Corruption, scandals impair business environment, says Moody's

Moody's today said cases of corruption and the recent scandals have impaired business environment in India.

“Corruption, highlighted in recent scandals around the Commonwealth Games as well as telecoms licensing, impairs a business environment... The protests around the Lokpal and Jan Lokpal Bill are also an indication that corruption is a key concern across the country,” Moody's said in its annual sovereign credit update on India.

The agitation also showed the resilience of India's democratic system, it said.

“The most recent policy battle — over the anti-corruption Lokpal Bill —provides vivid evidence of the strengths of India's democracy (vociferous and organised dissent that checks Government actions) and its challenges (protracted negotiations before any initiatives can be implemented),” Moody's said.

Besides corruption, the agency mentioned bureaucratic logjam and slow pace of judicial decision-making as factors hindering the Indian economy.

‘Predictable Drawbacks'

“There are some predictable drawbacks to a system engineered to manage a vast and diverse country — decisions through the bureaucratic apparatus still move slowly and the judicial system is burdened with a huge backlog of cases. Moreover, in functioning as a conduit for vastly diverging interests, policies suffer from a prolonged negotiation period and the addition of caveats.”

According to the agency, domestic business confidence and foreign inflows may suffer in the wake of a global slowdown and called for policy actions to deal with it. “At this point, policy actions to spur future investment may best guard India's growth against the confidence impact of a global slowdown,” it said.

Despite various drawbacks, the country's democratic system, a free press and well defined system of checks and balances allows the political process to build a consensus regarding the interest of a billion-plus population of diverse culture, ethnicity and economic inequality, the report said.

On the economic front, Moody's said the Government's target of reducing fiscal deficit to 4.6 per cent of GDP in 2011-12, down from 4.7 per cent in the previous fiscal, is unlikely to be met.