More FDI? Are you joking, says Ficci-Ernst &Young report

The foreign junkets of India's Prime Minister Manmohan Singh and his cabinet colleagues are little more than paid holidays as failures of policy and governance continue to deter foreign investors, a study by the Federation of Indian Chambers of Commerce and Industry along with global consultancy firm Ernst & Young points out.

The survey, which taps global respondents, says that investors feel corruption will hurt foreign direct investment (FDI). It further said that inadequate law enforcement is a root of corruption in India.

India last week relaxed FDI norms in 13 sectors, including defence and insurance, in the hope of bringing in dollar inflows. However, regulatory hurdles and uncertain policies are ensuring that the relaxed norms are only on paper, the study says.

"Around 83 per cent of respondents felt that the recent spate of scams will negatively impact FDI inflows into the country,'' said the survey report.

The report is based on a sample collected from a mix of Indian enterprises with domestic operations, and Indian and foreign multinationals in the US and the UK, whose annual incomes range from Rs5,000 crore to Rs10,000 crore.

The principal respondents belonged to business functions such as internal audit and finance, legal and compliance, and vigilance and risk management from banking and financial service institutions, and the technology, media and entertainment, and manufacturing sectors.

According to the report, 89 per cent of the respondents felt that inadequate enforcement of laws results in bribery and corruption rampant in the country.

''Corruption invariably increases transaction costs and uncertainty in an economy while lowering efficiency by forcing entrepreneurs to divert their scarce time and money to bribery rather than production,'' said FICCI president Naina Lal Kidwai.

Close to 50 per cent of respondents said that their companies have lost business to competitors due to their rivals' unethical conduct, says the report, titled 'Bribery and Corruption: Ground Reality in India'.

The report further said the sectors that are most vulnerable to corruption include government and the public sector, real estate, infrastructure, metals and mining, aerospace, defence, and utilities including power.

According to 73 per cent of respondents from private equity firms, a company operating in a sector that is perceived as highly corrupt may lose when it comes to a fair valuation of business, as the cost of corruption in the sector will be factored in a transaction.

Around 77 per cent of the respondents felt it is the responsibility of managing directors to handle bribery and corruption-related issues.