India is among the most popular investment destinations in the world thanks to its low labour costs and stable political climate. India has liberalised the economy during the last 20 years and the government has a business-friendly policy. On the other hand, a cumbersome bureaucracy and pervasive corruption at all levels of government hamper the business climate. The political system is characterised by deep-rooted patronage systems and public officials often have vested interests in their positions. Corporate integrity is also very low, as scandals regularly highlight Indian companies' payment of kickbacks both when operating inland and abroad. The federal structure of government means that the level of corruption and the responses to it vary from state to state.
Positive developments in relation to corruption and investment:
- India’s trade-related regulatory environment is quite hospitable for foreign companies, boasting an efficient financial system and the availability of trade finance. Some other advantages the country holds are railroad quality, various shipping services to choose from, and its high connectivity via sea routes.
- The Right to Information Act 2005 (RTI Act) has worked as a powerful instrument to enhance governance transparency. The RTI Act grants access to administrative documents within 30 days and has been actively used to hold public officials accountable for their decisions and to monitor public spending.
- The Supreme Court has taken some bold steps by upholding corruption charges in cases involving politicians and high-ranking government officials.
- The government has striven to simplify administrative procedures and to reduce physical encounters with public officials that could open the way for facilitation payments. The National Portal of India is a good example of these simplification efforts.
- In December 2011, the Lower House of Parliament passed the long awaited Lokpal Bill (Ombudsman Bill). In May 2012, the bill was re-introduced in the Upper House where it needs to be passed before it becomes law. As of December 2012, the fate of the bill has yet been determined.
- The Indian Government is working on proposals to criminalise private sector bribery under the current law. This is a follow-up step to meet the requirements set by the UNCAC, which India ratified in May 2011.
- In March 2011, a new bill seeking to criminalise bribery of foreign officials was introduced by the government and as of December 2012, is still pending.
Risks of corruption:
- Public servants have very wide discretionary powers offering the opportunity to extort undue payments from companies and ordinary citizens.
- The numerous bodies charged with combating corruption have conflicting mandates and suffer from a lack of qualified staff and funding.
- The awarding of public contracts is notoriously corrupt, especially at the state level. Scandals involving high-level politicians have highlighted the payment of kickbacks in the healthcare, IT and military sectors.
- The deterioration of the overall efficiency of the government, protection of property rights, ethics and corruption as well as undue influence on government and judicial decisions has resulted in a more difficult business environment.