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Strategy
Only money matters. Our research on corporate governance, alongside a nationwide
flurry of alleged corruption involved in big deals, underscores a need for greater
transparency, faster execution, and better compliance with the laws of the land. In this
report, we analyze the policies, regulations and administrative framework in India for
different institutions (executive, legislative and judiciary) and sectors. We make a few
recommendations for (1) replicating good practices from some sectors across others
and (2) reducing some of the policy, regulatory and administrative difficulties that
constrain companies.
Sound institutions form the base of a good democracy
India may need to overhaul some of its current practices and strengthen its institutions to sustain a
high level of GDP growth for an extended period of time (next three decades). The issue is not of
growth (favorable demographics will ensure that) but of sustainable growth and reduction in the
rich-poor divide for a more stable and equitable society.
Corruption and complex business practices go hand in hand
India ranks quite low among developed and emerging economies in various global studies on
corruption, transparency and ease of doing business. In our view, the complexity of doing business
in India, high levels of bureaucracy and opaque processes contribute to the high corruption in
Indian society (real and perceived).
Easy steps—replicate good practices from some sectors across others
We analyze the current process of awarding natural resources and projects in different sectors by
the government and its agencies and conclude that the process of awarding (1) natural resources
(land, minerals and spectrum) can be considerably tightened through public auctions solely rather
than through the current process of allocation by the government and (2) infrastructure projects
can be improved with higher disclosures. The energy sector (ironically) has the best processes for
awarding oil and gas blocks and for ensuring compliance.
Difficult steps—a few radical suggestions
In our view, deterrence is the only way to address the menace of corruption; severe punitive
measures will create more respect for the laws of India. Also, laws can be simplified and India’s
judicial system can be significantly strengthened, resulting in faster judgments. Finally, it would be
beneficial to curtail the use of cash as the means of transaction in the parallel economy— even
though these may be difficult (and costly) to implement—by (1) periodically replacing highdenomination currency notes and (2) reducing the maximum denomination.
Corruption is a menace and an impediment to faster development
India ranks quite poorly in the global rankings for corruption and ease of doing business.
Exhibit 1 shows that India is ranked 87 in the global rankings for corruption.
In our view, the difficulty of doing business in India is probably a major cause of high
corruption prevalent in the country. India ranks 134 in the global list for ease of doing
business (see Exhibit 2). In our view, the government’s non-transparent system for awarding
natural resources and the extreme difficulty in getting approvals for various aspects of
projects creates an environment conducive for corruption.
We believe widespread corruption across the Indian society results in sub-optimal utilization
of human and financial capital. It extracts a cost on the economy in ways that are hard to
quantify; nonetheless, the opportunity cost of lower GDP growth versus potential GDP
growth could be immense. Corruption in the economic sense is private gain at the cost of
public funds in other words, the privatization of public wealth.
India ranks quite low in the Human Development Index (see Exhibit 3) although India’s HDI
has increased over the past few years helped by strong GDP growth (see Exhibit 4). More
important, the difference between the rich and the poor is stark. The Gini Coefficient Index
(see Exhibit 5) may not be a good indicator since a vast majority of India’s population is poor
and earns similar income.
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