Of Corruption And Businesses


By Dhirendra Kumar | Apr 11, 2011

Even though it's the political corruption that has been getting star billing during Anna Hazare's fast, sooner or later the role of businesses will start getting more attention. During the last two years, a number of businesses have destroyed vast amounts of shareholder values when their underhand dealings have become public. Predictably, all of these have been in telecom and realty, the two sectors where being close to politicians and bureaucrats is an important pre-condition for success.


It must be pointed out that the idea of a business being at risk because it's part of a corrupt nexus is a relatively new one in India. Traditionally, the ability to manage the government has been an important precursor to business success in India. This receded in the 90s, as licensing was abolished and a host of new industries came to the centre stage. These industries needed nothing much from the government to succeed, except to be left alone. During a certain period, the increasing involvement of the FIIs also proved to be a cleansing agent.

However, all that is long past now. Not only does success in many growth industries need active connivance of government power, talk of large chunks of newly successful businesses being secretly owned by politicians is common. There can be little doubt that there are many, many businesses in India that are built on a base that can't survive a harsh light shining brightly on them. While this is true of practically entire sectors like telecom, realty and airlines, it's probably true of many other industries as well.

It will be interesting to watch how this evolves if the institution of the Lokpal ever becomes functional in the manner that is envisioned by Hazare and others. You could easily have a situation where large businesses suddenly implode in a wave of legal troubles as some corrupt nexus is revealed. You could also see some businesses suddenly lose what seemed like a competitive advantage as they lose patronage. This could start happening even if the Lokpal institution has a partial or an imperfect actualisation. One way or another, businessmen and investors could be living in a different environment where the rules are different.