Corruption Perception Holding India Back, Bank of Singapore Says

A perception of increased corruption in India has hurt investment and contributed to a 15 percent slide in its stock market since early 2008, according to a report from the Bank of Singapore Ltd.

“Corruption perceptions have worsened in recent years, and this has led to a decline in the investment-to-gross domestic product ratio,” Richard Jerram, chief economist at Bank of Singapore, said in an e-mailed report, citing Transparency International’s Corruption Perceptions Index. “This has been a major factor behind infrastructure bottlenecks that have led to persistently high inflation and a slowing trend growth rate.”

India’s rupee slumped 16 percent last year, the worst performer in Asia, as growth slowed and corruption scandals that sparked protests hampered the government’s ability to push forward policies aimed at spurring investment. That contrasts with Indonesia, where declining perceptions of corruption have been accompanied by a rise in the investment-to-GDP ratio, Jerram said.

“Corruption can be seen as a form of tax on economic activity, so in effect it raises the cost of doing business and reduces returns to investors,” said Jerram, who examined the rankings of the annual Corruption Perceptions Index for countries over more than a decade. “Higher corruption results in lower expected cash flows.”

Indonesia’s economy, the largest in Southeast Asia, expanded 6.5 percent in 2011, and the nation has in recent months received ratings upgrades from Fitch Ratings and Moody’s Investors Service, restoring its debt to investment grade for the first time since the Asian financial crisis. The benchmark Jakarta Composite index is up about 40 percent from early 2008 levels.

Of the other developing economies in Asia, the Philippines offers the “most interesting prospects” as its 2011 corruption perception index reading was the best since 2004, Jerram said. “Thailand is still trying to repair the damage from increased corruption perceptions from the previous Thaksin administration, while Malaysia is struggling to convince investors about its latest economic reform plan,” he said.

To contact the reporter on this story: Rina Chandran in Singapore at rchandran12@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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