Relations between government and business in India are characterised by distrust on the one hand and collusion on the other, and legislators are unsure how best to engage companies in the country’s development
Jawaharlal Nehru, the first prime minister of independent India, famously gave his view on government process: “Democracy is good. I say this because other systems are worse.”
The statistics add weight to that perception. An annual report on Asian bureaucracies by Hong Kong-based Political and Economic Risk Consultancy gives India a score of 9.21 out of 10 (10 being the worst score). It’s the 10th consecutive year the country has come bottom.
Corruption
For the responsible business agenda, working within such a system presents obvious challenges. The most evident is corruption. India ranks joint 87th in Transparency International’s benchmark Corruption Perception index, alongside Liberia and below Serbia.
And there are growing signs that the Indian electorate has had enough. Over the past 18 months or so, a groundswell of popular support has emerged behind Anna Hazare, a noted anti-corruption campaigner. Hazare accused Indian parliamentarians of watering down two contentious anti-corruption bills (known as the Lokpal and Lokayuktas bills).
While business complains about levels of corruption, it cannot claim to be above the fray. A public tender scam over 2G telecom licences short-changed the Indian exchequer of up to $38bn. In February 2012, India’s Supreme Court cancelled all the 122 licences that had been issued. Brand names such as Tata Technologies, Idea Cellular and Spice Communications were among those embroiled in the affair.
Despite the 2G embarrassment, India’s prime minister, Manmohan Singh, insists his administration is making headway against corrupt practices. He points to recent legislative examples such as the Right to Information Act, the Judicial Accountability Bill and the Whistle Blowers Bill. Moves have also been tabled to tighten public procurement regulation and implement a national e-governance plan.
For many it’s too little, too late, however. “There’s been a huge public backlash about corruption,” says Amita Joseph, director at the non-profit Business & Community Foundation. “Companies are seen to be influencing politicians and … bypassing the laws of the land.”
In response, intermediary groups such as the World Bank and Transparency International are trying to drive “more transparency and integrity” into the private sector, says Mark Hodge, director of the Delhi-based Global Business Initiative on Human Rights.
He points to the example of “integrity pacts” developed by German engineering giant Siemens in association with Transparency International. The approach calls on customers and suppliers to maintain transparency in the bidding process and abstain from bribery when competing for public-sector contracts. Siemens has concluded 40 such pacts in India since 2009 and now requires them for all future contract awards in the country.
There are other notable examples too. Some depend on the initiative of a single company. Tata Tea, for instance, made combating bribery a central theme of its long-running Jaago Re television advertising campaign. Others are more collaborative in origin. The government-owned Steel Authority of India (Sail), for instance, has teamed up with Tata Steel to establish a business-to-business portal called Mjunction. The online platform is credited with bringing transparency to the sale of steel and related products.
Involving public officers in the fight against corruption is harder, however. The Indian chapter of the International Business Leaders Forum is currently attempting just that. Over the course of 2012, IBLF will run workshops and discussion forums for corporate executives, senior policymakers and anti-corruption regulators such as India’s Central Vigilance Commission.
Joe Phelan, director of IBLF in India, is optimistic that India is reaching a tipping point with regard to corruption. “Uniquely among emerging markets, India has both a public demand for change, and the management and law-making skills to deliver it.”
“Clearly action by regulators is a top priority, but the corporate sector need not wait for this to happen. Business can and should lead the fight against corruption from the front.”
Mandatory v voluntary
Along with politicians, business has long been painted as the “bad guy” in India. That hasn’t helped build trust between the two sectors, and neither has the divergent mindsets within the public and private sectors. Indian companies are as innovative and market-savvy as the government is process-driven and bureaucratic.
According to Malini Mehra, founder of the non-profit Centre for Social Markets, policymakers in Delhi continue to be “out of touch” with how business works and what motivates industrialists.
That’s problematic when it comes to corporate responsibility. Mehra says: “Because the government doesn’t understand what incentivises companies to get involved in community, social or environmental affairs, they don’t come up with the most sensible solutions.”
Mehra points to the department of public enterprise’s guidelines on corporate social responsibility, which she describes as a “mechanistic” attempt to “codify” corporate responsibility. Introduced in 2010, the guidelines seek to define corporate responsibility within an “indicative” list of 28 subject areas (see box).
Hodge agrees that the guidelines are “strangely formulated”, borrowing from the Global Compact’s principles while also appearing to promote a traditional philanthropic approach. They are applicable specifically to public-owned companies (known as PSUs).
He places more hope in guidelines passed in 2009 by the ministry of corporate affairs, which he describes as “more cross-cutting” and “more understanding of core business impacts”. Updated in 2011, the national voluntary guidelines on social, environmental and economic responsibilities of business claim to provide a “distinctly Indian approach”. The guidance document is structured around nine core principles, from environmental protection to responsible lobbying. For each individual principle, a “business case” rationale is given.
However, the shift to a more mandatory approach to corporate responsibility – something to which most in the private sector are vehemently opposed – seems to be on the cards. Existing rules oblige most PSUs to spend 0.5-5% of net profits on corporate responsibility projects of various kinds. A proposed new companies bill, which was passed by the Indian cabinet in November 2011, would extend that obligation to companies of all types.
There remains a “massive question” as to whether the bill will be passed or “watered down”, says Sachin Joshi, director of the Delhi-based CII-ITC Centre of Excellence for Sustainable Development. He predicts that a compromise will probably be struck, with reporting of corporate community investment being made mandatory rather than the investment itself.
This would be in keeping with other disclosure requirements now emerging. The regulator for the National Stock Exchange of India, for example, is now requiring the largest 100 listed companies to report against the voluntary guidelines. “It’s an indirect way of mandating the guidelines themselves,” Joshi says.
Partnership
Political and legislative tensions make direct alliances between companies and state agencies difficult. That said, the notion of “partnership” is now recognised in official government rhetoric. The ministry of enterprise development’s guidelines, for example, talk of “dovetailing” national, district and local initiatives by the state with the corporate responsibility efforts of public-owned companies.
At the level of individual business leaders, considerable cross-sectoral participation is in evidence. The classic case is that of Nandan Nilekani, co-founder of software giant Infosys, who spearheaded the government’s efforts to introduce a unique biometric identification system. He left his day-job to do so.
At a corporate level, such cooperation is more tentative. Nokia, for instance, has been active in promoting the recycling of mobile phones over recent years. Partly as a consequence of these efforts, the government is preparing to introduce new e-waste rules in May 2012.
While Nokia has no formal relationship with the central government, bringing “examples of innovation” and “developing an effective ecosystem” is appreciated by policy makers, says Pranshu Singhal, Nokia’s head of sustainability.
Turning to the private sector for inspiration makes sense, according to Janet Geddes, associate director at KPMG’s development sector practice in Mumbai. “[Policymakers] know that business has the sort of skill set that can help the government deliver its development needs,” she says. Many see a moral imperative here too. There’s a perceived need for business to “contribute” to development, Geddes explains, “given the growth and wealth of the private sector in India”.
Business leaders show a willingness to “give back”. Indeed, nation building is a popular refrain among India’s chief executives. In theory, companies and government should be on the same page. Yet the lack of genuine partnerships between the two highlights the gaps in trust and understanding that still exist.
Guidelines for state-owned companies
The guidelines on corporate social responsibility for central public sector enterprises have been in effect since April 2010.
Introduced by the ministry of heavy industries and public enterprises, the guidelines attempt to spell out a “triple bottom line” approach to corporate performance. While the voluntary norms aspire to go “beyond philanthropic activities”, they include an obligation on public-sector companies to invest 2-5% of net profits (or 0.5-2% for companies with profits over 5bn rupees (about £60m)) in projects that “generate community goodwill, create social impact and visibility”.
The guidelines provide a list of 28 possible investment areas, ranging from education, water and sanitation through to disaster relief, vocational training and the adoption of villages.