'Follow the Money' May Lead Investors to India: The Ticker

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By William Pesek

In the annals of odd bedfellows, India's channeling of Richard Nixon's White House to fight corruption deserves a mention, if not its own chapter.

Two of India's top judges began a recent anti-graft ruling by citing the instructions given to reporter Bob Woodward during the Watergate investigation: “Follow the money.” They ordered a fresh and aggressive effort to retrieve roughly $500 billion Indians may be stashing illegally overseas. The move sent shockwaves through the political establishment. 

Investors have a well-calibrated cynicism about periodic graft purges in the second-most populous nation. Officials talk big, arrest a few baddies and then business as usual returns quicker than you can say "license raj." That's the catchphrase for the restrictive regulations through which the government doles out permission to do business. It forms the core of the corruption squandering much of India's 7.8 percent growth. 

This time, things may be different. While we follow the money, let's also follow the reactions of businesspeople and politicians who once thought they were untouchable. This anti-corruption step is unnerving New Delhi as rarely before. Press reports are filled with breathless details about grumbling among lawmakers and legislative gridlock in a government that, let's face it, isn't prized for efficiency. 

Weeding out graft would spread the benefits of rapid growth, boost foreign investment and empower entrepreneurs to create good-paying jobs from the ground up. It's the best way for India to come into its own as one of the "BRICS," a grouping that includes Brazil, Russia, China and South Africa. 

China's role shouldn't be missed here. The common explanation for India's sudden push is anger over last year's graft-plagued Commonwealth Games. The resignation of two ministers tied to the sale of telecommunications licenses didn't help. 

Yet China's success is catalyzing officials in New Delhi. There's a growing realization that the world economy is evolving and moving ahead at a rapid pace, and it won't wait for India. It needs to work harder and faster to keep up.

This latest purge offers encouraging signs that change is afoot. If so, the money investors may follow in the years ahead may be flowing India's way.

(William Pesek is a Bloomberg View columnist.)

-0- Aug/11/2011 12:11 GMT