KPMG survey: Corruption threatens India's high growth momentum
March, 15th 2011
Endemic corruption in India has grown in scale and represents billions of dollars, with the potential to discourage investors and derail growth prospects, consultancy firm KMPG said in a survey published on Monday.
The survey of 100 leading domestic and foreign businesses was published as Prime Minister Manmohan Singh's government struggles to defend itself against graft cases ranging from a $39 billion telecoms scandal to houses for war widows diverted to bureaucrats.
The scams, exposed in recent months, point to a pervasive culture of corruption in Singh's administration, prompting a man once seen as India's most honest politician to defend his leadership and scramble to keep the ruling coalition intact.
And the graft riddling Asia's third-largest economy was no longer confined to bribing government officials for passports or telephone connections from the state provider, the report said.
"Today India is faced with a different kind of challenge," the report said. "It is not about petty bribes (`bakshish') any more, but scams to the tune of thousands of crores (billions of rupees) that highlight a political/industry nexus which, if not checked, could have a far reaching impact."
Most businesses surveyed said they were committed to their positions in one of the world's fastest growing economies with a rapidly growing, and wealthier, middle class, the survey showed.
More than two-thirds of those surveyed said corruption prevented India from moving beyond the 9 percent growth expected in the next fiscal year starting April 1. Just over half said graft would make the country less attractive to foreign investors.
"Corruption poses a risk to India's projected 9 percent GDP growth and may result in a volatile political and economic environment," the report said.
The murkiest sectors were real estate and construction - a focus for India as it plans to spend $1.5 trillion over a decade to overhaul creaky infrastructure - followed by telecommunications where the state was still heavily involved and the stakes high.
The scandals have created a sense of regulatory uncertainty, especially in the telecoms sector, which has come under heavy scrutiny after faulty allocation processes were said to have cost the government up to $39 billion in lost revenue.
Several big businessmen, including billionaire Anil Ambani, were questioned by federal police, and even Singh had to defend his conduct to the Supreme Court, unprecedented events in a country where the business and political elite were sometimes seen as above the law.
"India has at last realised that one of the major reasons for most of the large scale corruption incidents has been due to the empowered discretion that the government has had," Surjit Bhalla, the head of Oxus Investments, wrote in the preface to the report.
British Prime Minister David Cameron wrote to Singh in February warning that India's unpredictable and non-transparent business climate could derail bilateral trade ties.
Ratan Tata, one of India's most prominent industrialists, in November recounted a conversation with a fellow businessmen in which the latter detailed the hefty bribes the government demanded from players in the airlines business.