The cost of doing business in India’s booming retail market may require some off-the-books transactions.
Licensing officials of the Indian government often solicit bribes before granting the permits necessary for starting and maintaining a retail business. Private parties as well must frequently be bribed as a prelude to opening a retail outlet. These accusations come from a variety of sources, who call the practice of bribery “speed money.”
To set up a supermarket, for example, in which a variety of goods are sold, as many as 40 different permits may be required. The cost of these illegally obtained permits add up and significantly take a bite out of the already narrow profit margins of the retail business.
Big name foreign retailers like Wal-Mart and IKEA, trying to do business under India’s system face a dilemma — they must observe strict anti-bribery laws imposed by their own countries.
Bribery in India is nothing new. In 2011, management consulting-accounting firm KPMG conducted a survey among leading Indian corporations on the increase of bribery and corruption. Below are some significant results of that survey.
84 percent of the respondents believed that the Indian government had not been very effective in enforcing anti-bribery and corruption laws.
90 percent believed that corruption had a negative impact on the stock market by increasing volatility and preventing institutional investors from making long-term investments.
51 percent believed that corruption makes India less attractive to foreign investors.
Nevertheless, the system of “speed money” and payoffs continue in India and the nation suffers because of it despite sensational growth numbers.
Without corruption, according to the KPMG survey, India’s GDP growth could exceed projections.
“Even for a simple thing like putting up signage in front of your store you are harassed for money,” said Hong Kong entrepreneur Ramesh Tainwala. Tainwala owned retailing businesses in India and was required to pay bribes, he says. “There are many bodies regulating that and the permits needed to set up one shop are baffling.”
Although India has major economic potential, its current spectacular retailing growth could come to a disastrous dead end if bribery and corruption continue.