Business Corruption

According to the US Department of State 2010, public procurement regarding telecommunications and power has been particularly subjected to allegations of corruption over the past few years, and several government employees and public figures have been indicted or convicted. Foreign companies should take note that the Indian government permits a price preference for local suppliers over foreign suppliers in government contracts, as reported by the US Commercial Service 2011.

According to Global Integrity 2009, there are cases where companies that violated procurement regulations have managed to circumvent the law through connections and thereby continue to participate in biddings. There are also cases where companies have succeeded in returning to the procurement system after having been barred from bidding in the past and well recorded proof of their prior involvement in bribery. Furthermore, according to KPMG India Fraud Survey Report 2010, half of the surveyed corporate respondents perceive procurement and sales and distribution to be the most vulnerable areas for fraud.

Companies are recommended to use a specialised public procurement due diligence tool in order to mitigate corruption risks related to public procurement 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. For example, in 2009, the chairman of the state-controlled Ordinance Factory Board was arrested for taking bribes in exchange for military contracts. The scandal has resulted in the blacklisting of 7 major Indian and international arms dealers, according to a 2009 article by Asia Sentinel.

In August 2009, the director of Medical and Rural Health Services, was arrested by the Tamil Nadu Directorate for Vigilance and Anti-corruption (DVAC) on charges of corruption. According to the US Department of State 2010, the director, responsible for the procurement of medicines for a large number of hospitals, had allegedly received a USD 17,700 bribe in exchange for a drug supply contract worth USD 3.1 million.

In October 2010, offices of the companies providing sports surfaces and training equipment for the Delhi Commonwealth Games, were raided by tax inspectors, probing allegations of corruption linked to this event. In the course of these raids, tender and contract documents have reportedly been seized, according to a 2010 article by The Sydney Morning Herald. According to the article, complaints have been received by the Central Vigilance Commission (CVC) alleging that up to USD 1.8 billion of Games money has been embezzled. Claims include payments to non-existent parties, wilful delays in executing contracts and over-inflated prices for many items including toilet rolls and treadmills. According to an August 2011 article by BBC News, the head of the Commonwealth Games Organising Committee is already serving his prison sentence on corruption charges. Click here to read the 2011 report on performance audit of the Commonwealth Games, prepared by the Comptroller and Auditor General of India.

In February 2011, the former Kerala Minister, R Balakrishna Pillai and two other officials, were all sentenced to one year in prison for corruption in the rewarding of a contract for a hydropower project. According to Times of India, the prosecution asserted that Pillai had played a key role in the plot, which caused a loss of over INR 20 million to the Kerala State Electricity Board.

See more on public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.

Frequency

World Economic Forum: The Global Competitiveness Report 2010-2011:
- Business executives give the diversion of public funds to companies, individuals, or groups due to corruption a score of 2.9 on a 7-point scale (1 'very common' and 7 'never occurs').

- Business executives give the favouritism of government officials towards well-connected companies and individuals when deciding upon policies and contracts a score of 2.7 on a 7-point scale (1 'always show favouritism' and 7 'never show favouritism').

The World Bank & IFC: Enterprise Surveys 2006:
- 24% of the companies surveyed expect to give gifts to secure a government contract.

- In order to secure a government contract, companies expect to give a gift worth 1% of the contract.