will make a difference and help reduce fraud, bribery and corruption. Serious action on reported instances of bribery and corruption and wide publicity of such actions across organisations are other effective deterrents. There should be transparency at all levels in organisations to reduce corruption. There should not be any discretionary power and every official should be made accountable for his or her omissions and commissions.
Multinational organisations are under increasing pressure to improve their anti-bribery and anti-corruption compliance programs as jurisdictions around the world increase their enforcement of laws and regulations to combat bribery and corruption. Executives also need to be acutely aware of the liability they personally face for the actions of their employees and business partners. Companies while framing their anti-bribery and anti-corruption compliance framework should have clear policies regarding zero tolerance, no ambiguity, effective training, gift policy, hotlines, monitoring and third parties.
“Corruption invariably increases transaction costs and uncertainty in an economy while lowering efficiency by forcing entrepreneurs to divert their scarce time and money to bribery rather than production.” says Naina Lal Kidwai, President, FICCI.
This survey was conducted between March and May 2013 online. The respondents represented a mix of Indian enterprises with domestic operations, as well as Indian and foreign multinationals in the US and the UK, whose annual incomes ranges from Rs 5,000 crore to Rs 10,000 crore. The principal respondents belonged to business functions such as internal audit and finance, legal and compliance, and vigilance and risk management from banking and financial service institutions, and the technology, media and entertainment, and manufacturing sectors.