India’s first Prime Minister Jawaharlal Nehru wanted the country’s economy to be a “mixed” one. Many have thereafter argued that we became a “mixed-up” economy. Instead of assimilating the best of capitalism and socialism, we took the worst of both worlds.
Our track record in education and healthcare has been (and remains) pathetic, far worse than in countries that describe themselves as socialist or Communist. At the same time, successive governments in India, including the current one led by Prime Minister Narendra Modi, failed to provide a level-playing field to industrialists in the form of an unbiased policy and regulatory environment, which is essential to ensure market competition.
What is evident is that a few big business tycoons have been able to expand their corporate empires at a disproportionately fast pace in comparison to others ¬– not so much on account of their entrepreneurial acumen but because of their proximity to the ruling dispensation.
Five years ago, the then Governor of the Reserve Bank of India Raghuram Rajan raised a question during a public speech. He wondered if India had substituted the old crony socialism of the past with crony capitalism of the present, “where the rich and the influential are alleged to have received land, natural resources and spectrum in return for payoffs to venal politicians.”
Crony capitalism can be defined as an economic system where friends and relatives of political leaders, government officials and business leaders are given unfair advantages. This system is based on a nexus between politicians and businesspersons who mutually benefit from lucrative contracts, sweetheart deals and loans on favourable terms from financial institutions.
In Indian, this nexus facilitates the funding of political parties and election campaigns in a covert and corrupt manner – the most recent example being the issuance of “electoral bonds” through the State Bank of India that has greatly benefitted the ruling Bharatiya Janata Party.
Between 2004 and 2014, the Indian National Congress-led United Progressive Alliance (UPA) coalition government headed by Manmohan Singh was repeatedly accused of crony capitalism by, among others, the BJP.
The UPA governments were accused of allocating and pricing natural resources (such as coal, natural gas and telecommunications spectrum) in unfair ways. The government was severely criticised by the Comptroller and Auditor General of India and saw the Supreme Court intervening to reverse government decisions.
Discretion in decision-making and policy formulation by the government was supposed to reduce on account of economic liberalisation initiated in 1991 with the delicensing of industries, easier foreign investment norms, entry of the private sector in areas hitherto reserved for the public sector and removal of curbs on industrial expansion and trade. However, the next couple of decades saw new and different avatars of crony capitalism.
The controversial decision to allow the American conglomerate Enron to set up a power project in Dabhol, Maharashtra, was one such example. Land that was allotted for establishing special economic zones was used less for boosting exports and more for developing lucrative real estate.
Early in the tenure of the first Modi government, an attempt was made to dilute the provisions in the new land acquisition law to make it easy for private companies to acquire land for setting up projects in the infrastructure sector. This was the first instance when Modi sensed that opposition political parties could come together and label him a supporter of crony capitalism. The government later dropped the proposal to amend the law to allow private companies to acquire land on easier terms ostensibly to improve the “ease of doing business.”
During his election campaign in 2013 and 2014, Modi had remarked: “Na khaaonga, na khaane doonga (Neither will I make illicit money, nor will I allow anyone else to do so).” But did that really happen? Not really.
Particular corporate groups with close links to multinational corporations imported tur and urad dal in a way that led to a sudden spike in prices of these pulses in 2015. Investigations by the Income Tax Department indicated that the unnatural rise in prices was a consequence of the formation of international and Indian cartels of traders.
The “twin balance sheet problem” of the Indian economy is another manifestation of crony capitalism in the Modi government. Loans taken by large private companies from banks (mainly in the public sector) have not been repaid and become what are called non-performing assets (NPAs).
Several corporate entities operating in sectors such as telecommunications, steel, roads, power, ports, airports and real estate have reported unsustainably high levels of indebtedness. NPAs currently account for as much as five per cent of the country’s gross domestic product (GDP) and show little signs of diminishing.
Consider the manner in which Modi responded to the controversy that erupted over a suit he wore for the Republic Day celebrations in 2015 with his name monogrammed on it.
The Opposition launched a tirade describing his government as a suit-boot ki sarkar (a government for the rich or those who wear suits and boots). Soon the suit was auctioned for a hefty price and the proceeds donated to clean the River Ganga. It was subsequently alleged that the Surat-based trader Laljibhai Patel who bought the suit had been “favoured” by allotting government land for building a private sports club.
In 2017, the Wire website reported that the business of Jai Amit Shah, son of BJP President Amit Shah, had grown rapidly – 16,000 times in a few years – after the Modi government came to power and that his companies received generous loans from a government agency. In another earlier instance of a “sweetheart deal,” the controversial former functionary of the Indian Premier Leage (IPL) cricket tournament, Lalit Modi (who is absconding in London) reportedly purchased shares at a hefty premium (9,618 times the face value of the shares) in a company controlled by Dushyant Raje, son of the then BJP Chief Minister of Rajasthan Vasundhara Raje.
A few private sector companies have been roped in to partner with multinational defence giants. For instance, the Anil Ambani-led Reliance Dhirubhai Ambani Group and the Gautam Adani-led Adani group are among those who have joined hands with foreign companies to manufacture and assemble defence equipment. The most contentious of these deals is the one with Dassault Aviation of France to supply Rafale fighter jets for the Indian Air Force.
State governments ruled by the BJP have facilitated the operation of coal mines in collaboration with the Adani group companies after the Supreme Court had cancelled the allotment of 214 coal blocks for captive mining. The group has been awarded contracts for the modernisation of airports despite the opposition of particular government departments.
Adani is an industrialist who is known to be close to the Prime Minister — Modi used aircraft owned by his group to campaign across the country in the run-up to the 2014 general elections.
Baba Ramdev, who is a vocal supporter of the Prime Minister, has mentored the Patanjali group of companies that have grown phenomenally fast. The group has received large parcels of land on favourable terms from the BJP-ruled state governments in Maharashtra, Uttar Pradesh, Haryana and Assam.
New forms of crony capitalism have emerged under the Modi regime, not with direct action by the government but through regulatory interventions. The Telecom Regulatory Authority of India (TRAI) has issued a number of orders that were perceived as favouring Reliance Industries Limited and disadvantaging its rivals. Experts and former telecom regulators have even questioned the logic of the regulator decided on tariffs to force the choice of a certain technology.
In early-2018, a series of financial scandals attracted considerable public attention. A group of firms led by diamond merchants, Nirav Modi and Mehul Choksi were accused of defrauding India’s second-largest public sector bank, Punjab National Bank to the extent of over $1.8 billion – making it the biggest, if not one of the biggest, bank frauds of its kind in the country.
Both are fugitives from the law outside India, as are Vijay Mallya (who had promoted Kingfisher Airlines), Jatin Mehta (of the Winsome Diamonds group who is related by marriage to the Adani family) and the Sandesaras (of the Sterling Biotech group). Interestingly, all the above named barring Mallya, are from Modi’s home state, Gujarat.
The former chief executive officer and managing director of the country’s largest bank in the private sector, ICICI Bank (formerly Industrial Credit and Investment Corporation of India) Chanda Kochhar was apparently aware of loans that had been disbursed by the bank she headed to the Videocon group of companies whose promoter, Venugopal Dhoot, in turn, struck sweetheart deals with her husband and relatives through a company called NuPower.
The collapse of two major groups of non-banking financial companies, Infrastructure Leasing & Financial Services (IL&FS) and Dewan Housing Finance Limited (DHFL), have added to the country’s economic travails.
Financial scandals and reports about sweetheart deals continue unabated. Crony capitalism is alive and kicking in Modi’s New India.