GMR, not Wal-Mart, is our real worry

Shoppers entering a Wal-Mart store in Riverside, Illinois. Photo: AFP

Sundeep Khanna: mint :Wed, Dec 12 2012. 01 31 PM IST

Where Indian firms might be getting it wrong is in their estimation of how hard some govts are going after corruption

Instead of getting our collective knickers in a twist over the legality of Wal-Mart’s
lobbying efforts, we might be better off ensuring wannabe Indian multinationals have a clear permissible practices list.

In recent times, in countries as diverse as the Maldives, Bolivia, Bulgaria, Zambia and Zimbabwe, Indian business groups such asGMR, Jindal, Mittal and Essar have run afoul of local politics or rules. As we float our boats, hoping India’s new reputation as a global player pushes us into the big league, the country needs the equivalent of the US Foreign Corrupt Practices Act (FCPA), or even the UK’s Foreign Bribery Act, 2011.

Currently, India just has the inadequate Prevention of Corruption Act, which hasn’t been able to rein in corrupt practices at home, leave alone those in distant lands.

FCPA has two parts. The first prohibits US citizens and US firms, or those listed on a US stock exchange, from making and offering to make payments to foreign government officials to obtain, or retain, business or a business advantage. The second requires that companies maintain accurate books and records. And the onus is on the parent entities; they can be held responsible for the actions of their subsidiaries. Though approved in 1988, FCPA became robust only after the passage of the Sarbanes-Oxley Act.

For India, a country ranked 94 on Transparency International’s global corruption list, it is futile to pretend that its companies will act within the letter and spirit of the law when doing business, particularly in developing countries, which may themselves be dodgy about their business practices (on the same list Bolivia is 105 while Zimbabwe is 163).

Graft and corruption have always been a part of global business. Assuming, therefore, that a kickback is the best way to get a contract isn’t unreasonable. Where Indian companies might be getting it wrong is in their estimation of how hard some governments are going after corruption, propelled in part by a groundswell of global opinion against graft in business.

The full story of GMR’s ouster from the airport project in Maldives isn’t out yet, so we don’t know if any rules were bent when the contract was being awarded. But neutral experts have acknowledged that the original contract was structured too heavily in favour of GMR. That may have been merely a part of business negotiations. But in the absence of a specific law to modulate their behaviour, Indian companies have been left to figure out for themselves the Lakshman rekha.

What hasn’t helped is the government’s own pussyfooting around this issue. India, as a member of the International Monetary Fund, is committed to the revised Madrid Declaration unanimously adopted recently by the lending agency and declaring that “promoting good governance in all its aspects, including efficiency and accountability of public sector, and tackling corruption are essential elements of a framework within which economies can prosper”. But such declarations lack teeth.

The Anti-Bribery Convention of the Organisation for Economic Co-operation and Development, now signed by 38 countries, established legally binding standards to criminalize bribery of foreign officials in international business. India, along with China, hasn’t joined the convention yet. Alvaro Cuervo-Cazurra, Robert Morrison fellow and associate professor of international business and strategy at Northeastern University, in a paper, Who Cares about Corruption?, says that laws against bribery abroad act as a deterrent against engaging in corruption in foreign countries and that investors who have been exposed to bribery at home may not be deterred by corruption abroad, seeking instead countries where corruption is prevalent.

Increasing globalization implies grappling with uncertainty when the internal politics of a country or even regime change reverses or starts dictating business decisions. Even as Indian corporate credibility plummets with the GMR episode in the region, what is clear is that despite the bilateral treaties between government pairs—that today stand at 3,000 or more in the world— interpretation and lack of common standards leave companies to their own devices in manoeuvring in foreign shores. An unambiguous law laying down the rules of behaviour wherever in the world an Indian company operates, will serve as a guiding principle for those that may find it difficult to take a conscience call in the face of a multi-million dollar deal.