Corruption takes a firm grip in India

India Dispatch: Corruption is a major threat to India's plans to attract more foreign investment.

Workers load coal at a depot in Gauhati. Scandal surrounds the sales of India's coal fields. Anupam Nath / AP Photo

Corruption is a major threat to India's plans to attract more foreign investment. A series of scandals has emerged at a time when the government is trying to lure more funds from overseas to boost the slowing economy.

"Corruption is a problem," says Arun Wakhlu, the executive chairman of Pragati Leadership, a consultancy. "It does definitely have a negative impact on potential investment … It is creating a barrier."

The government has unleashed a spate of economic reforms in recent weeks, aimed at trying to attract foreign funding. These included opening up the retail, aviation and broadcasting sectors to more foreign investment. But the opposition has been calling for the resignation of the prime minister, Manmohan Singh, over what has been dubbed the Coalgate scam - one of several controversies bedevilling the government.

"The large chunks of corruption happen at a government level," says Mr Wakhlu. "There is also corruption in the corporate sector. It's all pervasive. It's almost like a systemic disease."

Money that has been made through corruption over the past two decades amounts to trillions of dollars, according to estimates.

The coal scandal was brought into focus after government auditors compiled a report alleging the country lost out on more than US$33 billion (Dh121.2bn) during undervalued sales of coalfields between 2004 and 2009.

This also stirred up fresh discussions about the 2G controversy, in which government officials allegedly undercharged telecoms companies for licences.

This affected the UAE's Etisalat, which entered the Indian market in 2009 through its acquisition of a stake in Swan Telecom. The licences were bought by Swan in 2008, before Etisalat's investment in the company. Those licences were cancelled this year as part of the corruption case, resulting in Etisalat taking a Dh3bn hit.

The emergence of a political party to fight corruption has also drawn attention to graft. The latest scandal surrounds the Congress party chief Sonia Gandhi's son-in-law, Robert Vadra, who is being accused of improper dealings with the property developer DLF.

"Corruption could be a major hurdle in India's growth story in the coming decade and may impact its fair business competitiveness," according to a report on bribery and corruption by KPMG, which noted an increase in the number of scams in the public and private sectors during the past couple of years.

Mayank Gandhi, an aide of the Indian activist Arvind Kejriwal, the head of the new anti-corruption party, says there is an "incestuous relationship" between business and politicians. "We have moved from crony capitalism to political entrepreneurship."

India slipped into 95th position last year from 87th a year earlier on a corruption perception index compiled by Transparency International. The index ranks 183 countries on a scale of one to 10, with the latter representing the lowest levels of corruption. India's ranking fell to 3.1 by the end of year compared to 3.3 a year earlier. By comparison, the UAE rated 6.8 and the United Kingdom 7.8.

Corruption in India is often blamed on the country's rapid economic growth. Investors are likely to be deterred by corruption, but it is largely a matter of perception, says Viresh Oberoi, the managing director and founder of mjunction, a leading e-commerce company.

The media, both locally and internationally, pounce on stories about corruption, he says, and ignore many of the positive attributes of the country's systems.

Praful Vora, the coordinator for India Against Corruption in Mumbai, says that corruption often starts with corporations that want to improve their profit margin.

"To get that they do all kinds of things that prevent competition, that prevent fair play, that prevent transparency," he says. "To do that they must go to the bureaucrats to cover up their inconsistencies and they must go to the politicians. The politicians have a public face, so people target the politicians and think they are evil, but it's the system that is such.

"Instead of 5 per cent growth, we could have been 8 or 9 per cent. The people who are making the money don't care for the growth of the nation - they care for growth of their corporate profit."

"Corruption is considered to be one of the major roadblocks in India's journey from a developing to a developed economy," says KPMG. "There is an urgent need to have a comprehensive framework that would help curtail corruption at higher levels."