Economy

Corruption hurts foreign investments: FICCI-E&Y report

Our Bureau Bangalore | Updated on July 23, 2013

Naina Lal Kidwai, President, of FICCI



India is one of the most sought after investment destinations and to stay ahead in this competitive environment, we need to improve our governance systems, said Naina Lal Kidwai, President, FICCI.

Releasing the FICCI and E&Y report titled ‘Bribery and corruption: Ground reality in India’ at the FICCI national executive committee meet, she said, “Several reports place India among the top three countries globally as an attractive investment destination. While several positive factors like a large and growing domestic market, favourable demographic profile and availability of a large pool of skilled manpower have brought global investors to India, in terms of ‘ease of doing business’ India still has a long way to go.”

She further said, “Given the state of India’s economic development, good governance is absolutely critical to give us a competitive edge and sustain growth. Corruption invariably increases transaction costs and uncertainty in an economy while lowering efficiency by forcing entrepreneurs to divert their scarce time and money to bribery rather than production.”

The report revealed that corruption – real or perceived – is having a detrimental impact on the country’s economy. Around 83 per cent of the respondents felt that the recent spate of scams will negatively impact FDI inflows into the country.

According to 73 per cent of the respondents from PE firms, a company operating in a sector that is perceived as highly corrupt may lose ground when it comes to a fair valuation of its business, as it bargains hard and factors in the cost of corruption in the sector during a transaction.

About 77 per cent of the respondents felt that it is the responsibility of the managing directors to handle the bribery and corruption-related issues.

Other findings reveal that the sectors most vulnerable to corruption include the government and public sector, infrastructure and real estate, metals and mining, aerospace and defence, and power and utilities sectors.

A large number of respondents appeared to be aware of unethical business conduct, including irregular accounting to hide bribery and corruption, gifts being given to agents and third parties being used to pay bribes. More than half of the respondents felt that it is the lack of will to obtain licences and approvals the ‘right way’, which leads to bribery and corruption. Complicated taxes and licensing system also fuel corruption.

The survey for the report was conducted from March to May 2013 via an online questionnaire.

>anil.u@thehindu.co.in

Published on July 23, 2013

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