An ideal way to stop bribery in India... - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

An ideal way to stop bribery in India... 

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In this issue:
» Employment outlook in India is the brightest
» Oil prices to rise but gradually
» Banks willing to forego higher growth for quality
» India's solar capacity addition on track
» ...and more!!

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The recent spate of bribery related scams have rocked India Inc. and sent ripples across Indian financial markets. As a result there has been a greater need than ever to stress on the importance of good corporate governance. It' not just the scams unearthed now which have brought this issue into focus. There have been some examples in the past as well. And so investors (especially those whose fingers have been burnt badly) have started becoming more cautious about investing in companies whose business practices and ethics are questionable. But have Indian corporates learnt a lesson as well? Are they also giving good corporate governance the necessary attention that it deserves?

The problem so far was that many companies did enough to just about meet the requirements of corporate governance practices as required by law. The spirit of the law was not given its due consideration. And so to remedy this situation, Deepak Parekh had some interesting insights to offer. He has called for a new legislation that holds corporates accountable for not controlling bribery. He opines that the issue is not how to prevent dishonesty but how you can make dishonesty accountable. He drew parallels with a bribery bill that is set to be introduced in the British Parliament. This is expected to include a clause which states that it is an offence for a corporation if it fails to prevent bribery. The idea being to push companies to ensure that dishonest practices do not go unnoticed.

In India, given that many companies (especially those in the real estate space) are linked with politicians, we are not sure whether such a bill would be passed, let alone yield the desired results. But it certainly seems like a step in the right direction.

Do you think that a bill to hold corporates accountable for not controlling bribery be effective? Please share your views with us.

01:24  Chart of the day
Emerging economies have been growing at a strong pace and have left their developed peers way behind. Little wonder then that the employment outlook for the former is much brighter than either the US or Europe. As today's chart of the day shows, India leads the pack as the employment outlook here is the most positive at least in 1Q2011.

Data Source: The Economist

Crude oil prices have witnessed a sharp spike of 20% in a span of few months. And this obviously has the Indian policy makers worried. Inflation is already ruling high in India. Thus, a sharp rise in oil prices from here on could aggravate the inflation situation further. However, they can derive a great degree of comfort from a top official of BP, one of the world's largest oil producers.

Talking to a leading business daily, the Chief Economist of BP has opined that oil prices will steady at around US$ 90 per barrel and rise gradually from there on. This could indeed be music to the ears of the Indian Government. The economist further stated that there is a spare capacity of almost 6 million barrels per day around the world. Hence, even if the demand were to grow strongly in the near term, the spare capacity can take care of the additional demand.

It should be noted that global economic situation is far different currently than in 2008 when crude prices touched all time highs. Lot of developed nations are mired in debt and hence, it would take some years for their economies to return to normalised levels. This in turn would ensure that oil prices do not remain high on a sustained basis.

You may call them 'once bitten twice shy'. But Indian banks have really had it tough with regard to safeguarding their asset quality in the past few months. Priority lending to agriculture is a government mandate. But the NPAs that come with it are hardly provided for. The telecom scam made the players wary of a supposedly lucrative sector. And real estate was never the regulator's favourite.

The RBI has every now and then expressed its displeasure with regard to banks' realty loans. But the result is that most banks, especially the PSU ones have almost stopped lending to these sectors. These entities have been hit hard with slippages on restructured agri loans. And they have barely managed to come up to the RBI's mandated NPA coverage ratio of 70%. Additional slippages will mean sacrificing profits for higher provision. Thus, the banks are now willing to forego higher growth for sustaining quality of assets. This trend is certainly in the interest of the financial sector and investors in it. However, for an economy starved of funding for growth, reclusive banks could be a major hurdle.

India has been missing its big targets in the power sector for long. And that's the reason a large part of the country still remains in darkness. In these times though, it comes as a respite to know that some target are being met by the sector. Or at least things are moving on track to meet the targets. We are talking about the solar power industry in the country.

As per a Wall Street Journal report, India is on track to add 1,100 megawatts (MW) of solar capacity by 2013. This is part of the bigger plan to reach 20,000 MW by 2020. In terms of scale, this looks very small given that India's total power generation capacity currently stands at around 160,000 MW. But the good part is that the renewable portion of the country's energy portfolio is seeing some real progress!

A worldwide recession till 2018! Sounds depressing but that is what Sakakibara, Japan's former top currency official, believes might happen. So what's the reason for this? A major one is that governments are putting fiscal austerity ahead of stable growth.

We are living in an era where country bailouts are the norm. Governments are now more concerned with balancing their budgets and cutting deficits rather than growth. According to Sakakibara, the only way to come out of this snail paced growth is to increase government spending. But we believe that this has its own set of problems given that the US' debt is already bloated and the fact that the seed of the current crisis in Europe is massive debt.

If US is going to borrow more money, it needs to take a cue from Japan. Most of Japan's financing needs come from within its own country. This controls the risk of capital flight. However, a number of American treasuries are held by China and other countries. This makes the US more vulnerable to a global crisis. Maybe the US needs to go the Japan way. Either way, something needs to be done. Otherwise, with stagnant growth and with the biggest economies on the chopping block, the global economy will have a very tough time for the next 7-8 years.

Wall Street's biggest banks are set to complete their best two years in investment banking and trading. The 2010 results are likely to be the second-highest ever.

Does this mean a fair sign of recovery of the American economy? Not at all. It only means that there is surely something like a free lunch. And these banks are the beneficiaries. For these revenues are not 'real' revenues. They're mere transfers of public money onto the banks' balance sheets. These five banks took a combined US$ 135 bn from the Treasury Department's Troubled Asset Relief Programme (TARP). And that is not all. They also borrowed billions more from the Federal Reserve's emergency lending facilities in late 2008 and early 2009. Since then, the firms have benefited from low interest rates and the Fed's purchases of fixed-income securities.

There is no denying that the stability of the banking system is vital for an economy. Hence, these attempts at salvaging the financial institutions may augur well. But 'real' recovery will only happen when businesses and investments pick up. And that doesn't seem to be happening anytime soon.

After opening the day on a weak note, India's benchmark index, the BSE-Sensex was trading higher by 70 points at the time of writing this. Gains were led by stocks from the consumer durables, metal, realty and oil & gas spaces. As for rest of Asia, markets ended on a positive note with China, Japan and Hong Kong ending higher by about 0.1 to 0.2%.

04:54  Today's investing mantra
"Hold no more stocks than you can remain informed on." - Peter Lynch
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102 Responses to "An ideal way to stop bribery in India..."


Oct 9, 2013

Earlier, bribe was paid for getting the illegal/out of turn benefits. Now the bribe has to be paid even getting lawful things done. Such is the height & the scale commanded by bribe. The ideal way to atop bribery in India is to put the receiver & the giver behind the bars. Further, the cleanliness drive has to begin from the top. The corrupt at the bottom always point to those at the top who are engaged in this heinous act of shamelessly asking for bribe. Those involved in scams must be punished.


dipakkumar chakraborty

Dec 29, 2010

Bribery can only be stopped if one can answer in any difficult situation,the one simple question that many fail to: "Is it right or wrong?" That should be the guiding light and then one can never really go wrong.


Prabha Kumathe

Dec 28, 2010

In a way yes, Corporates being accountable would make a difference.

We need more basic changes, in our attitude. There would be many ways to do, but we need our politicians to lead us among others.



Dec 27, 2010

Good thought ,



Dec 25, 2010

Learn from Bihar.Use your absolute power,vote down the corrupt and teach them a lesson.Either change or perish the bandicoot and their families.



Dec 21, 2010

OK for Corporates. Can keep in check the games corporates play to say get loans - like the latest LIC scandal.
But what about small fry who still need a loan, or need a passport, or need to get their house/car registered?. Movement of these applications can be only done with the assistance of some lubricants.


Narendra Singh Chauhan

Dec 20, 2010

Bribery is the cancer in our system as well as in the whole country. Because nothing have been changed in our system even after the independence from british rule almost everything is still same as it was under the british rule, our administration, rules, policies, police administration, Court system, armed forces and the modus-operandi of almost everything is still the same even after 63 years of independence.If we need to change the current scenario we need to have important changes in the system as there are many loopholes in our system, until we didn't fill these loopholes the problem of bribery or corruption can't be solved. As an example look at China, America, Brazil, Japan. These countries changed each and every things of their post independence. But our leaders can't do it for the sake of some corrupt politicians.



Dec 20, 2010

It is strange that the people who receive bribes are not accountable to anyone but one who is compelled to give is being sought after to be punished.
In my opinion to receive and accept bribe is more sever crime than to offer. Mind that the receiver is not under compulsion to accept.

In case of Satyam, all the accountants / Auditors who made adjustments to accounts /statements went Scot free and the person who followed their advise and signed those papers went behind the bars.
Our laws need to be changed to make accountable the right person


MNG Pillai

Dec 20, 2010

There is no dearth of laws in India. In fact, corruption prospers because the very creators and implementing agencies of laws gets an opportunity to profit by circumvening the law. Perhaps, State funding
of elections can cure the disease to some extent. The
need for the contribution of election fund creates an
unholy ' give & take' alliance between politicians and business class culminating to corruption in due course.



Dec 20, 2010

No legislation can help us because the enforcement agencies are either puppets of the ruling party or are impotent. Time is the healer. When I look back at the powerful unions of the banks in the yesteryears who were holding the country to ransom at times,we can see how time has humbled them. The same will happen to corruption and the corrupt. There is a climax to everything and I think corruption is peeking. Just as markets determine the right price time will determine the fate of the corrupt.

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