– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –
By Hugo Dixon
LONDON (Reuters Breakingviews) – It’s easy to see why investors in India are running scared. Two top tycoons have been hauled in by investigators in connection with a mounting telecoms scandal, inflation is rampant and the government seems paralysed.
The Sensex has dropped 11 percent this year. And the shares of Reliance Communications, chaired by Anil Ambani, one of the two tycoons questioned by police, have been hammered: they are down 36 percent. The other is Prashant Ruia, chief executive of Essar Group. Neither has been charged.
But endemic corruption, which is estimated to drag economic growth down by 1 to 2 percentage points a year, is an old story. What’s new is that there has been an outcry about it. The urban middle classes seem fed up and the media is hounding the story. The Supreme Court, meanwhile, has criticised Prime Minister Manmohan Singh for his slow response and put steel in the spine of the police, telling them to question even billionaires.
Singh now looks likely to agree to a cross-party parliamentary probe into the scandal which is estimated to have cost the government up to $39 billion in lost revenues. Weeks of public hearings would keep up the pressure for reform. Campaigners are also calling for the government’s proposed anti-corruption law, which many consider to be toothless, to be replaced by something stronger.