India risk report
Companies operating or planning to invest in India face high corruption risks. Despite that the government has stepped up its efforts to counter corruption, red tape and bribery continue to be widespread. Corruption is especially prevalent in the judiciary, police, public services, and public procurement sectors. Due to varying levels of corruption and quality of government operations across India, local investment conditions vary between and within states. The Prevention of Corruption Act is the principal legal framework that focuses on corruption in the public sector. Both active and passive bribery are covered by legislation, and public officials are only allowed to accept gifts of nominal value. Private sector corruption is addressed by the Companies Act. Due to low levels of enforcement and monitoring, integrity in all state bodies is lacking, and corrupt practices such as facilitation payments and bribes persist.
Judicial system Very high risk
There is a high risk of corruption when dealing with India's judiciary, especially at the lower court levels. Bribes and irregular payments are often exchanged in return for favorable court decisions (GCR 2016-2017). As established by the constitution, the judiciary is largely independent, but tension between the legislative and judicial branches is longstanding (BTI 2016). Prosecution of corruption can be cited as an example, as any appeals in the prosecution of office abuse by public servants have to be authorized by a minister prior to launching an appeal (BTI 2016). This has regularly hindered the process (BTI 2016). Widespread corruption coupled with resource shortages negatively impact the efficiency of the court system; the current backlog of cases runs into the millions (BTI 2016; ICS 2016). However, the court system itself is not considered an obstacle by businesses; efficiency in settling disputes and challenging regulations is considered adequate (ES 2014; GCR 2016-2017). Enforcing a contract takes around 1420 days, which is significantly longer than the regional average (DB 2017).
India is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, but it is not a member state to the International Centre for the Settlement of Investment Disputes (ICSID). Adjunction of commercial disputes is governed by the Arbitration and Conciliation Act based on the United Nations Commission on International Trade Law model.
Police Very high risk
The police sector in India is susceptible to corruption and can thus carry high risks for businesses. The efficiency of the institution varies across the country, yet, on a general level, business executives report that the police is fairly reliable in protecting them from crime and in enforcing order (GCR 2016-2017). Notwithstanding, more than half of companies in India pay for security (ES 2014). Three-quarters of surveyed households in India perceive the police to be corrupt and citizens frequently encounter bribery demands when dealing with officers (GCB 2013, FitW 2016). The security forces are generally overworked, underpaid, and remain subject to political pressure, which leads to instances of corruption (HRR 2016; BTI 2016). Instances of security officials being held accountable for misconduct were reported throughout 2015, notwithstanding, impunity was widespread at all levels of the institution (HRR 2016).
Public services Very high risk
The public services sector carries high corruption risks for businesses. Companies are likely to encounter red tape, petty corruption, bribery and facilitation payments when dealing with India's public administration (GCR 2016-2017, ES 2014). India's economy continues to face constraints in the form of conflicting rules and a complex bureaucratic system with broad discretionary powers (ICS 2016). Businesses find the government's bureaucracy to be inefficient and rather burdensome, and report that bribes are often exchanged when applying for public utilities (GCR 2016-2017). Facilitation payments to expedite public services, such as police protection, water supply, and government assistance are also common (HRR 2016). Likewise, more than a quarter of companies expect to offer gifts or make irregular payments to government officials when applying for an operating license, while more than half of companies expect the same when obtaining a water or electrical connection (ES 2014). On a more positive note, the computerization of some public offices has reduced facilitation payments common in physical encounters with public officials.
The 26-day average time needed to start a business is significantly higher than the regional average and involves more procedures than elsewhere in the region (DB 2017).
Land administration Very high risk
When dealing with India's land administration, businesses are exposed to high risks of corruption. Over a third of companies expect to pay bribes when obtaining a construction permit (ES 2014). Private property is legally safe-guarded and adequately respected by the government in practice (BTI 2016). This mostly applies to larger cities, including the metropolitan cities of Delhi, Calcutta, Mumbai, and Chennai; yet, land titles are unclear in other urban areas (ICS 2016). The government, security forces, and corporate interests frequently collude to appropriate lands from local (indigenous) peoples (HRR 2016). Red tape and burdensome land acquisition policies continue to be major investment impediments (ICS 2016). When it comes to land acquisition, state-owned enterprises do not face the same hassles as private companies, since the government can more easily procure the necessary land (ICS 2016). The amount of difficulty related to obtaining a construction permit varies in different jurisdictions within India. Obtaining a construction permit in Mumbai requires 42 procedures, while in Delhi the average is closer to 29; timewise, India's performance is close to the regional average (DB 2017). Registering property takes around 47 days, which is half the average of South Asia (DB 2017).
Eknath Khadse, the agriculture and revenue minister of Maharashtra, resigned from his post in mid-2016 after allegations were brought against him in connection to corruption in a land deal involving his wife and son-in-law. The case is currently being investigated by the anti-corruption bureau (ACB) (Times of India, Mar. 2017).
Tax administration Low risk
Corruption and bribery present low to moderate risks for companies dealing with India's tax administration. Few firms identify the tax administration to be a major constraint to doing business in India (ES 2014). However, tax regulations are ranked as the most competitive disadvantage by business executives (GCR 2016-2017). Bribes and irregular payments are sometimes exchanged in meetings with tax officials (GCR 2016-2017). While approximately two in every ten surveyed companies expect to give gifts to tax officials (ES 2014).
Paying taxes in India takes 241 hours per year, which is lower than the regional average (DB 2017).
Customs administration High risk
Corruption is a moderate to high risk when dealing with India's customs authorities. Irregular payments in exports and imports are sometimes exchanged (GETR 2016). Businesses find burdensome import procedures and corruption at the border to be among the most significant obstacles to importing (GETR 2016). Companies report lower than average regional costs for border compliance, but it takes almost three times as many hours as the regional average in terms of border compliance (DB 2017).
Public procurement Very high risk
Businesses identify public procurement in India as especially vulnerable to corruption (ICS 2016). Companies report that public funds are at times diverted to companies, individuals or groups as a result of corruption, and that favoritism influences the decisions of government officials (GCR 2016-2017). Bribes and irregular payments are often exchanged in return for government contracts and licenses (GCR 2016-2017). Four in every ten surveyed firms expect to give gifts in order to secure a government contract (ES 2014).
Companies are recommended to use a specialized public procurement due diligence tool to mitigate the corruption risks related to public procurement in India.
Natural resources Very high risk
Corruption in the natural resources sector in India is pervasive. There is a widespread problem with the illegal mining of sand in India; with the bribery of local officials and police further exacerbating the problem. High profile arrests have been made recently, but the issues remain pervasive (Reuters, Dec. 2016). Bribery in the mining industry is a common occurrence. The mining industry, in general, is characterized by a lack of oversight and transparency; with little information disclosed on government contract terms (NRGI). It is estimated that nearly half of the iron ore exported from the state of Goa has been mined illegally (BBC News, June 2012). Enforcement in the sector is slowly improving following the latest bout of high-profile corruption cases (Reuters, Sept. 2016).
The U.S. Department of Justice charged six foreign nationals for their role in allegedly conspiring to bribe Indian officials for an amount of USD 18.5 million, to obtain licenses to mine titanium minerals (Herbert Smith Freehills*,* Nov. 2015). The case is currently pending the extradition of the key defendants (The Wire, Feb. 2017).
The three main legal frameworks addressing corruption in India are the Prevention of Corruption Act, the Lokpal and Lokayutas Act, and the Companies Act. The prosecution of corruption has proven effective only among the lower levels of the bureaucracy, with senior officials being generally spared (ICS 2016). The Prevention of Corruption Act addresses public sector corruption and criminalizes attempted corruption, active and passive bribery, extortion, abuse of office and money laundering (HSF 2015). Facilitation payments are not covered by the law. The Supreme Court expanded the definition of 'public servant' to include officials employed at private banks, making them liable for prosecution under the aforementioned act *(*Lexology, Feb. 2017). The Companies Act, establishes rules addressing private sector corruption by mandating mechanisms for the protection of whistleblowers, industry codes of conduct, and the appointment of independent directors to company boards. Government monitoring mechanisms have so far not been implemented (ICS 2016). Moreover, it remains unclear to what extent the whistleblower protections in the act have been instituted (ICS 2016). Corrupt practices are further addressed in the Code of Criminal Procedures, the Indian Contract Act, and the Prevention of Money Laundering Act. Public sector whistleblowing is protected under the Whistle Blowers Protection Act. Following a recent ruling by the Supreme Court of India, the definition of ‘public servant’ expanded to include employees of foreign and domestic banking companies – which are allowed to operate in India under a license issued by the Reserve Bank of India. Liability risks for businesses interacting with India’s financial sector have thus heightened significantly (Lexology, March 2016). Companies operating in India should familiarize themselves with relevant federal level laws but should bear in mind that laws in key areas may differ from state to state.
In an effort to fight corruption, the government withdrew all 500 and 1000 rupee bills in late 2016. This amounted to 86 percent of all cash in circulation (The Economist, Nov. 2016). The government introduced a tight deadline on returning the canceled notes to prevent persons holding large amounts of illicitly obtained notes from laundering the money. In addition, an ordinance was passed criminalizing the holding of large amounts of the withdrawn notes coming into effect 31 March 2017. Anybody holding large amounts of the canceled notes faces a fine up of INR 10.000 or five times the cash held, whichever is higher (India Express, Dec. 2016). India is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions but has signed the United Nations Conventions against Corruption, and India is a member of the G20 Working Group against Corruption.
India's constitution provides for freedom of speech and expression but does not mention freedom of the press (HRR 2016). In practice, the government generally respects these rights (HRR 2016). India's press remains the freest in South Asia, but concerns over lack of access to government information and heavy-handed government censorship under Prime Minister Narendra Modi's government, are causes for increased concern (FotP 2016). Journalists often face charges of libel and defamation when criticizing the political or corporate elite (FotP 2016). In one prominent case, a journalist, Krishn Kaushik, and the magazine he works for faced a USD 39 million civil defamation case filed by the Mumbai-based Essar Group conglomerate in relation to his reporting implicating the company in a political corruption case (FotP 2016). Moreover, a number of journalists investigating corruption cases involving government officials, have been harassed or even killed in recent years (FotP 2016). There are concerns over the growing censorship of online content and increased disruption of internet services by authorities under the pretext of preventing unrest (FotN 2016, HRR 2016). India's media environment is rated as "partly free" (FotP 2016).
Civil society organizations operate freely, but face threats, legal harassment, excessive police force, and sometimes even lethal violence (FiW 2016). India is home to a strong civil society sector and academic community; however, foreign monitors and journalists are reported to sometimes be denied visas to conduct research trips on human rights and other related issues (FiW 2016). The government is accused of abusing this power under the Foreign Contributions (Regulations) Act by denying NGOs access to foreign funding in order to target political opponents (FiW 2016). The Modi government has been cracking down on NGOs in recent years, leading to international condemnation (The Financial Times, May 2015; Indian Express, Feb. 2017).
- World Bank Group: Doing Business 2017.
- Times of India: "Eknath Khadse Land Probe now with ACB, HC orders FIR", 9 March 2017.
- The Wire: "Spotlight Returns on a Mining Scam the Modi Government Has Done Nothing About", 25 February 2017.
- The Indian Express: "EU Delegation Slams Crackdown on NGOs", 23 February 2017.
- Lexology: "Anti-Corruption & Bribery in India", 8 February 2017.
- The Economic Times of India: "Outlay for Central Vigilance Commission Unchanged; 50 pc cut in Lokpal's Budget", 1 February 2017.
- World Economic Forum: The Global Competitiveness Report 2016-2017.
- World Economic Forum: The Global Enabling Trade Report 2016.
- Bertelsmann Foundation: Bertelsmann Transformation Index - India 2016.
- US Department of State: Investment Climate Statement - India 2016.
- US Department of State: Human Rights Practice Report - India 2016.
- Freedom House: Freedom in the World - India 2016.
- Freedom House: Freedom of the Press - India 2016.
- Freedom House: Freedom on the Net - India 2016.
- India Express: "President Okays Ordinance Criminalising Holding of Rs 500, Rs 1,000 Notes", 30 December 2016.
- Reuters: "India Arrests Highlight Impact of "Sand Mining' Maffia on Local Communities", 23 December 2016.
- The Economist: "India Grapples With The Effects of Withdrawing 86% of Cash in Circulation", 26 November 2016.
- Reuters: "Exclusive: India Cracks Down on Illegal Mica Mines After Expose Reveals Child Deaths", 30 September 2016.
- Lexology: "India Supreme Court Rules that Private Bankers Operating in India Are 'Public Servants', Significantly Expanding Anti-Corruption Risks", 14 March 2016
- Herbert Smith Freehills: Guide to Anti-Corruption Regulation in Asia Pacific 2015.
- Herbert Smith Freehills: "Recent Developments Illustrating Corruption Risks in The Mining Industry", 27 November 2015.
Reuters: "Narendra Modi backtracks on pro-business land bill", 4 August 2015.
- The Financial Times: "US Warns India over NGO Crackdown", 6 May 2015.
- Bloomberg Business: “India's Stagnant Courts Resist Reform”, 8 January 2015.
- World Bank Group: Enterprise Survey - India 2014.
- Transparency International: Global Corruption Barometer 2013.
- BBC News: "Indian Mining Industry 'Out of Control'", 12 June 2012.
- Natural Resource Governance Institute: India profile.