Impact of Corruption on Indian Businesses: Survey

Until a year ago, it was of common knowledge that corruption is deeply rooted in India. However, it was the scandalous year 2010 that established this perception into fact. All the major scams – be it Commonwealth games fiasco, 2G spectrum allocation scam or bribe for housing loan scandal – were unearthed during previous year.

Even equity markets crumbled by 15% as the year ended on a sagging note. Some analysts attributed this weakness in markets to uneven inflation-growth dynamics, while others blamed it on India’s lost credibility with regard to governance issues.

Having said above, I still feel that the FIIs have still not yet fully discounted the negativity arising out of corruption issues. The theory that is still doing the rounds among the institutional investors is that the India is still on growth track irrespective of the recent scam instances.

However, the same optimistic sentiment has not been reflected when it comes to insight from corporate India – i.e. those who are directly involved in dealing with the challenges faced on account of corruption issues.

To keep a tab on what India Inc feels about corruption issues, KPMG India surveyed leading Indian companies to keep a tab on sentiment and perception of how corruption is corroding economy as well as corporate environment.

Key Highlights of the Corruption Survey:

Over 2/3^rd of the survey respondents perceive that India can touch 9% GDP growth if corruption is controlled. Otherwise, it would result in volatile political and economic environment.

Impact of corruption on India’s GDP growth

Half of those surveyed felt that India corruption may hit the investment sentiment and render India less attractive destination for foreign investment.

Respondents to the extent of whopping 90% felt that corruption would also translate into increased stock market volatility and prevent institutional investors from making long-term commitments.

99% of respondents opined that the biggest impact of corruption on business is its tendency to skew level playing field and attract organizations with lesser capability to execute projects. This could create inefficiencies in the system and hence increase the cost of operations.

Impact of corruption on business

Now, take this! Well, it’s a no shocker, but certainly a bit surprising. Almost 68% people attribute corruption to be induced by the private sector; even as wide majority of us put the blame on the government enterprises.

India has seen stupendous growth in mergers and acquisitions. But, here could be a small hump in the tale. Nearly 37% of respondents felt that corruption could impact the valuation of a company thereby denying shareholders a fair price.

Needless to say, real-estate industry has remained as the most corrupt industry, as told by 32% respondents, which is highest quantification going industry-wise.

Perception of most corrupt industries

 

So, any take on which industry is most corrupted after real-estate? Well, no points for guessing, its telecommunications sector – especially, after recent 2G spectrum allocation scam, 17% of those surveyed felt this sector is fraught with corruption issues.

Most significantly, when it comes to anti-corruption measures, a majority 84% of those surveyed opined that Indian government failed to effectively enforce anti-bribery and corruption laws.

How will corruption scenario in India change in the next 2 years?

Interestingly, when asked as to how will corruption scenario in India change in the next 2 years – 46% felt that corruption is here to stay in the system, while 15% opined that corruption shall continue to thrive and increase irrespective of the legislation.

Certainly, we cannot take the above survey findings with a pinch of salt. There is lots of reality behind above survey outcome. Can India come out winner out of such trying circumstances?