"The corporate mafia has come to control every institution of power and governance, be it politicians, bureaucracy, police and, to an extent, judiciary also," Bhushan told IANS in an exclusive interview.
"The corporate houses have become monstrously large and a law unto themselves. They get the law and policies made and decision taken including judicial decisions," he said, adding "very often they decide what the media will report or not report".
Bhushan, the son of eminent jurist and former law minister Shanti Bhushan, said any fight against corruption and for redeeming democratic institutions had to commence with transparency.
"The situation today is much worse than what it was in the early 1970s. At that time we did not have the corporate mafia controlling all the institutions. That was a situation when a powerful prime minister temporarily choked off democracy. Today, this corporate mafia is accountable and more dangerous," Bhushan asserted.
"This system is so bad. There is no point in preserving the illusion of functional democracy when it is clear that most institutions of democracy have crumbled or are non-functional. We need to restore proper democracy in the country and not preserve an illusion of democracy."
The lawyer said the only prescription for rescuing Indian governance from "corporate mafia" was "transparency" and people's right to know about the functioning of the state apparatus.
"Unless we wake up and start engaging in public issues and affairs, we are heading towards disaster," said Bhushan, who is facing contempt of court proceedings for highlighting the alleged misconduct of an apex court judge.
It was Bhushan who convinced the Supreme Court to monitor the Central Bureau of Investigation (CBI) probe into the allocation of 2G airwaves to telecom companies. He also spoke on his fight against corruption and allegations against Central Vigilance Commissioner (CVC) P.J. Thomas.
He said India was in a "very serious situation" and the "biggest threat was corruption that had spread in every vital sphere of the state's functioning".
The crumbling democratic institutions could be "repaired and restored" provided there was a "very strong people's movement in the country that would bring pressure on the institutions".
"Though the judiciary can play a useful role in that process", in the final count it needed the backing of a strong people's movement, he said.
He asked what prevented the government from having a referendum on the nuclear deal with the US or even on the Lokpal (ombudsman) bill.
On his opposition to CVC Thomas' appointment, Bhushan said: "I am told that he is an honest person. He does not take money himself. But he allowed people above him like (former telecom minister A.) Raja and (former Kerala chief minister K.) Karunakaran to make money by corrupt means and then facilitated that the corrupt stay in the position of power."
"For an anti-corruption watchdog we need a person who will not only resist corruption but will be pro-active in stopping corruption and prosecuting the corrupt," Bhushan told IANS.
Describing the process of selecting a CVC as flawed, Bhushan said: "The selection is done by people (politicians) who have a very serious conflict of interest because they are likely to be the target of the CVC's investigation."
Fighting corruption simultaneously in the government and the judiciary is not a wrong strategy, he said.
"I think all problems have to be dealt with simultaneously. You cannot shut your eye to a problem in one institution in order to highlight it in another institution. This is a shortsighted policy which does not pay in the long run," he said.
Advocating an independent media, he said that the media should not be controlled by corporate houses or those who have a direct or indirect interest in other business.