CNN: 'Governance in India is broken'

beijingwalker · Aug 21, 2013

CNN: '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 Indias 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. Its 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 havent been reformed and strengthened to keep pace with Indias 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 doesnt 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. Thats 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 wasnt 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 doesnt per se concern me too much; like currency flows, it is reversible. Whats 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 dont 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 whats 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, its in the midst of a moral and leadership crisis. Every country has its own particular problems and India has its fair share of challenges. Thats 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. Weve 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 Indias 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 Indias 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 its 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. Its 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
Post by: CNN's Jason Miks