'Governance in India is broken'
August 19th, 2013
04:54 PM ET

'Governance in India is broken'

With a vast – and, just as importantly, youthful – population, India and its billion-plus potential consumers is on the minds of many Western companies. But will India be able to meet its potential? Ravi Venkatesan, a former chairman of Microsoft India and author of the new book Conquering the Chaos, answers GPS readers’ questions on this and other issues.

Indians want better education, health care and infrastructure, but the government is failing to provide these, writes “Sachin Patil” on Facebook. How confident are you that the government will carry out the reforms needed to make progress on these issues?

We have a real crisis. Despite India’s economic achievements, 66 years after independence, India ranks 136 out of 200 countries in terms of the human development index. A billion people live on less than $4/day. On many social indicators including infant mortality and lifespan, we lag even our neighbor Bangladesh. Half of all homes lack a toilet. Infrastructure investments are simply happening too slowly. India remains a ferociously tough place to do business, ranked #132 out of 200 countries in terms of ease of doing business by the World Bank. It’s hard to see a scenario when India can sustain its progress without addressing these issues.

It all simply boils down to governance. Governance in India is broken. Key institutions such as the judiciary, law enforcement, and the civil service haven’t been reformed and strengthened to keep pace with India’s development. But most of all, the levels of fragmentation, corruption and self-interest amongst leaders at the national, state and local government levels is stunningly high. This doesn’t augur well for reforms and progress. The base case appears to be one of a few more years of drift unless there is a black swan event that throws up competent leadership in the coming election.

Does India have a problem convincing its best talent to stay in India, asks Douglas Snazel.

Talent flows like the tide. When I was graduating from the elite Indian Institute of Technology Bombay in 1985, 30 out of 50 of my graduating class in mechanical engineering left India for the United States; in computer science, practically the whole class left. That’s because there were few opportunities for us in India at that point. Fifteen or twenty years later, the tide turned. Lots of professionals and entrepreneurs like me started trickling back to India because the economy began to do so well. There were more opportunities in India than anywhere else.  This was especially true in the fast growing technology industry. At the IITs, hardly ten students out of fifty would show any interest in going to the U.S. or elsewhere for graduate studies. It simply wasn’t exciting enough compared to the opportunities in India.

Today, with the Indian economy slowing and the country drifting, juxtaposed with a resurgent and reindustrializing America, I suspect that great talent will once again begin to leave India. This talent flow doesn’t per se concern me too much; like currency flows, it is reversible. What’s far more concerning is the lack of leadership and direction in the country.

While India has a lot of potential as seen by outsiders looking in, do Indians, in a general sense, also view the situation similarly? How high are hopes in India of being able to capitalize on its potential?

I don’t think anyone here really doubts that India has potential. Everyone gets it. The country has very favorable demographics, oodles of smart people and the economic success of the last decade showed everyone what’s possible. India definitely has the potential to eliminate poverty and become a developed country by 2050. However, the worry that more and more Indians have is whether time is running out in terms of realizing this potential.

More from GPS: India in 2013

India is celebrating its 66th year of Independence. But there is more anxiety and despondency than joy. India is in the midst of an economic crisis. But, even more, it’s in the midst of a moral and leadership crisis. Every country has its own particular problems and India has its fair share of challenges. That’s not the real issue. The real issue is the absence of strong, inspiring leaders who have a vision for the country, the moral fiber to attract mass followership and the courage to take tough decisions. We’ve allowed our country and society to be hijacked by people who are corrupt and criminal at worst and self-serving at best. For the most part, those at the helm of affairs today have little real interest in India’s development.  It is impossible for India to make progress on any front when self-interest trumps national interest every time.  Sixty-six years ago, India won her political freedom. But the British were simply replaced by a new ruling class that quickly turned kleptocratic and predatory. Until we are able to figure out how to get more honest and competent people into office, India will unfortunately continue to muddle along.

What are some of the biggest challenges companies must deal with when confronted with corruption in India’s bureaucracy, asks “Jason Heilemann” on Facebook. What are some of the key lessons you learned that you think others could apply?

Corruption in India is a huge problem, as it is in most emerging markets, including China and Brazil.  Companies will have to learn to deal with this as more of their business comes from such markets. The risks are large and the consequences to reputation and business are massive as companies ranging from Wal-Mart to GSK have recently discovered. My advice is simple. In certain industries – especially where the government controls access to natural resources or contracts – bribery is rampant and it’s difficult to succeed without being corrupt. This includes industries like real estate, mining, lots of infrastructure and even telecommunications. Such industries are best avoided.

However, in over half the economy, most consumer or industrial businesses for instance, it is indeed possible to avoid paying bribes to win business. A bigger challenge than bribery is the demand for “speed money” for routine transactions like getting a permit or approval or clearing a customs shipment. It’s extraordinarily difficult to navigate the maze of rules and regulations without paying speed money but it is possible. The first is top management commitment to doing business the right way. There is a cost to being honest – you will lose some business. Things will take more time; if you are in a hurry, you will have to pay. Every employee needs to know that this is OK and that they will be backed up when they make the right calls.

Second, there needs to be a huge focus on compliance. India or China may account for a relatively small part of the global business but it may be a large part of the global fraud risk. So companies need to invest in training every employee, invest in controls and audits and investigative capabilities, and invest in creating a strong in-house administrative function instead of outsourcing this to agents. Most of all, they need to focus on holding their local leaders accountable for ethics and for creating a culture of compliance. Many global companies have built successful businesses in India the right way. There is no doubt that this is possible.

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Topics: Economy • India • Readers' questions

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soundoff (14 Responses)
  1. George patton

    Here's just further proof that the Indian government needs not only the make a truce with their indigenous Maoists but also make them a part of the New Delhi government and thus work together to fix the current situation. This fighting is nothing but sheer stupidity and they need to quit trying to please the politicians in Washington D.C. and London who did and never will do anything for them!!!

    August 19, 2013 at 5:43 pm | Reply
  2. j. von hettlingen

    Ravi Venkatesan has been very frank about the pitfalls in doing business in India and critical towards the government. He's right that this self-serving mentality is short-sighted and destructive. The population lacks moral compass and the sense of common good. Unfortunately money corrupts and this is deeply felt in emerging economies, there people had lived decades in deprivation and finally been lift out of poverty.

    August 20, 2013 at 10:28 am | Reply
  3. Hastimal

    We can make india as good as USA if we can change our politician ( MLA and MP) .
    We should have a strong commission at Supreme Court level to work out their eligibility.
    Besides many eligibility filters ,there should be a cap on their assets.
    If their assets exceed the cap,they should either resign or they transfer it to govt.

    August 20, 2013 at 4:54 pm | Reply
  4. Mateus Mahumane

    I am surprised that India, in many aspects, resembles the communist China in terms of corruption, dysfunctional government, poor healthcare and education, poor infrastructure etc. except that they regularly hold elections and alternate the government.

    August 20, 2013 at 7:11 pm | Reply
    • hmbguy

      Correct, both governments are very similar in nature.

      We switch parties after elections, but since everyone is corrupt and crooked nothing really changes.

      August 20, 2013 at 9:23 pm | Reply
    • Maersk

      Diaperheads like you should leave China alone. What you can do is to bullzhit about India is the biggest demo-of-crazy.

      August 22, 2013 at 8:58 am | Reply
    • Darn confused Indian

      India is in dire straits, and in big trouble. Just don't pull China in. Making China look as bad as India to justify your own mega problems is just to find a scapegoat to say that you are not alone. This is the Indian mentality, finding excuses.

      China is definitely doing much much better than India in all aspects, in GDP, social cohesion, infrastructure, even in corruption eradication. China's GDP is 5.5 times bigger than India at US$10 trillion, and per capita is 4 times higher. What good is India, except to find excuses to say China is the same as them...

      August 24, 2013 at 5:15 am | Reply
  5. jamesdickason

    So is the one in the United States–

    August 20, 2013 at 7:17 pm | Reply
  6. xy

    More than anything India needs to control their population numbers. The globe needs to have less people. Too many poor people have children there.

    August 21, 2013 at 6:55 am | Reply
  7. Rick McDaniel

    It appears that India has too great a crime problem, for it to be a safe place for Americans to visit, any longer.

    August 21, 2013 at 3:14 pm | Reply
  8. Purshottam

    India's problems aren't just corruption and other factors mentioned in the article and comments posts – it's big problem is unbridled chauvinism that drives these so called "leaders" and most people there and gives them this false sense of self-importance. You can see it a lot in northern India and more so in Delhi. It's amazing how many people think they are some sort of deity; mainly tin gods, but they do make an awful mess and a lot of noise.

    August 22, 2013 at 6:36 pm | Reply
  9. Right on

    "it's big problem is unbridled chauvinism that drives these so called "leaders" and most people there and gives them this false sense of self-importance."

    Right on. Indians like to brag, and brag big time. They hardly know what is modesty. Just listen to their comments when India was growing in the late 2000s. They brag and boasted, ... and now the world is laughing at them.

    India, with its free falling rupee and economic backwater, is now even singled out as may be the next contagion to spread a world recession, especially to the weaker developing countries. Now, that's highly unflattering, to be the scourge of the source of recession, LOL.

    August 24, 2013 at 5:25 am | Reply
  10. Pravinkumar Shinde

    Am an employee of pvt company. Still I need to tell something. These corporate biwigs have had their own chances and opportunities to make the mark in changing the world .. ateleast for their own coroprations. Havn't seen these corporate leaders succeeding. They have created dissappointing scenarios in the corporations where being industrious is not rewared. Rather now a days; I have seen that the government offices are better these days compared to pvt ones. B'se we have atleast a right to protest against the goverment to get our work done. No pvt company or corporate body allows any protest to happen. That's its hard to agree for any corporate leaders blames on any policitcal leader. Life is a mirror; it throws the same rays backt that you sent to it ! Please try implementing RTE in your corporations without retalliations and then speak.

    August 25, 2013 at 7:17 am | Reply
  11. SUBIR

    EXPLOSIVE POPULATION GROWTH IS THE MAIN PROBLEM THAT NEED TO BE ADDRESSED BY THE INDIAN LEADERSHIP. UNFORTUNATELY FOR FEAR OF LOOSING VOTE BANK NOBODY HAS DARED TO TOUCH THIS DELICATE ISSUE. THEREFORE WHAT IS REQUIRED IN THE PRESENT DAY CONTEXT IS SUCH BOLD LEADERSHIP WHO WILL TAKE DECISIVE STEP IN THIS DIRECTION.

    August 26, 2013 at 5:02 am | Reply

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