S. R.

LUTHRA INSTITUTE OF MANAGEMENT

SUBJECT: BUSINESS ETHIC AND CORPORATE

GOVERNANCE

Topic: India lacks business ethics (Article)

MBA (Sem:4)

Class: F1

Shift: 1

Group No.: 8

Submitted By:

Urvi Brahmbhatt (167500592013)

Samir Modi (167500592054)

Submitted To:

Mr. Riddhish Joshi

 Index

SR. Particulars Page

NO No.
1 Summery and Analysis 1
2 Annexure 4
3 Bibliography 8
 Summary and analysis
Business ethics are rules of business by which approach of business activity
may be judged. It is simply applying general rules of ethics in business.

Every business operates within the society. So, every business irrespective of
size exists more on ethical means or in total regards to all its social concern to
survive long. Business needs to function as responsible corporate citizen in the
country.

In every market customer is treated as a king because if there is no one to buy

the product the business will not going survive. Businesses which disregard the
wishes of their customers fade away into oblivion. Yet the customers are
expose to unethical practices many times.

Many businesses follow unethical practices in routine life. Like refuse to taking
back defective product, refuse to refund for services not render, pharmaceutical
company that introduces a drug without fully complying with guidelines of
clinical trials. It is only cost to customer in short run, but over a longer period, it
hurts businesses in an increasingly globalised commercial environment, where
customers across regions are connected through ever expanding social media.

Situation of various industry in India

1) Tourism industry:

Despite of our diverse geographies and rich cultural heritage, India received
only 6.5 million (2011) foreign tourists as compared to 57 million in China,
according to World Bank.

From airport to taxis, hotels, shops and tour guides – all try to fleece innocent
tourists a country that claims to practice atithi devo bhava. It has tarnished
India’s image as a favoured tourist destination. Growing sexual assaults against
women tourists worsen the already bad situation.

1
2) Financial services industry:

Financial services are another sector that cannot afford to lose its customer
trust. Yet, frauds are becoming a regular feature. Trust deficit will impede the
future growth of the sector.

According to the latest Annual Report of the RBI, only a fourth of the household
savings went into financial channels in 2012-13. Of that, a mere 3 per cent
flowed into equity and mutual funds, while 57 per cent went into the low risk
fixed deposits, primarily because most people don’t trust India’s financial
markets that are prone to frauds and scams.

3) Real estate:

Raising prices in a period of slackening demand to retain investor interest,

default on features or delivery time and unhindered use of black money in the
purchase and sale of properties is driving middle class home buyers out of the
market.

It is not only customers, who are at the receiving end. Businesses treat other
businesses badly. Not making timely payment or refusing to pay one’s vendors
on flimsy grounds is a common occurrence.

Reasons

Max Weber has showed that values determined social action and culture
shaped economic development. In India, Marwaris, Gujaratis in North and West
and Chettiars in South could succeed initially because of cultural orientation
towards hard work and entrepreneurship.

The reason behind unethical practices are

• Poor contract consciousness as a society

• Slower judicial decisions
• Ineffective enforcement of tort laws.
• Compensations are often delayed or low
• The time and money spent in fighting cases are more.

2
Suggestions

• A system of online filing of complaints will improve complaint registration

and empower unorganised customers against unethical business practices.
• India needs tough regulators for high complaint sectors, like real estate and
travel and tourism
• Tightening tort laws and providing for class action suits will dent fraudulent
business practices.
• Attitudinal changes are needed. Aggrieved customers must raise their voice
against deficiency in services at all forums, starting from social media to
consumer courts.

3
 Annexure

India lacks business ethics

Businesses short-change customers and other businesses.

Finally, a breakdown of trust boomerangs on them.

In a market economy, the customer is supposed to be the ‘king’ who determines

what to produce, how to produce and by whom to produce. The economic wheel
moves around his whims and fancies. Businesses which disregard the wishes
of their customers fade away into oblivion, says management books. Yet,
customers across all regions of India are taken for a ride by unethical business
practices.

At a time when businesses are trying hard to retain their customer base from
losing it to competition, it makes sense to ponder how poor treatment of
customers affects them or does it affect them at all? Otherwise, what is the
rationale behind the ever-growing number of consumer complaints against
suppliers of goods and services, from builders, brokers of financial products,
retailers and travel agents to telecom service providers?

What do you say of a vendor who dilly-dallies in taking back a defective product,
or refuses to refund for services not rendered, or a pharmaceutical company

4
that introduces a drug without fully complying with guidelines of clinical trials?
What are the implications of doing business without business ethics? Is it only
a cost to the customers at the receiving end?

Maybe ‘yes’ in the short run, but over a longer period, it hurts businesses in an
increasingly globalised commercial environment, where customers across
regions are connected through ever expanding social media. Besides, during
slowdown, unsatisfied customers dump unethical businesses first and add to
their miseries.

Breakdown of trust
Business thrives on (good) reputation. Treating one’s client unfairly strikes at
the root of one’s reputation. Deterioration in reputation leads to decline in the
number of clients a business organisation has, with adverse implications for its
top and bottom lines. Yet, bad treatment of customers continues. The best
example is tourism.

In 2011, India received only 6.5 million foreign tourists as compared to 57

million in China, according to World Bank. Forget China, India could not match
even a smaller country, Malaysia (25 million). Given our diverse geographies
and rich cultural heritage, this figure is shamefully low by any standard.

From airport to taxis, hotels, shops and tour guides – all try to fleece innocent
tourists (more so if they are foreigners) in a country that claims to practice atithi
devo bhava (a guest is likeGod). It has tarnished India’s image as a favoured
tourist destination. Growing sexual assaults against women tourists worsen the
already bad situation.

Financial services are another sector that cannot afford to lose its customer
trust. Yet, frauds (the latest example is NSEL fiasco) are becoming a regular
feature. Trust deficit will impede the future growth of the sector.

According to the latest Annual Report of the RBI, only a fourth of the household
savings went into financial channels in 2012-13. Of that, a mere 3 per cent
flowed into equity and mutual funds, while 57 per cent went into the low risk

5
fixed deposits, primarily because most people don’t trust India’s financial
markets that are prone to frauds and scams.

The story of housing sector is no different. Raising prices in a period of

slackening demand to retain investor interest, default on features or delivery
time and unhindered use of black money in the purchase and sale of properties
is driving middle class home buyers out of the market.

Besides, exploitation of hapless customers may prompt tougher regulation from

government – such as the proposed housing regulator with stringent penalties
for defaulting builders. That will add to the cost of doing business, force a hike
in prices and ultimately lead to erosion of sales and profits.

It is not only customers, who are at the receiving end. Businesses treat other
businesses badly. Not making timely payment or refusing to pay one’s vendors
on flimsy grounds is a common occurrence.

Cultural factors

Max Weber in his magnum opus Protestant Ethic and the Spirit of Capitalism
showed that values determined social action and culture shaped economic
development.

Discipline, pursuit of wealth and abiding by contracts led to growth of capitalism

in the west. In India too, Marwaris, Gujaratis in North and West and Chettiars
in South could succeed initially because of cultural orientation towards hard
work and entrepreneurship.

Is moral degeneration in an increasingly consumerist society like ours

responsible for ignoring its cultural best practices — with implications for doing
business environment? Perhaps, but what about India’s record on contract
enforcement?

India is above only Timor when it comes to enforcing contracts.

The problem lies in our poor contract consciousness as a society. How many
of us ever read the ‘apartment buyers contract’ when booking an apartment, or
read the disclaimer given at the end of the application form for opening up a

6
Demat account? Slower judicial decisions leads to ‘de facto’ ineffective
enforcement of tort laws.

Compensations are often delayed or low when compared to the extent of

injuries as well as the time and money spent in fighting cases. That discourages
the aggrieved parties from resorting to legal proceedings. At the same time, it
ensures ‘de facto’ immunity to the defaulting parties.

The way forward

In a welfare-oriented democratic polity like ours, the government cannot remain

a mere spectator. A system of online filing of complaints will improve complaint
registration and empower unorganised customers against unethical business
practices.

Further, India needs tough regulators for high complaint sectors, like real estate
and travel and tourism. Tightening tort laws and providing for class action suits
will dent fraudulent business practices.

However, tough regulation alone will not be enough. Attitudinal changes are
needed if one wants value for one’s money. Aggrieved customers must raise
their voice against deficiency in services at all forums, starting from social
media to consumer courts.

Above all, businesses must realise that the key to sustained growth in top and
bottom line is ethical business practice. They can ignore it at their own peril in
an intensely competitive business environment.

7
 Bibliography

https://www.thehindubusinessline.com/opinion/India-lacks-business
ethics/article20655619.ece