Business firms hope India will confront its corruption crises
The ongoing general elections in India will attract the attention of Western observers to happenings on the subcontinent for several reasons.
The world's largest democracy represents a tantalizing market for struggling manufacturers based in the United States, the United Kingdom and the European Union.
In theory, India should present these manufacturers with a golden opportunity to showcase and market their products, but in practice, it has proved to be a sobering experience for many Western firms.
These firms in the West will be hoping that the winner of this year's election will be able to neutralize and end festering corruption that so bedevils the attempts of foreign firms' to break into what is a vast and very lucrative Indian market.
Two years ago, American author Katherine Boo's award-winning study, "Behind the Beautiful Forevers - Life, Death and Hope in a Mumbai Slum", allegedly exposed corruption in the Mumbai Police force.
"Bribes are needed and must be paid at every step in the judicial process, from being arrested to obtaining bail, to having a word with the magistrate o rjudge," Boo says in her book.
Boo's expose makes it clear that this is not some aberration on the part of the local police, but is the system by which they operate.
One company which experienced this system first hand was UK-based component manufacturer Lawrence Hawkins, which moved a large part of its business to India in 2004.
"We expected to have to pay local government officials to smooth our way and speed bureaucratic processes. What we had not realized was the sheer number of government organizations who zeroed in on us, looking for backhanders. Our local staff, people with degrees in engineering and business, was put under extreme duress. Several employees were detained by detectives from the Economic Offences Wing (EOW) in Mumbai on allegations of manufacturing counterfeit goods and money laundering. In the end, we had to pay very large sums of cash to senior figures in the EOW for our staff to be released," said a representative of the company on condition of his anonymity being maintained.
After launching its own investigation, the company allegedly discovered that even rival companies were paying off officials to make it difficult for them to operate.
As a result the company pulled out of India in 2007, citing corruption as a key factor for its decision.
That corruption exists in India as in a majority of nations around the world can hardly be termed a new revelation, but in recent years, it has reached unprecedented levels, with scams involving billions of dollars, becoming just as ubiquitous as low-level graft.
The cost of this is astonishing. According to the US-based Global Financial Integrity Group, USD 123 billion has been lost due to corruption in the last decade in India. The country's once soaring growth rates have stalled at around six percent or less as multi-billion dollar corruption scams deter foreign investment.
In 2008, India's gross foreign direct investment inflow was USD 48 billion. In 2013, it sank to USD 27 billion.
When one looks at the experiences of multinational firms in India, it is easy to see why Qnet, a USD one billion Asian success story in the direct selling business has also faced its share of problems.
In April 2013, their independent, Indian-owned franchisee Vihaan Direct Selling was accused of fraud amounting to about USD 250 by an allegedly dissatisfied customer.
The alleged complaint was investigated by the local police and subsequently classified as 'no crime'.
In normal circumstances, that would have been the end of the story, but in an Indian business scenario, it is never that simple.
In August 2013, the husband of the original complainant refiled the complaint with the Economic Offences Wing (EOW) of the Mumbai Police. The EOW, on the basis of the USD 250 complaint that had already been dismissed, pursued the matter.
Whilst there may be legitimate questions to ask about direct selling, the response of the EOW could be perceived as disproportionate. They raided the offices of Vihaan, seized some USD 15 million in assets and arrested nine independent representatives and allegedly held them without charge for 17 days. They were also allegedly assaulted and threatened.
At the time of writing, still no charges have been brought and the case rumbles on.
Interestingly, in October 2013, the husband was reported for assault on a family member, eventually arrested in February 2014, but later released. There have been complaints filed on various other offenses, but action has not been taken yet.
According to a U.S. report, corruption is deep-rooted. The reports reveal although the law provides criminal penalties for official corruption, the Indian Government does not implement the law effectively, and officials are allegedly engaging in corrupt practices with impunity.
NGOs in India have noted that bribes are paid to expedite services, such as police protection, school admission, water supply, and government assistance.
Parliament passed a bill in December last year, establishing an ombudsman organization known as a Lokpal to investigate allegations of government and official corruption.
It is a critical agenda and one which should have come into play long ago.
(Posted on 15-04-2014)