India’s struggle against corruption: what could the LokPal bill mean for companies and investors?

Anna Hazare’s campaign could start to break the cycle of graft.

The Indian Ministry of Finance estimates economic growth of 8.5% for 2010-11, representing an increase from the previous year’s 8 % growth rate. ‘Growth’ in India has, however, been uneven across various social and economic sections of society. According to the revised official poverty line estimates of 2010, around 37.2% of population remains poor. One major issue – corruption – is undermining efforts to reduce poverty and promote sustainable growth. Prime Minister, Manmohan Singh, in a speech delivered at the Golden Jubilee celebrations of the Indian Institute of Management (IIM), in August this year spoke about India’s potential to become the world’s third largest economy by 2025 in line with what South Korea, China and Japan have achieved in the last few decades. He also talked about the challenges the country faces to make this a reality. Unfortunately these challenges look much bigger than those that Japan, China or South Korea faced. Inflation in India may be reaching double digits and interest rates have reached a level where they could start to hurt growth. But the real problem is the number of corruption scandals that have unfolded in the last two years, and the monumental losses associated with each of them. These scandals have diverted the attention of policymakers away from the reforms that are necessary to maintain Indian growth. There are signs of a significant pushback though via the social movement started earlier this year when Indian social activist Anna Hazare went on hunger strike to pressure the Indian government to enact a stringent anti-corruption law known as the Jan Lokpal Bill. It includes the institution of an ombudsman with the power to deal with public corruption in public places. The government has issued a gazette notification on the formation of a joint committee, consisting of government and civil society representatives, to draft the legislation.Some of the corruption cases that led to the Jan Lokpal Bill included:

  • The 2G spectrum scandal: The possible loss estimated to the exchequer has been Rs. 1.76 lakh crore (€27bn). Some of the big names involved were then Telecom minister A. Raja, Member of Parliament Kanimozhi, Unitech chief Sanjay Chandra , DB Realty founder Vinod Goenka and many more high profile people.
  • Adarsh Housing (2010): Indian media revealed violations in construction and allotment of apartments in the Adarsh housing society, a high rise constructed in Colaba, a locality of Mumbai. These apartments were meant for war widows and veterans of the Kargil war, but only 3 Kargil martyrs were allotted flats. It led to the resignation of then Chief Minister, Ashok Chavan.
  • Commonwealth Games (2010): Allegations included mismanagement of funds, corruption, infrastructural compromise, delay in completion of work. The loss estimated is Rs.8000 crores (€1.2bn). Suresh Kalmadi, former chairman of the organizing committee for the Delhi Commonwealth Games, have been arrested so far and investigations are still on.
    Other corruption scandals included: Cash for votes (2008), Satyam (2008), Fodder scam (1996), etc.

Existing Indian legislation is already equipped to fight corruption: the Prevention of Corruption Act was introduced in 1988. The law covers extortion and active or passive corruption. In 2002, the Prevention of Money
Laundering Act was also passed. Another key development in India’s legislation was the formation of the Right to Information Act 2005. Under the provisions of the Act, any citizen may request information from a “public authority” which is required to reply within 30 days. However, the country’s record of corruption is testimony to the fact that these legislations are poorly implemented. The LokPal Bill could be the robust and systematic review of legislation – with a proper mechanism for execution – that is required. It should be noted though that a “Lokpal Bill” has been pending in the Indian parliament since the 1960s, a reminder of the daunting and prolonged nature of the problem. Parliament principally agreed to pass a few of Anna Hazare’s key demands. The legislative body against corruption, will, if passed, be directly accountable to the public. The authority administrating it will be independent of the Government, thus introducing some serious ramifications to the functioning of ‘business as usual’.For many years weak laws pertaining to land, water, forests, biodiversity, pollution, mining rights and human capital have been hugely exploited, even by India’s most respected companies. The LokPal bill could revolutionalise the way Indian corporates do business. Big companies may no longer be not be able get away with ESG violations or benefit from favoritism and government lobbying. Moreover, the Jan Lokpal bill movement is itself largely driven by India’s new corporate middle class. These people are educated, intelligent and smart. They are also frustrated with how India functions. In future, corporations could face increasing pressures from this class for transparency and accountability. Whether the Jan Lokpal Bill is passed as it is or with modifications, India is set for major reforms against corruption. This bill is merely the starting point, but it is a bold step in the right direction.

Ashamdeep Kaur is an analyst at Solaron Sustainability Services