Epistles To Think Through

Dear Leaders:

• Corporate India also shares the onus for corruption in India
• Lokpal and Anna-style protests are not the answer; we need to look deeper for lasting solutions
• Greater clarity needed on the regulation of environment; policy flip-flop must come to an end
• The misuse of discretionary powers, regulation hurdles will cause flight of capital
• The widespread sentiment is one of negativism, but things are not as extreme as many think

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But it’s decidedly less dramatic. The writers admonish corporate India, not just government, for corruption: “A strong nexus exists between certain corporates, politicians, bureaucrats and power brokers.” This reflects the changing ground realities, says Dr Ashok S. Ganguly, one of the signatories and a former head of Hindustan Unilever. “The government and public want steps to be taken against corruption. That’s why we have focused on it,” he told Outlook.

The balancing act continues with other issues. The letter advances the line that the Lokpal Bill is unlikely to have any significant impact on “day-to-day corruption”. They support a well-crafted Lokpal structure, but don’t want to bank on “urban protests and posturing”. The letter offers solutions: both “giver and taker” of bribes must face timely punitive action. But it has a warning too: “Policy uncertainties and delays in approvals are forcing many large corporate entities to seek out opportunities in other geographies.”

Ganguly stresses on this wider message: “We want to reinforce confidence in India and in our gains (growth, agricultural productivity etc), while emphasising that India is not an island; investments are attractive the world over.”

Yet, even the worst prognosis for India is 7 per cent growth next year. The IIP paints a bleak picture, sure, but the Centre for Monitoring Indian Economy (CMIE), which researches as many as 20,000 companies across sectors every quarter, finds Rs 7 trillion-worth of investments waiting to be commissioned—that is, start production—by May 2012. “Now, you may adjust this number for inflation, or for further global slowing down, or for an unexpected event in the economy, and for a slight slowing of implementation that we’re seeing in some segments. The overall figure will still be very impressive,” says Mahesh Vyas, MD and CEO, CMIE.

Against this backdrop, Surajit Mazumdar, an assistant professor of economics at Ambedkar University, Delhi, says he hears the hum of concessions and incentives approaching, rather than a serious slowdown. “There is a growing crescendo for creating a more ‘corporate-friendly’ climate so that Indian firms invest locally rather than take money abroad,” he says. The irony is that a “friendly attitude” towards corporates is already implicit in government today—that’s why, despite “revelations of corporate perfidy”, a strong enough case for reforms can be made. As if on cue, on October 13, the government announced a new support package, including a 2 per cent break on interest on export credit and sops for entrepreneurs, amounting to Rs 1,700 crore. Other measures are expected.

Still, the despondency persists. Neville Dumasia, who heads consulting firm KPMG India’s risk and governance practice, and will move to Ernst &Young’s risk advisory business next week, says not much has changed in the economy this year—“except, perhaps, what you’re reading in the papers”. He sums up the mood: “Was writing the letter a good step? I’d say yes. Will it have an impact? No. Have people started seeking solutions for corruption? Definitely.” He believes the challenge for India is realising that 10 per cent or even higher growth is doable, at a time when Indians seem inexplicably happy with just 7 or 8 per cent. “The least we can do is unshackle existing areas with potential: (bring) foreign investment in retail, and infrastructure, and ensure adequate water, electricity and food.”

The problem, then, is this relentless focus on corruption; one that companies cannot sidestep easily. Pranab Bardhan, noted economist with the University of California, Berkeley, points out that when large amounts of money are involved (as opposed to petty corruption), businessmen, real estate magnates etc give the bribes, while politicians and officials take the bribes. “There are culprits on both sides. While industrialists have a right to complain against the government’s ineffectiveness in controlling bribe-taking, they should also look in the mirror and try to control rampant bribe-giving by their own people.”

To be fair, the letter tries to do this, acknowledging the complicity of industry in corruption. Nor are the letter-writers alone in the view that investments could slow if ‘bottlenecks’ persist—there is talk of this in business associations too. Sure, corporate results haven’t been bad: companies reported 25 per cent sales growth in the last quarter. But sentiment plays a bigger hand than many acknowledge.

Janmejaya Sinha, who heads the Boston Consulting Group, Asia-Pacific, says high interest rates and inflation are “stalling” capital investment. Yet, it is pragmatism that ultimately motivates businesses. “The basic issue is, if you can raise funds at zero per cent interest rate and buy cheap assets abroad, you will,” says he. The trouble is, companies are facing difficulty with expensive raw materials, high inflation and interest rates. “Still, it’s the fear of something lurking around the corner that bothers them, say, an issue with land (acquisition),” adds CMIE’s Vyas.

Ganguly stresses the need to manage sentiment effectively, as does Dr Sanjaya Baru, editor of Business Standard, who is taking a position at the International Institute for Strategic Studies next month. “I think the gloom comes from many Indians’ belief that the world ends at our borders. If they only looked outside, they’d see that we’re the world’s fastest growing country,” Baru says, acknowledging that firms are going through hard times, which evoke negative sentiments.

The challenge is to not veer off to another extreme. Law minister Salman Khurshid recently said that throwing big corporates into prison would harm investment. Experts such as Bardhan, however, feel that punishing dishonesty is usually good for investment prospects. He refers to Singapore, where stern anti-corruption measures helped build business confidence. He marks out a key failing in India: The CBI is “often too quick to jail but much slower in collecting admissible evidence against the people jailed, which is unfair to the latter and may cause investment uncertainty”. His solution, importantly, is speeding up, not stopping anti-corruption measures.

Corruption shot to prominence last year after the “episodic” variety was exposed in the 2G spectrum scam. If big business wants to contribute to the war against graft, that’s the aspect they need to work on. As for the “India story”, it seems to be doing fine, thank you.

By Pragya Singh with Arti Sharma