India Grows Even More Corrupt

According to Transparency International, corruption in India is on the rise.

The news will come as a blow to a country that is trying to emerge as an international power and increasingly finds itself in competition with its regional rival China.

The debacle at last year's Commonwealth Games and reports of corruption in the allocation of 2G spectrum helped to bring down India's score to 3.1 from last year's score of 3.3 on a scale of 0 to 10, with 10 being the least corrupt. India ranked number 95 out of 183 countries covered by the corruption index.

What many Indians might find particularly annoying is that while India seems to becoming more corrupt, China appears to becoming less so. China improved to rank as the 75th least corrupt country in the world, 3 places better than in the previous year.

While no one in India is cheering the news that the country is perceived as becoming more corrupt, some have pointed out that India's move in the wrong direction on the corruption list has more to do with people calling out and fighting corruption, which they were unlikely to do in the past, than it has to do with the country actually becoming more corrupt.

One Indian in particular has done a great deal to fight and expose corruption within his country. Anna Hazare has led massive rallies calling for an end to state corruption and has even been jailed for his efforts and gone on hunger strikes to call attention to his fight against corruption.

The government of India has responded and actually seems to be making an honest effort to reduce corruption. However, if any success is to be realized in India's attempts to reduce corruption, it's unlikely to come quickly. While India's place on the corruption index may be a short term embarrassment, the country's long term prospects are looking much better.

ACTION ITEMS:

Bullish:
Traders who believe that Transparency International's ranking of India fails to take into account the progress made by Indians like Anna Hazare might want to consider the following trades:

• If India makes more progress against corruption, the country's businesses should become more competitive and the economy should grow even faster than its current rate. The the PowerShares India Portfolio (NYSE: PIN), the iShares S&P India Nifty 50 Index (Nasdaq: INDY) and the WisdomTree India Earnings Fund (NYSE: EPI) could all do well if the fight against corruption in India succeeds.

Bearish:
Traders who believe that India's Transparency International ranking is a true reflection of how bad the country's corruption problem has become may consider alternate positions:

• Corruption is a drain on any economy that it is allowed to flourish in, so Indian banking stocks like HDFC Bank (NYSE: HDB) and ICICI Bank (NYSE: IBN) could be worth shorting if India's corruption problem worsens.

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