Corruption In India Threatens Its Growth

A spate of high-profile corruption scandals has rocked the Indian government in the last few months and is threatening foreign investor confidence. The scams include allegations of graft against officials responsible for last year’s Commonwealth Games hosted by New Delhi, a telecom case involving the government underselling mobile-phone licences for kickbacks that may have cost the exchequer nearly $40 billion, and a housing scam in which politicians, bureaucrats and military officials are accused of taking over a plush Mumbai apartment block intended for war widows.
Prime Minister Manmohan Singh, whose government has come under fire from opposition parties and the media, has vowed to crack down on corruption. But as the BBC’s Soutik Biswas notes, India has a poor record of prosecuting corruption and an even grimmer record on actual convictions.
India ranks 87 out of 178 countries on Transparency International’s 2010 Corruption Perceptions Index. A 2010 report from Washington-based think tank Global Financial Integrity blames India’s poor governance for the tax evasion and corruption, which result in illicit financial flows from the country of at least $462 billion. “It is an issue which needs to be tackled, because corruption not only reduces the social acceptability of whatever growth we achieve, but actually reduces growth”, India’s Planning Commission Deputy Chairman Montek Singh Ahluwalia told the World Economic Forum.
Some investment analysts say corruption is already a factor in declining foreign investment which has been a key to India’s growth over the last two decades and is worrying domestic investors, too. Foreign institutional investors (FIIs) became net sellers for the first time in January since May 2010, shedding some $1.4 billion in holdings, according to industry data. “We’re not claiming FII flows are driven simply by corruption concerns,” said analysts from Espirito Santo Securities in Mumbai, but “corruption and ensuing political risk has without question become a major concern”