Goin’ The Way Of The Ostrich

Attack on Crony Capital

• Recent arrests of executives in the 2G cases have fuelled fear in India Inc. The feeling that big fish get away has persisted.
• Government has turned wary in dealings with firms, leading to flip-flops in regulatory approvals.
• Corporates have climbed from 7th/8th on the corruption perception index of media thinktank CMS, to a higher 3rd/4th position.
• Government move to control land acquisition underlines the view that a private sector role only encourages speculation.
• Home minister P. Chidambaram supports both an inheritance tax & higher tax on luxury goods.
• Nervous companies are talking about shifting base to Delhi, to be closer to where the action is.
• Excessive displays of wealth are going out of fashion.

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Perhaps it will, and we’ll quickly get back to the various corporate governance rankings and awards. But for now, there’s no denying that the deluge of corruption scandals has dealt a damaging blow to the remarkable story big business had built up over the past couple of decades. With public anger not abating, business is being clearly identified as a part of the corruption problem—and this is translating into problems on the ground, and an environment of nervousness, if not outright fear. “The whole myth of liberalisation and GDP growth has been busted,” says Supreme Court advocate Prashant Bhushan, an I-told-you-so that is fast finding echoes in an embattled government.

Turning a critical eye at business is in vogue, sure, but not just among those lobbying against corruption. Within the industry, many are saying the Indian businessman is no longer the force he was a year or two ago. “Even the self-proclaimed saints of India’s corporate royalty have been outed as sinners,” says Percy Mistry, a London-based financial expert who chaired the committee to make Mumbai a centre of international finance. “The masterminds, who orchestrated, choreographed and (in government) tolerated their malfeasance in full knowledge, remain insulated,” he adds.

This is the kind of self-incrimination that was unheard of even after Satyam’s Ramalingam Raju confessed in 2009 to fudging the books of India’s third-largest software company—the industry had palmed that event off as an aberration. Now, E. Sreedharan, who heads the Delhi Metro Rail Corporation and has built a reputation of honesty and efficiency, says corruption may actually have helped some foreign companies establish themselves in India. “Corruption helps them get business, so nobody raised a finger against it. The country suffered, not the investor. And the industry’s image has been seriously tarnished in the eyes of the average Indian,” he says in an interview to Outlook.

There are many in the corporate sector who feel that the current purge is a good thing, for it focuses attention on a very real problem. Rajiv Kaul, ceo, cms Info Systems, a software company, also acknowledges how corruption is not an issue confined to the government—as the accusation often goes: “It has permeated deep into the private sector. It is difficult to do business as companies care little for corporate governance and are ready to bribe their way through.”

With campaigns calling for accountability, and the outing of corporate-political collusion, industry is at pains to defend the economic liberalisation programme, which many say is at the root of corruption and erosion of accountability. Anirudha Datta, executive director, clsa, a leading brokerage and investment firm, says, “It’s so disappointing to hear people attribute the rise in corruption to the process of liberalisation. I’m surprised Manmohan Singh, considered the father of economic reform, has not responded to these statements.”

Not only has there been no official public statement defending economic reform, steps quite to the contrary appear to be the flavour of the season. The government is keen to be seen as stepping in on behalf of the people. The growing focus on black money is one such example. One impact of rampant corruption has been the erosion of public resources, by way of lost tax revenue. The Swiss Bank has revealed that India has more black money than the rest of the world. To stem the tide, the government recently announced that it would play a major role in acquiring land for industry. The argument? Left to its devices, the private sector would encourage real estate speculation. As things stand, private role in acquiring land looks set to be heavily curtailed.

Displays of wealth (which big business is prone to) are now clearly frowned upon. Home minister P. Chidambaram recently talked about higher tax rates for luxury goods and supported a proposal to introduce a new inheritance tax. The primary target of these taxes would be the rich and powerful business class. Similarly, business is bearing the brunt of regulatory caution about approvals—with the common complaint being that a regulatory clearance from one wing of government is quickly overturned by another. Nervous companies are shifting their headquarters to Delhi to be closer to the “nerve centre”—Lanco and Vedanta are recent examples and a telecom giant is believed to be mulling a move from Mumbai.

The significant worsening of attitudes towards the corporate sector isn’t just because wrongdoing has been exposed (the industry never did have the squeaky clean image they lay claim to). What’s changed is the realisation that one kind of corruption, whether political, bureaucratic or otherwise, can’t really be separated from another. In recent polls, the Centre for Media Studies (cms), an independent research outfit, found that industry had moved from being 7th or 8th on the corruption perception index to alternating between the 3rd and 4th spots (politicians remain ‘the most corrupt’ by far). “This means that industry is now perceived as being nearly as corrupt as bureaucrats, who usually take 2nd or 3rd place,” says Dr N. Bhaskara Rao, cms’s chairman.

This has, of course, provoked some strong reactions. “I think the good job done by the media has exposed corruption to the level where the world is now worried that India is another banana republic,” says Sudhir Trehan, who recently retired as the managing director of Crompton Greaves. “Tighten governance, and corruption will disappear.” There are many within the corporate sector who would agree and lay the blame on the “system”. As Captain G.R. Gopinath, India’s low-cost airline pioneer, says: “Many people in India hate the system so much, but are so cynical that they don’t even vote to change it.”

It’s true, agrees Rajiv N. Desai, who runs Comma Consulting—a business advisory and public relations firm in Delhi. Cynicism abounds, but is it based in reality? “Perceptions of the Indian corporate sector have changed,” he says, “But not in the way you think.” Desai points out the successes Indian companies have had in the two decades since 1991, and especially over the last two years: turning around foreign companies into successful enterprises, acquiring and hiring abroad, making strides in pharmaceuticals and biotechnology and improving the quality of domestic products. “That’s the change we should be talking about,” says Desai.

Now, doubts are being raised about the current model of development, with liberalisation being considered susceptible to large-scale profiteering without commensurate benefits to society. “India’s rise as an economic power has less to do with the government and more to do with private enterprise. Let us not throw the baby out with the bathwater,” cautions Ashutosh Varshney, professor of political science at Brown University.

This view strikes a chord with many observers. “We don’t know whether the arrests will lead to convictions. We don’t know if all this is for real or not,” adds Manjeet Kripalani, Gateway House founder and the former India bureau chief of BusinessWeek. She rues the lack of a national agenda in public life, and worries how, in a society where trust has broken down, one can do business.

Down to the hurly burly, middle managers say that there has been no real change in the work environment, apart from, perhaps, taking greater care in monitoring how information flows within a company. Clearly, some people felt as though they could get away with anything—there is a sense of caution now. With the anti-corruption voices currently railing just a few decibels louder than those that are worried about what those voices are doing to the image of Indian business, the reasonable argument would be to see everything—even graft—as a sign of the times, rather than write India off as a “banana republic”.

By Pragya Singh with Arti Sharma and Arindam Mukherjee