India lacks business ethics

Ritesh Kumar Singh Prerna Sharma | Updated on September 04, 2013 Published on September 04, 2013

India is avoidable, not ‘incredible’, for the foreign tourist.



Businesses short-change customers and other businesses. Finally, a breakdown of trust boomerangs on them.

In a market economy, the customer is supposed to be the ‘king’ who determines what to produce, how to produce and by whom to produce. The economic wheel moves around his whims and fancies. Businesses which disregard the wishes of their customers fade away into oblivion, says management books. Yet, customers across all regions of India are taken for a ride by unethical business practices.

At a time when businesses are trying hard to retain their customer base from losing it to competition, it makes sense to ponder how poor treatment of customers affects them or does it affect them at all? Otherwise, what is the rationale behind the ever-growing number of consumer complaints against suppliers of goods and services, from builders, brokers of financial products, retailers and travel agents to telecom service providers?

What do you say of a vendor who dilly-dallies in taking back a defective product, or refusesto refund for services not rendered, or a pharmaceutical company that introduces a drug without fully complying with guidelines of clinical trials? What are the implications of doing business without business ethics? Is it only a cost to the customers at the receiving end?

Maybe ‘yes’ in the short run, but over a longer period, it hurts businesses in an increasingly globalised commercial environment, where customers across regions are connected through ever expanding social media. Besides, during slowdown, unsatisfied customers dump unethical businesses first and add to their miseries.

Breakdown of trust

Business thrives on (good) reputation. Treating one’s client unfairly strikes at the root of one’s reputation. Deterioration in reputation leads to decline in the number of clients a business organisation has, with adverse implications for its top and bottomlines. Yet, bad treatment of customers continues. The best example is tourism.

In 2011, India received only 6.5 million foreign tourists as compared to 57 million in China, according to World Bank. Forget China, India could not match even a smaller country, Malaysia (25 million). Given our diverse geographies and rich cultural heritage, this figure is shamefully low by any standard.

From airport to taxis, hotels, shops and tour guides – all try to fleece innocent tourists (more so if they are foreigners) in a country that claims to practice atithi devo bhava (a guest is likeGod). It has tarnished India’s image as a favoured tourist destination. Growing sexual assaults against women tourists worsen the already bad situation.

Financial services are another sector that cannot afford to lose its customer trust. Yet, frauds (the latest example is NSEL fiasco) are becoming a regular feature. Trust deficit will impede the future growth of the sector.

According to the latest Annual Report of the RBI, only a fourth of the household savings went into financial channels in 2012-13. Of that, a mere 3 per cent flowed into equity and mutual funds, while 57 per cent went into the low risk fixed deposits, primarily because most people don’t trust India’s financial markets that are prone to frauds and scams.

The story of housing sector is no different. Raising prices in a period of slackening demand to retain investor interest, default on features or delivery time and unhindered use of black money in the purchase and sale of properties is driving middle class home buyers out of the market.

Besides, exploitation of hapless customers may prompt tougher regulation from government – such as the proposed housing regulator with stringent penalties for defaulting builders. That will add to the cost of doing business, force a hike in prices and ultimately lead to erosion of sales and profits.

It is not only customers, who are at the receiving end. Businesses treat other businesses badly. Not making timely payment or refusing to pay one’s vendors on flimsy grounds is a common occurrence.

Cultural factors

Max Weber in his magnum opus Protestant Ethic and the Spirit of Capitalism showed that values determined social action and culture shaped economic development.

Discipline, pursuit of wealth and abiding by contracts led to growth of capitalism in the west. In India too, Marwaris, Gujaratis in North and West and Chettiars in South could succeed initially because of cultural orientation towards hard work and entrepreneurship.

Is moral degeneration in an increasingly consumerist society like ours responsible for ignoring its cultural best practices — with implications for doing business environment? Perhaps, but what about India’s record on contract enforcement?

As shown in the table, below, India is above only Timor when it comes to enforcing contracts.

The problem lies in our poor contract consciousness as a society. How many of us ever read the ‘apartment buyers contract’ when booking an apartment, or read the disclaimer given at the end of the application form for opening up a Demat account? Slower judicial decisions leads to ‘de facto’ ineffective enforcement of tort laws.

Compensations are often delayed or low when compared to the extent of injuries as well as the time and money spent in fighting cases. That discourages the aggrieved parties from resorting to legal proceedings. At the same time, it ensures ‘de facto’ immunity to the defaulting parties.

The way forward

In a welfare-oriented democratic polity like ours, the government cannot remain a mere spectator. A system of online filing of complaints will improve complaint registration and empower unorganised customers against unethical business practices.

Further, India needs tough regulators for high complaint sectors, like real estate and travel and tourism. Tightening tort laws and providing for class action suits will dent fraudulent business practices.

However, tough regulation alone will not be enough. Attitudinal changes are needed if one wants value for one’s money. Aggrieved customers must raise their voice against deficiency in services at all forums, starting from social media to consumer courts.

Above all, businesses must realise that the key to sustained growth in top and bottom line is ethical business practice. They can ignore it at their own peril in an intensely competitive business environment.

(Singh is Group Economist of a corporate house. Sharma is a research analyst of a global financial services firm. Views are personal.)

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Published on September 04, 2013
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