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May 15, 2014

India has a rich history of economic and societal diversity. However, over the last few years, the threat landscape has evolved in India; a number of risks have emerged. After thorough research and analysis, the third edition of the Pinkerton Risk Survey 2014 has unveiled a number of interesting findings. The aim of the survey has been to give a snapshot to the risks applicable across the Industry spectrum. Find the Risk Survey referenced here which is a companion to this article. In the past, the primary risks throughout India were operational risks, defined as the probability of a loss occurring from the internal inadequacies of an organization or a breakdown in its controls, operations or procedures. The 2014 survey has revealed a shift towards strategic risks arising from poor business decisions, improper implementation of decisions, inadequate resource allocations and failure to respond to changes in the business environment. As such, the following have been revealed as India’s top five risks:


#1 Risk: 

Corruption, Bribery, and Corporate Frauds

Corruption, bribery and corporate frauds are now being recognized as the number one risk affecting businesses in India. This is a result of a number of major frauds and scandals that have been uncovered in the last few years. In particular, theft of physical assets, corruption and bribery, internal financial frauds and information theft are most prevalent. Due to the nature of these risks, corruption, bribery and corporate frauds are likely to impact foreign direct investments in India. As a result, companies looking at India in the short term (one year) should be well advised to follow the policy of “wait and watch.” Doing a thorough risk analysis before establishing a business is as applicable in India as anywhere else in the world. Moreover, 2015 is a year to watch. By the second quarter of the year, the newly elected government will have fully transitioned into power and we will wait to see how this will affect the risk level.


#2 Risk: 

Strikes, Closures, and Unrest

In India, there has been a surge of strikes leading to civic disturbance and violence as publicized throughout international and national media coverage. As the second largest risk in India, strikes disrupt daily business. For example, a strike in the Maruti’s Manesar plant in Haryana cost the company a loss of INR 1 billion and resulted in a 10% decline of its operations. This is just one of many strikes over the past few years that has resulted in the loss of millions of rupees due to strikes, closures, and unrest.


#3 Risk:

Political Governance Instability

India is currently in the midst of the country’s longest election in history. Taking place April 7 to May 12, 2014, and announced on May 16th, the forthcoming election of the 16th Lok Sabha has led to a large amount of political uncertainty. Pre-poll surveys have indicated that the present regime is likely to undergo a change. It has been the trend that the new governments tend to make and/or reserve some of the policy decisions of the previous government. Following the election, the new government will take up to one year to put in place the new policies. Therefore, in the short term, we can infer that the risks for new businesses are likely to increase. However, in the long run, we believe the Indian economy is likely to strengthen, benefiting from sound policy decisions of the new government.


#4 Risk:

Crime

Crime has risen to being India’s fourth highest risk, up from sixth last year. The Indian crime rate has been steadily rising, especially within major cities. This is a serious concern for the Indian economy. Many countries, including the United States, have issued travel warnings for those considering travel in India. There has been a rising trend towards thieves specifically targeting female tourists. The states which have a robust tourism industry are the most sensitive to this increase in crimes against foreigners. To rectify this issue, the states are increasing vigilance and updating policy in the tourist spots, alerting hotel owners and staff about the risks, and increasing airport checks. This information dissemination works. In the past, there had also been spurts in crime involving foreigners but educating those on the front lines reduced risks significantly. We believe this is a transient phenomenon which will likely not last long.


#5 Risk:

Information and Cyber Insecurity

Information and cyber insecurity, listed as number five, has seen improvements. In 2012, information and cyber insecurity was India’s top risk. Since then, an increased awareness of IT security among India’s IT companies has spread. However, ransomware, identify theft, phishing attacks, and mobile cybercrimes continue to be areas to watch. Additionally, social media and the subsequent spread of information must be monitored for misuse. For example, online rumors regarding the Muzaffarnagar riots in 2013 and the Bangalore cyber terror attacks in 2012 led to mass exodus and displacement. Social media users should be aware of the nature of social media and question the validity of all statements. India continues as a nation experiencing tremendous growth. With that growth come increased and new, risks. Read a more in-depth analysis of the current situation in the 2014 India Risk Survey.

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