Indian firms pay 50 per cent of total project cost, on an average, as bribes to speed up clearances for real estate and infrastructure ventures, according to a report by the World Economic Forum (WEF) on corruption in the country.
“Boosted by low energy prices and expected implementation of structural reforms, India has taken over as the fastest-growing large economy, especially as China’s economy has recently slowed down… Despite this positive outlook, corruption remains a major barrier to growth in India,” the Forum said in a report titled ‘Building Foundations for Transparency’ under its Partnering Against Corruption Initiative.
The Forum chose to focus on the real estate and infrastructure sectors in its report as they are perceived to be among the industries most affected by bribery around the world.
“An expert opinion survey conducted with business and civil society as part of this project confirms that this is no different for India: more than two-thirds of the respondents perceive that the Indian IU (infrastructure and urban development) industries are more affected by corruption than other industries in the country. In addition, more than half perceive that the Indian industries are more affected than neighbouring Asian countries,” according to the Forum’s report released on Tuesday.
Within India, the Forum chose to examine the regulatory system for construction permits, land acquisition and land title registration in Maharashtra as a pilot as it contributes the maximum share to the Indian economy and attracted 22 per cent of the country’s real estate investments in 2014-15.
These regulatory domains faced the most pressing corruption risks, it found after consulting civil society and industry executives.
Highlighting ambiguous norms for change in land use that are exploited by influential developers, dodgy land records and the need for multiple clearances as the top reasons for project developers paying ‘speed’ money, the WEF said these findings have ‘strong implications for the competitiveness of the Indian markets.’
“High levels of corruption impede foreign direct investment and market entry for global enterprises that assess the risks of damaged reputation and potential consequences under legislation such as the U.S. Foreign Corrupt Practices Act (FCPA) or the U.K. Bribery Act. Even if strong internal compliance programmes are in place, risks remain along the supply chain via subcontractors and intermediaries,” the report pointed out.
Flagging complex and opaque processes for getting permits as a key cause of delays for project clearance, the WEF said delay leads to substantial increase in costs and hence, incentivise the payment of bribes to speed up project clearance.
“Interviewed participants suggested that those payments are considerable and can account for an average of 50 per cent of the total project cost or more,” it stressed.
Recommending clear regulations for changes in land use, the report noted a perception that the ‘discretionary power of some players allows for sudden changes in land use, which increases the uncertainty for potential sellers and encourages incentives to engage in bribery for buyers.’ This, in turn, led to “increasing market concentration” in cities like Mumbai where global and national players struggle to enter the market.
The only silver lining, the WEF noted, was the “cautious optimism” among many of those it surveyed.
“Most respondents from the project survey expect that corruption will be less of an issue in the Indian engineering, construction and real estate sectors by 2025 as a result of the efforts to reduce corruption in both government and industry,” it said.
(This story was edited post-publication)
