India has opened its economy after years of virtual closure and enjoys a relatively stable political climate and strong economic growth. Significant governance challenges remain, however, as India continues to struggle with huge social, political, economic and environmental problems aggravated by corruption as well as communal, caste and regional tensions. The Bertelsmann Foundation 2008 states that India's political system is characterised by deep-rooted patronage systems and by a bureaucracy with an interest in maintaining discretionary policies. Corruption is reported to be spreading in all sectors of Indian society and to be entrenched at every level of public administration. The country has established a series of constitutional, legal and institutional provisions aimed at combating corruption. However, while there is no shortage of anti-corruption bodies and legislation, both Bertelsmann Foundation 2008 and Global Integrity 2008 note that government initiatives to curb corruption at the institutional level face an enormous implementation gap when it comes to their practical effects. Moreover Transparency International has continually cited the lack of political will to enforce and implement anti-corruption measures as the main explanation for the lack of genuine progress in the fight against corruption. Politicians are in fact the most visible perpetrators. Transparency International 2008 states that political corruption is not confined to monetary transactions, but extends to making promises to secure votes, helping colleagues by awarding them with positions of authority, and manipulating the law to help interested parties.
Prime Minister Manmohan Singh is now serving his second term after his party, the Congress Party, won a huge victory in the 2009 parliamentary elections. During his first term, Singh declared the fight against corruption to be a priority. However, commentators agree that the governmental campaign has not resulted into systemic changes. Instead, sporadic crackdowns on corrupt officials occur, and opposition parties regularly accuse governing parties and federal and state officials of corruption. After the 2009 elections, the Congress Party is now less dependent on allies for ruling the country and is therefore expected to leverage its majority to bring about substantial and bolder reforms than in the past. As the means to enhance economic growth and reduce poverty, commentators highlight the need for simplifying public administration, enhancing its efficiency and curbing widespread corruption within all levels of government, as a top priority for the Singh's second term in office. Politicians and civil servants are known for accepting bribes or engaging in other corrupt behaviour, but investigations are rare and few have been convicted of corruption. Political parties and Members of Parliament (MPs) are required by law to disclose their sources of income and financial assets. However, according to Freedom House 2009, MPs with links to organised crime or whose election victories were dependent on unreported funding continued to serve as legislators, as still do a number of MPs who face serious criminal charges.
On a positive note, the Right to Information Act 2005 has reportedly improved bureaucratic transparency by giving citizens better access to records. According to Newsweek, during the 2009 election campaign, the Congress Party actually urged Indian youth to make full use of the law and expressed the will to expand the scope of the law and to make it more effective. The Supreme Court has also been asserting itself as an upholder of the constitution and has taken significant steps in the fight against corruption, such as challenging a legislative immunity provision and demonstrating its independence by ordering retrials or reviews of previously closed cases deemed to have been politically influenced and biased. However, despite such positive steps, bribery thrives among high-level politicians and bureaucrats and the majority of citizens agree that the use of bribes cannot be avoided when one interacts with the public administration. This is confirmed by the Transparency International Global Corruption Barometer 2009, in which political parties, Parliament and public officials are being perceived as the most corrupt entities in India. Still, however, the public perception regarding the government's fight against corruption is fairly mixed, with 45% of the respondents considering it to be ineffective and 42% to be effective.
Business and Corruption
With its skilled and relatively low cost labour, coupled with a developed infrastructure, India offers an attractive market for foreign investors. According to A.T. Kearney's FDI Confidence Index 2007, India is ranked as the second most attractive destination for foreign direct investment (FDI) in the world, with FDI continuing to represent the fastest growing component of GDP. India's economy has grown substantially over the past two decades, with a corresponding increase in GNI per capita, albeit there are great regional disparities in development, infrastructure, corruption and the ease of conducting business. India is slowly increasing its world market shares of exports and has thus been included in the Transparency International's Bribe Payers Index, which ranks the world's leading exporting countries according to the propensity of their companies to bribe abroad. The 2008 edition of the index shows a slight improvement, but Indian companies are still among those most likely to resort to bribery when operating in foreign markets.
According to the World Bank & IFC Enterprise Surveys 2006, companies cite excessive regulation and high levels of corruption as a major constraint to doing business in India. Companies surveyed by the World Economic Forum Global Competitiveness Report 2008-2009 confirm that corruption is a continuing obstacle to private sector development, ranking corruption as the third most problematic factor for doing business in India, after inadequate supply of infrastructure and inefficient government bureaucracy. According to some foreign business representatives in India, corruption risks stem from a lack of transparency in the rules of governance, extremely cumbersome official procedures and excessive and unregulated discretionary power in the hands of politicians and bureaucrats. For example, in a 2008 International Herald Tribune interview, a businessman reported that he was required to obtain nearly two dozen licences related to, among others, health and safety, labour laws and pollution. Each licence reportedly costs a few hundred INR, takes a year to renew and requires an INR 10,000 bribe. The businessman further reported that 23 departments have the power to shut down his company, and that maintaining good relations with public officials is crucial for business operations.
Companies experience corruption in every sector of the Indian economy, but studies show that the experience and perception differs depending on where they operate. India has a decentralised federal government system and regulation and corruption vary widely from area to area (see also this profile's special page on regional differences in corruption and the regulatory environment). Although clusters have been developed, such as in the New Delhi suburb of Gurgaon, where the business environment is relatively free from corruption, there is little doubt that corruption affects the business climate throughout India. This is exemplified by responses to the World Bank & IFC Enterprise Surveys 2006, which reveal that more than 47% of companies in India expect to pay bribes 'to get things done'. Corruption in the form of bribery, kickbacks from procurement deals, and tax evasion is widespread in the private sector. The government tried to bring these malpractices to an end by making it compulsory for all companies to have their books and accounts audited annually, and for external auditors to report fraud committed by the companies they audit. Notwithstanding the government efforts, a huge scandal involving India's 4th largest IT company by the end of 2008 has highlighted serious flows in this system, which allowed the company to 'cook the books' for USD 1.5 billion. Companies are recommended to develop, implement and strengthen integrity systems and conduct extensive due diligence.
Regulatory Environment
India's regulatory environment has been significantly simplified in most sectors and its investment regime is now among the most liberal in Asia. However, the efforts to further liberalise the economy have reportedly been limited by the practicalities of coalition politics. The UPA government has struggled to implement some of its economic policies because of tensions among its distinct coalition partners on issues such as the privatisation of public sector assets and labour law reform. Privatisation has significantly slowed since the new government took office in 2004 (see the Ministry of Finance Department of Disinvestment for more information on privatisation tenders). The Bertelsmann Foundation 2008 reports that coalition politics have led to a weakened federal control of states and several sources indicate that the resulting variance in regional regulatory environments corresponds with varying levels and types of corruption. For more information concerning these regional variations, see this profile's special page on regional differences in corruption and the regulatory environment. According to the World Economic Forum Global Competitiveness Report 2008-2009, the regulatory burden imposed on companies operating in India remains cumbersome, costly and time-consuming. However, major reforms have improved the regulatory environment, such as the computerisation of certain business-relevant administrative procedures. The business section and the section 'How do I?' on the government's National Portal of India are useful tools for companies seeking information on market entry and necessary licences and permits. Companies should also consult the website of the Investment and Trade Promotion Division of the Ministry of External Affairs for useful information and contacts for foreign investors.
Private local and foreign companies are allowed in nearly every sector of the economy. There are no requirements to employ Indian nationals and restrictions on employing foreign technicians and managers have been removed. However, the economy is still constrained by complex rules and a bureaucracy with broad discretionary powers. Business clearance by the authorities is therefore time-consuming and costly. According to the World Bank & IFC Doing Business 2009, setting up a company in India requires an average of 13 administrative steps, which may take as long as 30 days at a cost of over 70% of GNI per capita. The World Bank & IFC Enterprise Surveys 2006 reports that senior management can expect to spend close to 7% of its time dealing with the requirements of government regulation.
According to the Bertelsmann Foundation 2008, property rights are adequately defined, although the acquisition of new land for use by companies is reportedly very difficult, costly and heavily contested politically. The World Bank & IFC Investment Climate Assessment 2004 points to unclear land ownership, widespread institutional ownership, inflexible land use, unclear property rights and high transaction costs as constraints that create high land prices for companies. The regulatory burden and lack of flexibility means that relative land costs in New Delhi are 80% higher than those in Tokyo, Singapore, Jakarta and Seoul. Companies should also note that dispute settlement in India is time-consuming due to the massively backlogged and understaffed Indian courts. According to the Transparency International Global Corruption Report 2007, these delays are coupled with the cumbersome bureaucracy in the judicial system and fuel the use of bribes in relation to dispute settlement. In an attempt to speed up the settlement of commercial disputes, the Government of India has set up the International Centre for Alternative Dispute Resolution (ICADR) as an autonomous organisation under the Ministry of Law and Justice and Company Affairs. In an attempt to unify its adjudication of disputes over commercial contracts with the rest of the world, India enacted the Arbitration and Conciliation Act of 1996, based on the United Nations Commission on International Trade Law (UNCITRAL). India is not a member of the International Centre for the Settlement of Investment Disputes (ICSID), but is a member of the New York Convention of 1958. Companies are recommended to include provisions for international arbitration in their contracts. Access the Lexadin World Law Guide for a collection of legislation in India.
Regional Differences in Corruption and the Regulatory Environment
India exhibits great regional variations in the level and impact of corruption. India is a union of 28 states (plus 6 union territories and the capital, New Delhi). Each of the local governments holds wide legislative powers, including areas such as public procurement (see the Corruption Levels and Public Anti-Corruption Initiatives for more information) and anti-corruption bureaus. According to Transparency International India's study of petty corruption within 11 public services throughout India in 2005, corruption affects different sectors in different states. Some illustrative findings of the study are the following:
Kerala and Himachal Pradesh: Most public services in these states are ranked among the least corrupt in India.
Gujarat: The judiciary, the police and land administration are ranked as the most corrupt services in the state.
Maharashtra: Municipal services are ranked among the top five corrupt public services in India.
Punjab: The police, the judiciary and municipal services are ranked as the most corrupt services in the state.
Orissa: The judiciary ranks among the top four corrupt services in India.
Haryana: The police, the judiciary and municipal services are ranked as the most corrupt services in the state
Assam: The police are ranked as the most corrupt service in India.
Karnataka: The tax service, judiciary and the municipal services are ranked among the most corrupt services in India.
Jammu and Kashmir: Most public services are ranked among the most corrupt in India.
Bihar: All public services are ranked among the most corrupt in India.
Overall, the study ranks Kerala, Himachal Pradesh, Gujarat, Andhra Pradesh and Maharashtra as the five least corrupt states, whereas the most corrupt states are Bihar, Jammu and Kashmir, Madhya Pradesh, Karnataka and Rajasthan. It is important to note that the study ranks the states on petty corruption using information from a household survey rather than from a business survey, which would indicate how companies are affected by corruption in different states. Transparency International India & CMS 2007 indicate that households below the poverty line are disproportionately affected by corruption both in urban and rural areas.
Similarly, companies will find great sub-national variations in the regulatory environment. India has a decentralised federal system of government, where state governments hold broad regulatory powers. This means that important regulatory issues such as land-use and environmental regulations may vary from one state to another. A study by the World Bank & IFC, Doing Business in India 2009, includes a comparative study of the business environment in 17 major Indian cities. Some of the findings of the study are presented below:
Starting a business takes longest in Kochi (41 days) and in Bengaluru (40 days), whereas the same procedure in Noida is considerably less time-consuming (30 days). However, it is also pointed out that starting a business in Patna is less costly than in Bengaluru (38.6% of income per capita, versus 64.7%).
Hyderabad requires the lowest number of days to fulfil all regulatory requirements to build a warehouse (80 days) compared to Kolkata (258 days), which performs worst in this category among the cities studied. The cost of obtaining licences for building a warehouse is lowest in Patna (277% of income per capita) and highest in Calcutta (1,999% of income per capita).
Registering property is faster in Gurgaon and Koch (26 and 27 days respectively) than in Kolkata (107 days) and Bhubaneshwar (126 days). However, the cost of property registration is lowest in Ranchi (5.4% of property value) and highest in Noida (25.4% of property value).
Trading across borders in India is characterised by a cumbersome bureaucracy, but again, regional differences are substantial. Importing and exporting operations run most smoothly from Bhubabeshwar's port (16 days to import, 17 days to export) closely followed by Chennai (19 days to import, 18 days to export). Import-export operations take longest time in Mumbai (41 days to import, 25 days to export).
Commercial disputes before courts in India are among the most lengthy in South Asia. Again, Indian cities perform differently in the area of contract enforcement, with the shortest durations found in Guwahati (600 days) and Kochi (705 days) and the longest in Ahmedabad (1,295 days) and in Mumbai (1,420 days).
More than 50% of responding companies report in the World Bank & IFC Investment Climate Assessment 2004 state that corruption and excessive regulation are major obstacles for doing business in India. In the states of Gujarat and Karnataka, this figure is 62% and 64% respectively. However, the same study shows that these two states are among the six Indian states identified by companies as having the most favourable investment climates in India: Maharashtra, Delhi, Gujarat, Andhra Pradesh, Karnataka, Punjab, Tamil Nadu and Haryana. These sates attract almost all foreign direct investment in the country, underscoring the fact that issues other than corruption also affect the investment climate, such as uneven development and regulation as well as poor infrastructure.
Responses to corruption vary from one local government to the other as well. The states of Bihar and Orissa, for example, have passed legislation that enables the state governments to confiscate the property of civil servants with disproportionate assets even before the courts have ruled on the case.
Corruption Levels
Sectors (Judicial System, Police, etc.) describe which kind of corruption can be encountered in different areas. This section covers various forms of corruption, including bribes and facilitation payments. All information is based on publicly available information and should be viewed as general guidelines on the types of corruption existing in the country. Levels of corruption in the different sectors indicate where corruption can be encountered. The levels are defined as follows:
Individual Corruption: Corruption that takes place primarily in relations between individual citizens and public officials and authorities.
Business Corruption: Corruption that takes place primarily in relations between enterprises/companies and public officials and authorities.
Political Corruption: Corruption that takes place in the higher echelons of public administration and on a political level.
Frequency refers to quantitative surveys on corruption in the respective sectors.
Judicial System
Individual Corruption
The judiciary, particularly at the lower levels, is reportedly rife with corruption, and most citizens have great difficulty securing effective and fair case resolution through the courts. Citizens report that court procedures are very slow and complicated and that the court system fuels the use of bribes and other kinds of influence-peddling. People give bribes to obtain a favourable judgment, but bribes are also used to influence public prosecutors. Bribes are reportedly paid to move a case more rapidly through the system. Generally, the majority of users pay bribes directly to lawyers and court officials, but middlemen, public prosecutors, and judges are also listed as common recipients of bribes.
According to India's Chief of Justice Mr. Balakrishnan, the public distrust in the judicial system has caused a decrease in the number of civil disputes brought before the courts in favour of more informal types of dispute resolution.
Business Corruption
There are indications that when interacting with the judiciary, companies are faced with the same problems of cumbersome bureaucracy and corruption as ordinary citizens. The court system is severely backlogged and understaffed and, according to Freedom House 2009, there are currently more than 38 million pending civil and criminal cases - many of these being disputes involving companies. Although computerisation has enhanced the efficiency of the courts, enforcing contracts is still so time-consuming that the World Bank & IFC Doing Business 2009 reports that India is close to the worst economy in the world in terms of enforcing commercial contracts. Despite government efforts to the contrary, companies continue to deal with a cumbersome judicial bureaucracy. According to Transparency International 2007, these complicated legal procedures fuel the use of bribes in the justice system as a whole.
Political Corruption
The higher judiciary in India is usually considered to be more clean and transparent than the lower levels of the judiciary. According to Transparency International 2008 the Supreme Court is taking both political and general corruption seriously and bringing the issues into its judgements. However, there are but few recent examples of corruption and political protection of High Court and Supreme Court judges involved in problematic cases of judicial favours. In recent years, judges have initiated several contempt-of-court cases against activists and journalists, raising questions about their misuse of the laws to intimidate those who expose the behaviour of corrupt judges or question verdicts. Some observers report that the appointment of judges is not entirely free from political interference, although other observers estimate that India performs well in relation to independence of judicial institutions. As for public prosecutors, there are reports of vacancies being filled by a sort of 'auction process' where the person paying the highest bribe is hired.
According to Transparency International 2007, evidence from specific cases indicates that the judicial system occasionally protects persons close to the party in power. Furthermore, it has been observed that corruption in justice institutions is systemic due to the high level of discretion in the processing of paperwork during trials. This means that court clerks, prosecutors and police investigators frequently misuse their power without fear of repercussions. In February 2009, an impeachment notice was admitted against Justice Soumitra Sen from Kolkata, a High Court judge, for allegedly depositing fines related to a lawsuit into his personal bank account. The impeachment process was still ongoing at the time this country profile was published.
Frequency
The World Bank & IFC: Doing Business 2009: - Enforcing a commercial contract through Indian courts requires a company to go through an average of 46 administrative procedures, takes an average of 1,420 days and costs more than 39% of the claim.
- 26% of households surveyed consider the judiciary to be 'extremely corrupt'.
- 17% of households who had contact with the judiciary in 2008 report to have paid a bribe.
World Economic Forum: The Global Competitiveness Report 2008-2009: - Executives give the judiciary in India a score of 4.9 on a 7-point scale (1 being 'heavily influenced' and 7 'entirely independent'), when asked to rank the systems independence from political influence in their country.
- 58% citizens believe that the judiciary is not committed to curbing corruption.
- 61% of bribe payers bribed a lawyer.
- 29% of bribe payers bribed court officials.
Police
Individual Corruption
According to the Transparency International India & CMS Household Study 2007 and the Transparency International Global Corruption Barometer 2007, an overwhelming majority of Indians perceive the police as corrupt and have direct experience of being asked to pay bribes when interacting with police officers. Citizens generally agree that corruption within the police force is on the rise. The most common services for which bribes are paid is for filing complaint and FIR (First Information Report: a record of an alleged crime), as an accused, to remove name as witness, to obtain a passport, for verification, for verification for a job, for a character certificate, or when in violation of traffic laws.
Business Corruption
Companies are also not immune from police extortion. This is backed by data from the World Economic Forum Global Competitiveness Report 2008-2009, where reliability of police services is listed as a notable competitive disadvantage for India.
A 2006 study by Marketing and Development Research Associates (MDRA) & Transparency International India reveals that trucks transporting goods through India struggle with corrupt police officials at checkpoints. Truck drivers must pay bribes at every stage of their operations, e.g. obtaining permits and certificates, for traffic violations and for toll payments. Truck drivers pay an average of INR 235 a day in bribes to the authorities, mostly police, which has to be added to companies' operating costs. Truck drivers state that the average trip requires payment of INR 1,500 to either the police or licence departments. 90% of this amount is unaccounted for and is paid as bribes to the above-mentioned authorities. The police and the department offices where drivers obtain various necessary licences are the key agencies for ensuring uninterrupted traffic flow. However, the study concludes that these agencies are in fact the main recipients of bribes.
Political Corruption
Partly due to high levels of politicisation, police recruitment across India is rife with corruption, and political supporters are sometimes granted positions in the police force. In an attempt to root out corruption in Uttar Pradesh, the state's newly-elected chief minister has set up inquiries into irregularities, nepotism and bribery in police recruitment. This has led the provincial government to dismiss 10,000 police officers over alleged irregularities in their recruitment processes.
In October 2008, police officials were arrested in New Delhi for allegedly taking bribes and extorting money from businesspeople. Shop owners were allegedly forced to pay sums ranging from INR 500 to INR 300 each as 'protection money' on a monthly basis.
World Economic Forum: The Global Competitiveness Report 2008-2009: - Executives give the reliability of police services a score of 4.4 on a 7-point scale (1 being 'cannot be relied upon to enforce law and order' and 7 being 'can be relied upon to enforce law and order').
Transparency International India & CMS: Corruption Study 2007: - 48% of households availing the services of the police in the last one year report having paid bribes - the highest figure among the institutions surveyed (16% used a contact and 4.5% did not take the service because asked for a bribe).
- 78% of households surveyed perceived the police to be corrupt.
- 92% of bribes are reported by households to be paid directly to police officials and 8% through a middleman.
- It is estimated that a total of INR 2,150 million is paid bribes per year to the police.
Licences, Infrastructure and Public Utilities
Individual Corruption
The Transparency International India & CMS Corruption Study 2007 together with the Transparency International Global Corruption Report 2008 reveal that citizens are often exposed to corruption when interacting with public agencies responsible for the provision of electricity and water. A majority of users perceive the Electricity Department and the Water Supply Department to be corrupt, and almost half the responding households believe that corruption is on the rise within these departments. Simple services, such as connecting to the water system or paying electricity bills, are ranked as the most common services for which bribes are paid. Nevertheless, there is a significant difference between perceptions and experience with corruption in these areas.
Business Corruption
Companies report that the administrative procedures surrounding the provision of public supplies, such as water and electricity, are generally cumbersome. As in the case of ordinary citizens, companies should prepare themselves for these administrative procedures that are often followed by demands for facilitation payments. This is confirmed by the World Bank & IFC Enterprise Surveys 2006, in which a high number of companies report that they expect to give gifts in return for access to a range of public utilities, licences and permits (see Frequency).
Political Corruption
According to the US Department of State 2009, public procurement regarding telecommunication and power has been particularly subjected to allegations of corruption over the past 8 years, and several government employees and public figures have been indicted or convicted.
Corruption in large infrastructure projects is considered to be a major problem in India. Bribery of high level officials and intimidation of potential bidders are common methods of obtaining contracts within the Indian construction industry. Subcontracting to small contractors who do not have the capability to execute major infrastructure projects is common, thus lowering the quality of public works.
In 2008, N. Chandrababu Naidu, leader of the opposition in the Andhra Pradesh assembly, charged the Congress Party government in the state for being 'neck-deep in corruption'. He alleged that Chief Minister Y.S. Rajasekhara Reddy and his cabinet colleagues were involved in the misappropriation of billions of INR under a massive irrigation programme launched by the government. Naidu claimed that the ministers had become subcontractors to get contracts worth INR 400 billion for the irrigation projects. None of the ministers charged have been prosecuted.
Frequency
The World Bank & IFC: Doing Business 2009: - To construct a warehouse, a company must go through 20 procedures and spend 224 days to obtain the required licences and permits at a cost of 414% of GNI per capita.
- 52.5% of the surveyed companies report that they expect to give gifts in order to obtain an operating licence.
- 20% of the surveyed companies report that they expect to give gifts in order to get a phone connection.
- 39.5% of the surveyed companies report that they expect to give gifts to obtain an electrical connection.
- 26.5% of the surveyed companies report that they expect to give gifts in order to arrange a water connection.
Land Administration
Individual Corruption
Citizens report that the Land Records and Registration Department is one of the most corrupt public services in India. Obtaining an income certificate, obtaining land record, sale/purchase deed, mutation, land survey, caste certificate and property tax are services that are frequently accompanied by demands for bribes.
Business Corruption
Establishing a business requires various licences and permits, such as registration and allotment of land, land use permits, environmental site approval and approval for construction activity. According to the World Band & IFC Doing Business 2009 the average time required to obtaining these permits has been lowered compared to year 2008. Several observers point to the lack of flexibility in the Indian system of land transfer and the many encounters with public officials which opens the way for them to demand bribes. According to the US Department of State 2009, the legal system places a number of restrictions on transfer of land with unclear titles, which complicates any land transaction. Critics point to the absence of a reliable system for recording secured interest in property, which makes it difficult to use property as collateral. This lack of transparent and consistent regulation creates wide discretionary powers for public officials.
Political Corruption
In 2003, the Central Bureau of Investigation (CBI) opened a case against former Uttar Pradesh Chief Minister Mayawati, the environment minister and four other senior officials for diverting a river and reclaiming land for the construction of shopping malls, shops and amusement facilities near the Taj Mahal complex. A grant of land free of cost was awarded to Jaypee Industries to construct an eight-lane expressway linking Agra to New Delhi. The state government waived a stamp duty worth around INR 500 million and also gave the contractor exclusive rights to construct commercial hubs and five-star hotels along the expressway. They had not obtained planning consent, had released more than INR 17 million without sanction and had ignored other procedures. It was reported that some INR 175 million disappeared during the so-called Taj Heritage Corridor scam. After investigation, the case was recommended for prosecution.
Mayawati returned to office as Chief Minister in Uttar Pradesh after the election of May 2007. On 3 June 2007, the competent authority refused to prosecute Mayawati claiming that there was a lack of evidence, which subsequently sparked public interest litigation. As for May 2009, the case is still in progress at the level of the Supreme Court with Mayawati pleading to have the corruption case against her scrapped on the charge that the case is politically motivated and illegal.
Frequency
The World Bank & IFC: Doing Business 2009: - Registering property in India requires a company to go through an average of 6 administrative procedures, which takes an average of 45 days and costs 7.5% of the property value.
- 43% of households consider grand or political corruption in land matters to be a 'very serious problem'.
- 52% of respondents consider bribes to land authorities to obtain favourable decisions a 'very serious problem'.
Transparency International India & CMS: Corruption Study 2007: - 36% of the households availing the services of the Land Records/Registration during the previous year report having paid bribes - the second highest figure among the institutions surveyed (9.7% used a contact and 4% did not take the service because they were asked for a bribe).
- 69% of the households surveyed perceived the Land Records/Registration to be corrupt.
- 82% of the bribes are paid directly to the Land Records/Registration officials, while 17% of the bribes are paid through a middleman, as reported by the surveyed households.
- It is estimated that a total of INR 1,240 million is paid bribes per year to the Land Records/Registration.
Tax Administration
Individual Corruption
Citizens report that corruption thrives within the Income Tax Department. Officials deliberately stall administrative procedures, inducing citizens to pay facilitation payments. The majority of people who claim to have paid bribes to tax officials have paid to ensure compliance with income tax rules and to obtain tax refunds. However, bribes are also paid for under-assessments and penalty reductions among other favours. In general, people pay directly to income tax officials or to chartered accountants, who subsequently bribe tax officials.
Business Corruption
Companies frequently interact with tax officials, who visit plants to carry out inspections. These officials enforce the complex tax rules and regulations relevant for business operations and enjoy considerable discretion in deciding which rules to enforce, to whom these rules should apply, and when and how they should be used. Companies report that inspection visits are often arbitrary and excessive, at times serving as avenues for demanding bribes. Many companies choose to pay off tax officials in order to avoid disruptions in production schedules and staff time. Consequently, the majority of companies surveyed in the World Bank & IFC Enterprise Surveys 2006 report that they give gifts in their meetings with tax inspectors.
Political Corruption
Tax evasion by politicians, bureaucrats and businessmen in India is common. Reportedly, a sum of more than USD 1.4 trillion has been deposited in Swiss banks into personal accounts belonging to Indians. Allegedly, most of this wealth is misappropriated public money and has been acquired through corrupt means, leading to demands for the money to be returned to India for debt and poverty relief. The Government of Germany has offered its help to share information with India concerning some rich Indians who hold secret accounts in the tax haven of Liechtenstein. Much to Transparency International India's disappointment, the government appears reluctant to accept the offer.
Frequency
The World Bank & IFC: Doing Business 2009: - A medium-size company operating in India must make an average of 60 payments to the tax authorities each year, taking an average of 271 hours.
- The total tax rate as percentage of profit is 71.5%.
- 66% believe that corruption within the department is on rise.
- 47% of those who claim to have paid bribes have paid directly to tax officials.
- 28% have made payments to chartered accountants who functioned as intermediaries.
Customs Administration
Individual Corruption
According to Global Integrity 2006, the customs department is generally viewed as rife with corruption, favouritism and nepotism. Corruption within the department affects ordinary citizens and, consequently, the department enjoys little credibility among the general public. This is confirmed in Transparency International's Global Corruption Barometer 2005, in which citizens rank the customs administration as the 5th most corrupt public institution in India.
Business Corruption
Companies can expect routine visits from customs inspectors. As in many other government sectors, customs inspectors hold considerable discretion in deciding which rules to enforce and to whom these should be applied. According to the World Bank & IFC 2004, inspection visits are often arbitrary and excessive, and companies view these visits as a technique of demanding bribes.
Time-consuming bureaucracy related to trade across borders also opens the way for public officials to demand bribes. A significant number of companies in the World Bank & IFC Enterprise Surveys 2006 report that they expect to give gifts to obtain import licences.
Frequency
The World Bank & IFC: Doing Business 2009: - A standard export shipment of goods requires 8 documents and takes an average of 17 days at a cost of USD 945 per container.
- A standard import shipment of goods requires 9 documents and takes an average of 20 days at a cost of USD 970 per container.
Companies face different procurement laws in different states, thus many companies find it difficult to operate in and between the complex procurement laws and procedures. Corruption in public procurement is thought to be worse at state level compared to the central level, primarily due to lack of qualified staff and political interference in the states.
See 'Licences, Infrastructure and Public Utilities' and 'Land Administration' for descriptions of corruption among contractors and high level officials in major infrastructure projects in India. See more on public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.
Political Corruption
Public procurement and contracting in India has been marred by major corruption scandals involving high-level politicians. In 2006 rampant fraud and corruption related to procurement within the health and pharmaceutical sector has led the World Bank to withhold major loans for health projects, particularly in relation to the national HIV/AIDS prevention programme run by the Government of India. Corruption in the procurement process led to the circulation and use of dud HIV/AIDS testing kits across the country and the subsequent infection of hundreds of Indians from contaminated blood transfusions. The World Bank's Anti-Corruption Unit also discovered that massive kickbacks were paid to Indian ministers and officials of the office of Union Health Ministry in its multi-million USD projects to reduce maternal and infant mortality. Since 2007, cooperation with the World Bank has slowly been re-established after the government promised strong action against corruption in public procurement in the health sector.
Over the years, major corruption scandals have emerged in the awarding of military contracts. For example, in 2001, the Minister of Foreign Affairs and his son were found guilty of misconduct related to the United Nations' Oil-for-Food Program in Iraq. The minister has been identified as a major recipient of kickbacks in the scandal and has used his ties to the Indian National Congress to secure oil contracts. In 2009, the chairman of the state-controlled Ordinance Factory Board was also arrested for taking bribes in exchange of military contracts. The scandal has resulted in the blacklisting of 7 major Indian and international arms dealers.
See more on public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.
- 24% of the companies surveyed expect to give gifts to secure a government contract.
Environment, Natural Resources and Extractive Industry
Business Corruption
Observers point to the fact that ships containing toxic chemicals are allowed to enter Indian waters in connection with salvaging, even though the import of toxic ships for scrap is illegal. Ship-breaking is a major industry in India and there are rumours that bribes to local customs authorities and coast guards pave the way for the illegal inflow of toxic ships. The Government of India has made gas-free certificates mandatory in an effort to improve conditions for the workers. However, observers report that companies involved in ship-breaking are able to obtain these certificates and other permits by outright bribery or on the black market.
Corruption and looting in India's mining sector is reportedly common. Fixed bidding and kickbacks on mining contracts are reportedly also common. Mining companies, such as Jammu Kashmir Minerals Ltd (JKML) operating in the corrupt and unstable Kashmir state, have been accused of undervaluing gems and other resources in auction processes to benefit certain traders and high level officials. JKML, despite the potential of massive profits from its holdings, including vast sums of sapphire, remains dependent on government aid and is unable to pay its employees for months on end. Suspicion has also been raised over JKML employees accused of being involved in profitable smuggling rings in Kashmir. Corruption in the sector and the absence of accountability have taken their toll on the mining industry and in some cases prevented what could be valuable development.
According to Transparency International 2008 corruption is estimated to add at least 25% to irrigation contracts. The rise of cost induced by corruption has made the irrigation system inefficient and small farmers are the group which has suffered most.
Political Corruption
According to Greenpeace, there are indications that central and state level politicians are involved in corruption linked to the circumvention of Indian environmental legislation related to the Basel Convention, which regulates international ship-breaking.
In 2006, a reporter from the newspaper Asomiya Khabar, in the state of Assam, was murdered following a series of articles exposing corruption among forestry service officials. The reporter, Prahlad Goala, had accused the officials of having links to timber smuggling.
- Approximately 13% of BPL households that interacted with forest related service either paid bribe or used contact to avail the service during the previous year.
Public Anti-Corruption Initiatives
Legislation: The Prevention of Corruption Act 1988 and its 2008 amendment is a specialised law aimed at curbing corruption in India. It criminalises corruption in the public and private sector in the form of active and passive bribery, extortion, bribery of a foreign public officials and abuse of office. Public servants' involvement in private sector activities is also restricted by law. Moreover, a Prevention of Money Laundering Act has been in force since 2002. Companies operating in India should familiarise themselves with relevant federal level laws, but should bear in mind that laws in key areas may differ from state to state (see this profile's special page on regional differences in corruption and the regulatory environment). Consult the homepages of the state governments to obtain information on specific state laws. The Right to Information Act (RTI Act), which took effect in October 2005, has played a central role in the fight against corruption in India. According to the RTI Act, citizens have the right to access government documents within 30 days from the filing of the request. Thereby, a mechanism of control of public spending has been granted to ordinary citizens. Some commentators are enthusiastic about the effects of the RTI, while others point at the difficulty citizens from rural areas have to make full use of the law and to the need of making citizens and public servants more aware of the RTI. Read more about the RTI Act and different views about its implementation on the Transparency Reviews regularly published by the Centre for Media Studies. Access the the Lexadin World Law Guide for a collection legislation in India.
Government Strategies: Every year a 'Vigilance Awareness Week' is observed by public authorities to make people and stakeholders aware of the new anti-corruption measures/systems, which have been put in place within the organisation. Independency of civil servants is sought assured by various initiatives, such, among others, the rotation every two/three years of senior officials in sensitive positions; the prohibition for civil servants to accept gift/lavish hospitality by companies with which they are having official dealings unless the government has given its approval.
Anti-Corruption Agencies: India has a number of institutions at the federal and state level with authority to deal with allegations of corruption. Each state is responsible for setting up local anti-corruption agencies which have powers to investigate cases of corruption involving public officials at state level. Links to the local anti-corruption bureaus can be found at state government websites. An example of such a bureau is the Anti-Corruption Bureau of Maharashtra. The most important federal anti-corruption institutions are discussed below.
Central Bureau of Investigation (CBI): The CBI functions under the Ministry of Personnel, Pension & Public Grievances. The CBI consists of three divisions: the Anti-Corruption Division, the Special Crimes Division, and the Economic Offences Division. These units have the power to investigate cases of alleged corruption in all branches of the central government, ministries, public sector entities and the Union Territories. The CBI does not have the power to investigate cases in the states without the permission of the respective state government. However, the Supreme and High Courts can instruct the CBI to conduct investigations. In 2008, the CBI launched a successful corruption awareness campaign via text message in collaboration with telecom service providers in Delhi and Mumbai. The CBI has a whistleblower/complaint mechanism on its website, where corruption can be reported.
Central Vigilance Commission (CVC): The CVC is an independent watchdog agency established in 1964 with a mandate to undertake inquiries or investigations of transactions involving certain categories of public servants and has supervisory powers over the Central Bureau of Investigation. The CVC can investigate complaints against public officials at the higher level of central government in cases where an official is suspected of having committed an offence under the Prevention of Corruption Act 1988. The CVC is mandated to deal strictly with public sector corruption at the federal level, as opposed to state level. The CVC has been advocating for India to ratify the UN Convention against Corruption (UNCAC). The CVC has a whistleblower/complaint mechanism on its website.
Office of the Comptroller & Auditor General (C&AG): The C&AG of India is the supreme audit authority in the country. The Office of the C&AG is located in New Delhi, but Accountant Generals (AGs) offices can be found in all state headquarters (AGs are independent of state governments and are accountable only to the C&AG). Public expenses management reportedly suffers from poor monitoring, poor targeting and corrupt practices. According to Global Integrity 2007, the C&AG has sought to improve the accountability of the executive by producing several reports on various subjects, including state departments, railways, telecommunications, state-owned companies and tax administration. These reports have revealed many financial irregularities in various branches of the state; however, the government allegedly often fails to act on the findings of the reports.
Supreme Court: The Bertelsmann Foundation 2008 reports that secondary powers, such as the Supreme and High Courts, have become more proactive in carrying out their duties. Judges have displayed unprecedented activism in response to Public Interest Litigation over official corruption, environmental issues, and other matters, and this expanded role has received considerable public support. The Supreme Court has been taking and tackling corruption seriously in recent years, both in the general and political domains. The Supreme Court has challenged the legislative decisions of ministers and the exercise of powers to pardon politically connected individuals based on 'arbitrary' and 'irrelevant' considerations. One method that the legislature has employed since 1951 to evade judicial scrutiny concerning the constitutionality of legislation is to place such laws under the Ninth Schedule, which granted legislation immunity from being tested in court. This provision enabled the legislature to prevent any judicial review of a law even when it conflicted with fundamental rights. More than 300 laws found political sanctuary under the Ninth Schedule. However, the Supreme Court did away with this immunity in April 2007, leading the Prime Minister to complain of judicial overreach. Furthermore, the Supreme Court has established a police commission and complaints authority to look into police corruption and malpractice, ordered fixed tenure for police chiefs and other senior officers, and ruled that corrupt police officers can be prosecuted without government consent.
Chief Information Commission (CIC): The CIC was established in 2005 and became operational in 2006. It has delivered decisions instructing government, courts, universities, police, development NGOs and ministries on how to share information of public interest. State information commissions have also been opened, thus giving practical shape to the Right to Information Act 2005 (RTI Act), although they have not been immune to criticism. Of India's 28 states, 26 have officially constituted information commissions to implement the RTI Act. Nine states pioneered access to information laws before the RTI Act was passed. One state has complimented the quality of law, but mourned the 'luke-warm response of a largely unaware citizenry'. According to the Transparency Reviews regularly published by the Centre for Media Studies, however, awareness has been increasing towards the end of 2008. The Transparency Reviews point on the other hand to the resistance of some civil servants to abide the law and disclose the information.
E-Governance: A wide range of public services have been digitised, which has considerably increased the speed of government services and removed some of the direct contact points with public officials. Obtaining licences, permits, official documents, paying taxes and clearing goods are some of the services that have been digitised. The Government of India has created the National Portal of India which lists all these services and thus serves as an ideal entry point for companies wishing to do business in India. The customs service is increasingly integrated into the e-governance project of the Government of India. Under the e-governance project, many possibilities for extraction of bribes related to trade across borders have been removed. Please see the homepage of the Central Board of Excise and Customs for more information on e-payment, which also contains information on how to complain about corrupt officials. The business section of the National Portal of India is also useful when seeking information on trading across borders.
Public Procurement: Corruption in public procurement has been a major challenge for companies entering or operating in the Indian market. Many measures have been taken in order to make the Indian procurement system more transparent and efficient, but companies should be aware that states have their own specific procurement laws and regulations. Information on tenders is available online through the Indian Government Tenders Information System, which is the main source for government and public sector procurement. This comprehensive portal contains links to central and state tenders as well as tenders by public sector units. All major public authorities are also required to publish on their website a monthly update of all their contracts/purchases above a certain value threshold. Some states, such as Andhra Pradesh, have their own online tender information system. Each state has its own financial rules based on the broad principles of the General Financial Rules which govern procurement by all government agencies of the central government. The absence of a central law or state act in public procurement means that each ministry, department, agency, local body, and state enterprise is free to devise its own rules for public procurement and contracting as long as they follow the basic rules of the open tender system. This decentralisation also means that any procuring authority may develop its own 'blacklists' of companies that have been shown to have violated tender procedures, as long as the established procedures laid down for blacklisting, banning and suspension of companies are followed. Companies should report corruption or any kind of misuse of office by any employee of the central government to the Central Vigilance Commission. Complaints of corruption by state officials should be directed to the respective anti-corruption bureaus at state level which can be found by entering the homepages of state governments. See Public Procurement and Contracting under the Corruption Levels for more information on corruption in public procurement in India.
Whistle-Blowing: The protection of whistleblowers has been improved since the Dubey case in 2003, where a technical manager of the National Highways Authority overseeing the construction of the Bihar stretch of the National Highways Development Project was killed after reporting several incidences of corruption among contractors of the project to the Prime Minister's Office. His request for anonymity was ignored. Following massive protests from the public and international organisations, the courts made it clear that the Central Vigilance Commission (CVC) is authorised to protect whistleblowers and to act on their complaints. The CVC can now take action against anyone who leaks names of whistleblowers and witnesses and can request police assistance to investigate complaints. See the CVC's brief introduction to the Public Interest Disclosures and Protection of Informer Resolution (PIDR) whistleblower legislation. The CVC provides a secure whistleblower/complaint mechanism for exposing corruption and has received over 1,300 complaints since the PIDR's passing in 2005. See also the Central Bureau of Investigation online whistleblower/complaints mechanism which guarantees the protection of whistleblowers when they report corruption. The Right to Information Act 2005 has reportedly improved bureaucratic transparency by giving citizens better access to records. However, according to Freedom House 2008, whistleblowers and other activists who try to expose corruption within the bureaucracy often receive threats or are otherwise penalised in terms of career prospects. The CVC reports that some 30 whistleblowers have suffered from harassment or victimisation despite the supposedly confidential PIDR complaints. Those who knowingly file a false complaint can be subject to prosecution.
General Comments on the Public Anti-Corruption Initiatives: The institutional and legal framework for addressing the problem of corruption in India is well-developed. However, according to Transparency International and Global Integrity, the institutional setup suffers from lack of coordination between the different actors, and efficiency is often reduced due to conflicting mandates. Key institutions are often inadequately staffed and underfunded and end up struggling to maintain their autonomy from outside political forces, even though this autonomy is legally mandated. Their activities are generally not proactive and preventive but are instead focused on investigating reported or suspected acts of corruption. In addition, there is a general sense that the big fish has successfully avoided investigations and convictions. Additional key anti-corruption legislation has been held up for years, sometimes decades, leading a perceived lack of political will to tackle corruption at its highest levels. However, the Supreme and High Courts and the election committee have adopted a more assertive stance and have become more proactive in prosecuting malpractices. It is reported that the judiciary is working on different measures aimed at reducing corruption within the judicial system, e.g. by strengthening and enforcing codes of conduct for judges and judicial staff and by recruiting more judges with the aim of reducing delays. Together with improved procedural transparency in government that is supported by freedom of information acts and a more active civil society, this is the beginnings of a potentially significant reduction of corruption in India.
Private Anti-Corruption Initiatives
Media: The constitution protects freedom of speech and expression, but does not explicitly mention media freedom. Freedom House 2009 describes India's press as 'by far the freest in South Asia', but as partly free on a global scale. The Indian media has in fact been a key player in putting anti-corruption initiatives on the national agenda. The report however states that journalists remain subject to intimidation and newspaper offices continue to be attacked. The Official Secrets Act has been used by the Government of India to censor security-related articles or to prosecute members of the press in recent years, but there are reports that the use of this act is less common than before. The reporter Prahlad Goala from the newspaper Asomiya Khabar in the state of Assam was murdered in 2006 following a series of articles revealing corruption among forestry service officials in the state. India is ranked as 105th out of 175 countries by Reporters Without Borders 2009, while the Freedom House Freedom of the Press Index 2009 ranks India 76th out of 195 countries in relation to press freedom. Business news about India can be accessed at India News Online.
Civil Society: India's civil society is vibrant and NGOs generally operate freely, although the Bertelsmann Foundation 2008 reports that civil society lacks deep roots. Despite the large number of associations, the participation level rate of the population is still quite low. According to reports, there are some restrictions on freedom of assembly and association. Authorities at state-level are empowered to declare a state of emergency that effectively restricts the right to assembly. There are occasional reports of authorities using this state of emergency and having members of NGOs and other protesters beaten up or intimidated.
Transparency International India (TI India): TI India is the Indian chapter of Transparency International. It works at national, regional and local levels in India and has a network of state chapters and regional centres that operate in all parts of India. The organisation has advocated for introducing Integrity Pacts into contracts given out by government departments and public sector units, and it has also pushed for the adoption of citizens' charters in all public sector institutions. TI India has managed to persuade 20 public sector companies to adopt Integrity Pacts in procurements requiring large outlays. It convinced the Ministry of Defence to adopt the pact in all procurements of INR 100 million or more, although Russia, India's biggest weapons supplier, has refused to sign any contract that requires an Integrity Pact on the grounds that it 'collides with' its own domestic laws. TI India conducts research into corruption and related offences and publishes a quarterly newsletter on its own work and on corruption in India. A sign of the successful advocacy carried out by TI India is the recent signing of a memorandum of understanding and Integrity Pact between TI India and the Oil and Natural Gas Corporation (ONGC) to make its procurement processes more transparent.
Kerala Sanitation Programme: The Water Integrity Network (WIN) committee and NGO staff monitored all activities associated with the implementation of a sanitation programme in Kurup, Kerala by the local government. This initiative is considered a project-based anti-corruption declaration involving local communities. This included the estimation of costs and construction time, tendering processes, conducting spot checks and independent audits to ensure transparency in the constructing process, to eliminate misuse of public resources and to create an effective anti-corruption mechanism.
Centre for Media Studies (CMS): CMS is a non-profit, multi-disciplinary development research agency which has undertaken corruption tracking surveys since 2000. It has a transparency studies unit, which publishes a quarterly magazine, 'Transparency Review', with research on selected issues relevant for public accountability and transparency. CMS has undertaken the controversial India Corruption Study 2005 and 2007 published by TI India.
Parivartan: Calling itself a 'people's movement' struggling for just, transparent and accountable governance, Parivartan was established in 2000 as an attempt to shed light on corruption within the Income Tax Department in New Delhi. The movement now concentrates on using the Right to Information Act in order to ensure transparency and accountability in public services.
5th Pillar of India: This Chennai-based social welfare group has developed anti-corruption initiatives such as launching a 'Freedom From Corruption' campaign under which it plans to release a booklet that teaches people how to engage corrupt officials. Called Citizen Charter, the booklet will contain information on all legal documents that one needs to obtain from government offices - driving licences, passports, house registration, and telephone connections, among others - without paying a bribe. 5th Pillar of India strives to prevent corruption in both the public and private sector while providing information concerning the Right to Information Act (RTI Act) and how to use it as well as building general awareness about corruption among the population.
Karmayog: Karmayog is a website of R.O. Somani Charitable Trust. Karmayog works to improve society by connecting citizens, civil society organisations, media, corporates and government officials and organisations by online and offline methods. They have specific anti-corruption initiatives; Karmayog has recently developed 'Corruption Report', a complaint and suggestion form to reduce corruption in government departments in India. Individuals who wish to report an incidence of corruption concerning any government organisation can access the form and complete it anonymously if desired. Completed forms will be displayed on the Karmayog website for the authorities and media to take action, and will be formally forwarded to the relevant government authorities.
Resources
The websites listed below provide useful facts on India as well as contacts and tools for companies operating in India:
Business Fighting Corruption An online resource centre for business on collective action to avoid corruption which contains a guide and resources for partnerships with companies and other stakeholders to fight against corruption.
UNCAC Status: Singed 9 December 2005. Not Ratified.
Status on UNCAC Implementation This field describes the country's status on the United Nations Convention against Corruption. Please note any declarations and reservations made upon ratification. The list of signatories can be found on the UNODC website. Read Transparency International's summary and assessment of the UNCAC.
Transparency CPI This field consists of the score for the country in question on the Corruption Perceptions Index from Transparency International as well as its ranking.
Country Risk Classification The classification of countries by risk category has the aim of providing OECD countries with a basis for calculating the premium interest rate to be charged to cover the risk of non-repayment of export credits. Countries are placed in risk categories 0 - 7, with 0 being the lowest risk category and thus the least expensive. Conversely, premium group 7 is the highest risk category. Each classification is comprised of 2 components: 1) an assessment of the country's economic/financial situation, and 2) its overall political stability. Access the complete list of OECD Country Risk Classification figures.
ICC India is one of the most active chapters of the ICC. It has a large membership of corporations, chambers of commerce, trade & industry associations and consultancies.
Arleth, Karen & Krogstrup, Ea: Ship Scrapping - a Floating Scenario?, Master's Thesis in International Development Studies and TEKSAM, University of Roskilde, Denmark, 2006.
Greenpeace: 'Green groups expose regulatory failures: no more ships for scrap to India or Bangladesh', 9 July 2005.
Greenpeace: 'Toxic Ship 'Riky' to be mercilessly driven out', 30 May 2005.
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