Many executives in India would agree that high-level political corruption in India has decreased significantly during the first two years of Prime Minister Narendra Modi’s regime, a welcome development by any measure.
Modi, left, who’s expected to address a joint session of Congress on June 8, was carried to office in part on the wave of anti-corruption sentiment that has produced a number of political and legal reforms in India.
As with the anti-corruption program in China, it’s easy to get excited at a few politically motivated enforcement cases which are really little more than score settling or political maneuvering, such as the persecution of South Indian businessman Vijay Mallya. There are still outrageous cash-for-votes scandals, and Modi will reportedly face questions about corruption and religious tolerance from U.S. lawmakers. But anecdotally, it’s fair to say tolerance for high-level corruption has diminished considerably in the last two years.
The actual daily challenges faced by businesses, however, have scarcely changed. Dealing with the grind of bureaucratic harassment and petty demands actually may have become worse. How?
“Although India has done away with the license raj, inspector raj continues to some extent,” said Raghuram Rajan, the highly respected head of India’s central bank, the Reserve Bank of India (“RBI”).
India has largely liberalized foreign investment across most sectors by doing away with the Socialist-inspired regulatory system known as the License Raj, it has left unchecked the routine functions of a bureaucracy notorious for its inefficiency and corruption. The government has imposed performance targets (such as showing up to work on time, and, oddly, not playing golf) that have at least put bureaucratic bodies in seats during business hours. The targets, however, have encouraged zealousness and a fear to make legitimate adjustments to business realities.
Routine inspections by small-time officers who have their hands out, multiple licenses required for something as simple as stocking produce on shelves, and arcane and conflicting compliance requirements leave ample opportunity for discretion – and bribery.
Rajan has proposed replacing the thicket of routine permits and inspections necessary for routine business operations with a system of self-certification.
Such routine compliance inspections and permits are the primary risks companies face doing business in India. Walmart’s problems in India are a classic example of low-level hurdles companies must surmount to operate and grow in this otherwise promising market.
It also is becoming more difficult and dangerous to expose and discuss corruption publicly. The Modi regime is famously thin-skinned about any public criticism, and has been accused by many of attempts to dampen free speech.
And there are significant efforts underway to weaken the Right to Information, which has played a critical role in exposing low-level bureaucratic corruption throughout the country, often at the expense of the lives of those reporting it.
Decreasing grand corruption is an essential goal, but it can be achieved simply through centralized control rather than a widespread, democratically supported cultural change. The results can look similar.
For now, riding the anti-corruption mood in India has suited the Modi government’s obvious desire to purge the unwanted and to consolidate its political power. When the day-to-day compliance risks faced by companies doing business in India decrease, we will have a better idea of the current regime’s actual progress in reducing corruption.
Russell Stamets is a Contributing Editor of the FCPA Blog. He was the first non-Indian general counsel of a publicly traded Indian company and was general counsel for a satellite broadcasting joint venture of a large Indian business house. He’ll be a speaker at the FCPA Blog NYC Conference 2016.