Small and medium businesses need systematic intervention by the government to help tackle bribery

One of the reasons for the proliferation of bribery in India is the complex structures—comprising legal, tax, and other frameworks—one has to follow to conduct business. Small and medium businesses (SMBs) often find themselves lacking the capability and the resources to understand some of these frameworks, particularly those pertaining to anti-bribery and corruption. To cope, SMBs tend to ‘work around’ these requirements, adopting practices that may be perceived as corrupt.

Corruption, however, is not a new phenomenon, and neither is it a developing world problem, as recent unearthing of global fraud and bribery scandals may indicate. Yet some countries are perceived as less corrupt than others. It is hard to determine what these perceptions can be attributed to: major legislative changes, greater rate of prosecutions, higher fines, political shifts, public awareness schemes, or other initiatives.

But one thing is certain—while incidents of fraud can besmirch a country’s image, systematic intervention by countries (among other factors) can help improve perceived corruption levels (as per rankings on the global Corruption Perception Index (CPI)).

Our analysis indicates that CPI rankings have improved where governments have demonstrated action to curb corruption, such as enforcing key legislation, adopting global best practices, and commissioning third parties to develop white papers on the state of corruption. But rankings also tend to take a hit due to incidents of large scale fraud and corruption, nullifying the positive effect government action may have had.

India’s path on the CPI over the last 10 years has been a turbulent one. In 2006 India was ranked 70, its best on the index in the last ten years. This was a considerable jump from 2005 when India was ranked 88th. While it’s hard to pinpoint what events should be credited for this improvement, the impact of the Right to Information Act cannot be denied.

However, this positivity was short-lived, with the ranking taking a major hit in 2008 (India fell to 85th place) with the food riots, and continuing to plummet between 2008 and 2011, as several scams unravelled. In 2011, India hit its 10 year low on the CPI at the 95th rank. Although India’s CPI ranking during 2016 improved (to 76 from 84 in 2014), the problem still persists as the CPI score remained the same over 2015 and 2016, with only a marginal improvement in 2017 (up from 38 in 2015 and 2016 to 40 in 2017, though the rank fell again to 79).

To tackle graft, there have been several initiatives taken by the government, including enactment of the New Companies Act (2013), Digital India initiatives and the more recent demonetization drive. Some of these measures have simplified procedures required to conduct business in India, and our ranking in the World Bank’s Doing Business report 2016 is now 130—four places up from two years ago.

Alongside the measures taken so far, it is recommended that the government push for digitization in all spheres of business interactions, improving transparency around business processes, and reducing the dependency on middlemen and agents who are prone to corrupt activities.

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Authored by: Sumit Makhija, Partner, Deloitte India

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