CORRUPTION & CRIME | INDIA

orruption is perhaps as
old as human civilisation,
and omnipresent. The lure
of emerging markets for
globalising forces poses
new risks for them relating
to bribery, grease payments, extortion and
employee fraud. Covering or excluding
corruption or crime is no solution. This
article is an attempt to share insights from
some exceptional thought leaders on corrupt
practices in India.
Despite being universally disapproved
of, corruption is nevertheless universally
practiced. Notwithstanding this paradox,
there is very little literature that actually tries
to answer it. So says Dr V Raghunathan,
an eminent thought leader and expert in
behavioural finance, who provides a good
starting for a better understanding of
managing corruption and risks in India.

IMAGE: ALAMY

What is corruption?

For our purposes, Dr Raghunathan interprets

corruption as the misuse of public oce for
private gains.
It would appear, adds Dr Raghunathan,
when most people denounce corruption,
they do so as those at the receiving end
of corruption paradoxically, the one called
upon to pay bribes. Corruption thereby
becomes repulsive for two reasons: both
morally and economically. As long as the
person is being forced to cough up the
bribe to have his legitimate entitlements
granted and is not paying it to receive undue
favours, it may be dicult in practical terms
to find fault with an average bribe-givers
point of view.
He then goes on to say that it may be
reasonable to expect the number of bribegivers to be much greater than the number
of bribe-takers. As the one in power, he or
she often is, or is regarded as, the cause of
corruption. Let us assume that the ratio of
bribe-givers to bribe-takers is 10:1. When you
poll the population in general, a large majority
of them nearly 90% being bribe-givers
may disapprove of corruption because of the
moral and financial costs it inflicts upon them.
Thus, it takes a mere 10% of the population
to act corrupt for the entire 100% to be
regarded as practising corruption, thus
creating the impression of corruption being
universally practised. How does one negate
this paradox and work towards making
corruption less universal? This remains his key
question.

CORRUPTION & CRIME | INDIA

An insiders account

As the worlds second

most populous country
opens up to ever more
Western business, the
need to overcome its
historical problems with
corruption becomes
more pressing by the
day. Praveen Gupta
shares some scholarly
thoughts on the issue...

PASSAGE TO A
CORRUPTION-FREE INDIA
Shades of corruption

Corruption and fraud, according to Ravi

Venkatesan in his HBR paper Confronting
Corruption, falls into four categories: bribes,
speed money, extortion and employee fraud.
They are defined thus:
Bribes: Multinational companies are
prohibited from oering anything of value
to a government ocial, political party or
party ocial with the intent to influence that
person or to secure an improper advantage in
obtaining or retaining business;
Speed money, or grease payments: Speed
money is a payment for doing something he or
she should do, faster;
Extortion: Extortionists are usually solo
rogue actors without institutional backing it is
often possible to call their blu;
Employee fraud: Increasingly, the biggest
corruption threat facing a company is the risk
their own employees may be on the take. Greed
is also driving more management fraud.

The most corrupt professions

The magazine India Today recently conducted

a poll on the most corrupt professions. As
expected, politicians topped the list, followed
by police and the lower judiciary. A surprise
revelation surfaced when journalists made an
unexpected appearance in the most corrupt list.
The Transparency Global Corruption
Barometer reveals that 41% of Indians believe
the media is complicit in corruption. In fact,
consensus exists in the profession on the need
to urgently tackle the issue, according to the
late editor Vinod Mehta in his book
Editor Unplugged.

What reinforces corrupt

behaviour?

What can possibly inhibit the conversion of

corrupt thought into action? Clearly the fear
of observation or detection, and the fear of
consequences, believes Dr Raghunathan.
So while an act of corruption may be driven

by greed, it can be inhibited by the fear of

detection and punishment.
The fact is that a society is as corrupt
as the system allows it to be. The weak
administrative and political institutions of
emerging democracies perhaps oer an
appropriate environment for corruption to
prosper. This probably explains why in many
developed societies, where the probability of
being caught while indulging in corruption is
higher and the consequences of being caught
are severe, the instances of corruption are
fewer.
At one extreme, in India, it would seem that
we are beginning to take corruption in our
stride. We no longer squirm at being ranked
among the most corrupt countries in the world.
We have come to accept corruption as our
national character and hence we do not view it
as a serious and alarming social malaise, as is
evident from the popular support enjoyed by
some of our scamsters in public life.

Vinod Rai, Indias 11th comptroller and auditor

general (CAG), and a symbol of the countrys
anti-corruption movement, throws light on
his time as the CAG in his book, Not Just An
Accountant. It focuses on the many pitfalls
ethical, political and economic India
must avoid if it is to emerge a stronger, more
prosperous nation.
In this narrative, rich in anecdote and
inside information, Mr Rai speaks of the major
scams that shook the country in the new
millennium. Among the case studies chosen
for the diversity of failures they highlight are
the procedural irregularities in the issuance
of licenses for the second-generation (2G)
spectrum; the XIX Commonwealth Games;
the enormous losses the country was forced
to endure in the allocation of coal blocks to
agencies incapable of eciently exploiting
our national resources; the wilful flouting
of procedures and the clear evidence of
crony capitalism in the exploration of Indias
hydrocarbon resources; and the tragic tale of
civil aviation in India.
Mr Rai endeavours to keep future
generations apprised of the pitfalls to be
avoided in the mission for nation-building.
The pain they have experienced should inspire
in them the strength for greater success. Each
challenge must spur greater response. Each
failure should provide a greater stimulus for
success. And more importantly, it is vital to
recognise that success will not be handed on
a platter; one will have to go out in the sun
and toil for it.

Reducing the power distance

index

Dr Raghunathan quotes Malcolm Gladwell

from his book Outliers, where he alludes to
Gerard Hendrik Hofstedes power distance
index as a framework for assessing cultures.
It measures the extent to which the less
powerful members of organisations and
institutions (like in a family or a business)
accept and expect that power is distributed
unequally. The higher the acceptance and
expectation of power inequality, the higher
the power distance.
Using this framework, it is seen that
countries like Austria, Australia, Israel, New
Zealand, Switzerland, the UK and several
Scandinavian countries represent low
power distance since these societies expect
and accept power relations that are more
consultative or democratic. On the other
hand, countries like Malaysia, Indonesia,

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Thailand, China, Korea, India and Pakistan

have high power distance, since these
countries are probably more autocratic,
feudalistic or paternalistic.
In short, explains Dr Raghunathan, a
country like India will have to reduce its
power distance index enormously if it
hopes to make the society less corrupt.
The authority to demand ones entitlements
fearlessly and face a public ocial will
snowball in society only if the power distance
index is brought down. One can readily see
the relationship the power distance index
must have with literacy, education and
economic wellbeing.
So one hopes that as the countrys per
capita income improves and the literacy
level goes up and we put various systemic
checks and balances in place for greater
transparency, we should be able to control
corruption and a day might come when we
could say corruption is widely condemned
and, quite rightly, not so widely practised.

Tough road

Be prepared to tough it out, reminds

Mr Venkatesan in his HBR paper. He believes
success is perfectly possible in emerging
markets without making compromises, but
there are real consequences and real costs
for those who uphold ethical behaviours,
especially in the short term.
Global leaders should publicly support antibribery laws, speaking out against corrupt
practices in their industry and explicitly
acknowledging any loss of business that
results from ethical principles. Chief executives
must ensure that every employee in every
part of the world is utterly clear about what
conduct is acceptable and what is not.
The thought leaders quoted here are
an epitome of courage in accepting and
articulating the state of corruption. There
is also a recurring push on this front from
the countrys expanding and assertive
middle-class. Thanks to activism in sections
of media coupled with the countrys apex
court (Supreme Court), the dissatisfaction is
channelling into a slow and steady cleanup.
That should only bring cheer to underwriters
in fiduciary, professional and personal
liabilities, concerned about reputation risk and
cost of doing business in India as it opens up
for more global action.
Praveen Gupta, FCII, Chartered Insurer is
managing director and chief executive ocer,
Raheja QBE General Insurance Co.