No business in India gives returns like politics in India, said ADR. Obviously, politics has turned into very lucrative business in India. Does this augur good or bad for India, its economy and the markets, especially BRICs country? Explain your position.
From the facts of the case, it can be clearly seen that politicians thrive in India irrespective of rising inflation and slowing economy. Emerging countries will account for a large chunk of the world’s growth. These countries promise new and unexplored markets to the world with their rising levels of consumption and cheap labor. However, markets such as India pose unique risks for the businesses and hence impact its economy. Business risks are provoked because of influence of government in transactions which are expected to be purely commercial in the developed countries.
State plays a very important role in planning of its economy and if the resources are used by the politicians for their “business” then economy is bound to fall flat.
Financial crises are attributed to misbehavior of some kind, greed, fraud and cronyism. As is widely known, political influence is very essential to start a business in India. This is a key concern for the Indian markets. Corruption has serious repercussions on India’s businesses and political environment. Every time a scandal occurs it damages the credibility of the government. The following are the implications of corruption on India’s economy and markets:
Corruption reduces competition and efficiency in the Indian economy. India ranked 134th out of 183 countries in the World Bank's Ease of Doing Business Index in 2011, a ranking lower than both China (79th) and Brazil (127th). Businesses face constraints in starting a business, dealing with construction permits and enforcing contracts
Corruption raises the cost of doing business and adds to the problem of regulatory uncertainty, thus affecting foreign direct investment (FDI). Due to strict foreign investment regulations, FDI inflows to India remain low compared to its peer economies. The CEO of Bharti-Walmart, Raj Jain quit because the company is caught between the unstoppable pressure of a US law that bars corrupt acts by American companies and the unyielding wall of corruption in India, which lets no man pass without losing his virtue.
Significant tax revenues have been lost due to corruption. The sale of the 2G spectrum telecom licences in 2008 alone caused an estimated US$40.0 billion revenue loss for the Indian government. India has faced a rising budget deficit which stood at Rs7.0 trillion (US$153 billion) in 2010 or 8.9% of total GDP
India's efforts to reduce poverty will be hampered as public funds are embezzled and diverted from social spending such as on healthcare and education. According to national statistics, more than one third of the Indian population still live below the national poverty line as of 2010. Income inequality has also worsened, with the Gini index rising from 37.8% in 2005 to 39.5% in 2010.
Rising corruption has led to social discontent amongst the middle-class and a volatile political environment. Since early 2011, a series of anti-corruption street protests and hunger strikes are putting the government under pressure to pass a revised anti-corruption bill that has been proposed by Anna Hazare, India's well-known anti-corruption activist.
There are steps that have been taken as corrective measures. * The RTI Act has brought increasing levels of transparency to the actions of the government. * Formation of “Watch dog” bodies, media and activist groups because of technological developments and IT, also keep a check on the actions of the government. Various bodies of the government have also turned activist like the judiciary and CAG, the net effect being able to make it difficult to bend rules. * There are businessmen who have prospered without falling in the traps of corruption and are vocally loud about not being the victims of corruption. * But routine, widespread corruption remains. For this to go, one has to address the root problem. And that is the failure of Indian democracy to institute transparent funding. The solution is to institute transparent funding of politics. Business must fund parties openly. Parties must declare their expenditure at every locality, that must be contested and finalised and aggregated. And they must show source of income.