Corruption in India

COMMENT

It's a matter of trust

Narain D Batra | January 8, 2011

Times of India The Crest edition

The challenge for India, a growing economy, a rising nation that wants to play a global role, is how to go beyond the trust based on family ties, old boys' networks, caste and religion - especially in a diversified and multicultural world - so that investors can repose their faith in the system.

The system must be so open and transparent that it creates verifiable trust and trustworthiness. There lies the future of India. 

Erosion of trust is a global phenomenon.

President Barack Obama sees the rebuilding of public trust as one of his major challenges and, therefore, the subject of transparency reverberates in his public communication. What is good for the government is equally good for corporate governance. 

Doing business is essentially building social trust, which is imperative for foreign direct investment (FDI), especially if a company is dependent upon global customers as many Indian companies are increasingly becoming. When enterprising families join hands with government, business growth can be rapid in the initial stages, because regulatory constraints and market accountability can be waived to access credit and investment.

The rapid growths of companies like Satyam, for example, was not due to the miracle of unique Indian entrepreneurial spirit but because of the government-family nexus of economic interests, contemptuously though rightfully called crony capitalism. 

Although crony capitalism is present in every society, it flourishes best where the flow of information, both economic and political, is limited.

This has been the pattern in most Asian countries and India fits into this pattern. India is a double-book nation and those in the accountingauditing profession do understand how big India's shadow economy is. The protected family-based business system reaches its limits of growth when it needs infusion of technology and capital for expansion, which can come from sources outside the family. Investors, especially now when they have many competitive opportunities available all over the world and can electronically transfer their investments instantly, demand sunshine, transparency, openness and accountability. You cannot separate business from politics, global corporate from global politics. 



It is possible to create trust beyond the family-based business system but it can be done only under the supervision of an independent watchdog authority that creates a level-playing field for all. In the United States, the Security and Exchange Commission (SEC) monitors business corporations and stock markets. Markets are complex but fragile systems, which do not thrive on family ties but on honest and open communication with investors. But even the best system is open to abuse, as we have been painfully observing what has been happening to some legendary banks and financial institutions. Trust is in deficit now. Rebuilding global trust is the biggest challenge for corporate and political leaderships in the age of uncertainty. And India is no exception. 



Economic growth of more than 8 per cent during the last several years had made us temporarily forget about corruption until the slew of scams that were outed last year. Ordinary Indians pay a bribe of about $5 billion (Rs 21, 068 crores) a year for "availing one or more of the eleven public services in a year" according to a 2005 Centre for Media Studies/Transparency India Report. Can you imagine how much people of the super class - those who breakfast in New York, lunch in London and have dinner in Mumbai - must be paying to speed up their business deals? 

Initially, as the legend goes, the foreign exchange crisis of the early 1990s forced India to open up its doors to market economy. But India was pushed into globalisation by the information revolution.

The other India, its diaspora, especially in the IT field, began to show ingenuity for developing new products and services as well as for solving complicated problems, including the killing of the millennium bug. Bangalore was able to liftoff in spite of its poor infrastructure and in the process transformed itself into a cyberspace module that expertly docked with the emerging digital universe, partly thanks to Indian satellite technology, which was paradoxically seeded during the era of self-reliance. 

While the spectacular success of Bangalore and India's IT industry showed how much the Indian entrepreneur could do for the world, it also exposed India's vulnerabilities, its sluggish rural economy, massive shortfalls in investment for infrastructure development, high illiteracy levels, and a high rate of underemployed and unemployed people. The world began to look at India's underside. Indian policymakers and intellectuals began to grapple with the problem of economic growth, but they did not pay attention to the culture of corruption, a yoke on the poor. 

Sadly, the news media in India has not been playing its watchdog role robustly enough. Public accountability through news media exposês and relentless investigative reporting, especially through internet blogging and television shows, as the American experience shows, is a strong antidote to corruption.



What would make politicians and bureaucrats more accountable and responsive to public needs? Individuals who exercise political power should be made answerable for not only how they use the power vested in them but also whether they achieve goals with clean hands. Some problems facing India are systemic and call for structural changes. The system as a whole has to be geared up for growth, which means the development of a Grand National Strategy that covers every region.

Booming Gujarat and a depressed North-East cannot be part of the same country. 

If India were to build global trust and take its rightful place in the world order, it must fight corruption as seriously as it is fighting terrorism and insurgency. 



The writer is professor of communication and diplomacy at Norwich University