Why do corruption and crony capitalism affect north and south India differently?
Corruption in South India does not appear to bring human or infrastructure development entirely to a halt, unlike in the north. Populism too does not appear to inhibit consistent industrial progress.
Antilia, the obscenely large and well equipped home of Mukesh Ambani, the richest and arguably the most powerful Indian businessman, at the heart of south Mumbai, serves at once to provoke animated public discussion of conspicuous wealth and to obviate well informed public conversations about the methods of his fabulous success. Likewise, public criticisms of the now fugitive Vijay Mallya, a flashy Indian billionaire whose rise and fall acquired legendary proportions, tend to focus more on his ostentatious lifestyle, potentially obscuring serious investigations of how he managed to grow so large, so fast and so recklessly. Gautam Adani, another business tycoon whose empire has grown at a lightning pace over the last fifteen or so years, had the respectable left wing journal Economic and Political Weekly take down an article questioning his alleged intimacy with Prime Minister Modi and fire its then editor. James Crabtree, a former India correspondent of Financial Times, mentions these and several other intriguing details in a new book, as a clue to making sense of the rise of a distinctly new kind of polity and economy in India.
This new polity and economy has formative linkages with the recent history of India since independence, but is primarily a child of the twenty first century. It thrives on an umbilical connection between politicians and industrialists, and revolves particularly on the ability of billionaires to secure access to natural resources, such as land or forest or spectrum, on favourable terms from the government which formally issues approvals for their use. These terms may not all be literally illegal, but a consequence of changes in government policies in favour of future beneficiaries. The beneficiaries in turn help finance the campaigns of their political allies, once again not by means of easily detectable illegalities, but by methods that do not entirely remove suspicions of underhand deals. The phenomenon is not limited to some political parties or regions but infects almost the entire country and a variety of political formations. He calls this new phenomenon Billionaire Raj or the Resource Raj. The latter coinage he borrows from Raguram Rajan, the distinguished Indian origin Chicago economist who had famously predicted the crash of 2008 and later headed the Reserve Bank of India for a term.
Crabtree, who now teaches Public Policy in the highly regarded Lee Kuan Yew School in Singapore, does not write like an investigative journalist, assigning blames or responsibilities on individual industrialists or politicians. Instead, he compares the India case, historically, with other large or emerging economies in the world, especially the United States and East Asian Countries such as Japan or China. He cites relevant research by top notch economists such as Thomas Picketty and interviews with an assortment of billionaires and political players, including those who straddle both of these worlds such as Jayant Sinha, who studied business at Harvard and worked for major global investment firms and later joined the government of India as a minister. He presents neat case studies, with detailed historical and political backgrounds, with a view to offering an original thesis on the kind of polity and economy India is becoming, and its possible consequences for both country and the world as a whole.
His singular theme, if any, is how and why crony capitalism has come to dominate politics and economy in contemporary India. On whether or not it is going to cause any irreversible setback to the country, he offers no immediate prognosis, presenting arguments both in favour and against such prospects. He shows that there can be a more efficient version of cronyism too, as in his coverage of southern Indian states, where politics is corrupt enough without discouraging competitive businesses altogether or without engineering a breakdown in efficient public service delivery. Nevertheless, he does claim that the latest research indicates that in the long run the rising levels of inequality which accompanies the billionaire raj causes a slowdown in overall growth rates, unless accompanied by a concomitant investment in successful public service delivery on a comprehensive enough scale.
India, argues Crabtree, had been extensively looted by the British colonial state. Yet, its economy until the very end of colonialism had been globally connected, even though its contribution fell steadily, thanks to colonial rapacity. But independent India chose to usher in a highly closed economy, primarily as a means to develop self reliance and engineer all round human development. The state was made to sit at the very top of all economic decisions and activities, with large public sectors units commissioned to build large infrastructure projects and an uptight bureaucracy charged with issuing license and directions to all manufacturers, with strict limits to what to make, and how much and at what price. Crabtree is convinced of the total futility of that approach, and was relieved when the economy was finally opened up in the early nineties following a lethal balance of payment crisis. He offers amusing details about that dramatic episode, such as when in July, 1991, massive trucks had been carrying butts of gold to the airport to be eventually dispatched to the IMF vaults, one of those trucks had a tyre punctured, and it caused some anxiety in the minds of the senior bureaucrats that the general public might get to know about the top secret transaction.
Be that as it may, the first wave of liberalization unleashed the entrepreneurial energies among the Indian enterprises and within a few years there emerged a bunch of gentlemen capitalists such as N R Narayanmuthy. These men had been middle class professionals who made good of the new opportunities thrown open by the liberalizing economy. They were first generation men operating in sector without any regular need to grease the palms of politicians and therefore largely played by the rules, amassing fortunes by following a culture of innovations and rule bound entrepreneurship. This generalization does not entirely hold, as Crabtree himself shows later, but it is useful to distinguish these early billionaires from the ones he studies more closely.
The sharp rise of the latter begins roughly from 2004, since when Indians started featuring in larger numbers and in high profile global lists of the rich such as the annual Forbes annual list of billionaires and regularly attended the annual conference of the global super rich in Davos. Their rise owed largely to their capacity to manage favourable relations with professional politicians, who by now were in charge of releasing large scale contracts for infrastructure projects. These new billionaires, among whom Mukesh Ambani and Gautam Adani were only the most famous and successful, made great strides by cultivating friends among politicians and senior bureaucrats who allegedly arranged for favourable policy changes or easy loans from nationalized banks for this new breed of mega industrialists. The latter in turn displayed a breathtaking audacity for quickly diversifying into a large spectrum of industries, from mining to telecom to real estate ports to even retail. They did not always have to break any existing law, for laws could be suitably modified by their political contacts to their advantage. A good many of them loved displaying their wealth and living an ostentatious lifestyle, inviting globally famous performers to their homes to perform, or buying up expensive homes in several countries. Yet others preferred a low key style of operation.
But almost all of them discouraged detailed public discussions about their business operations or wealth accumulations or agreed to face any sustained public scrutiny. There were serious charges of corruptions or collusions against them, but few of them stick in courts of law. Whispers continue in public about their suspect connections but they continue as robustly to deny any wrongdoing. A good many of them combine business and politics, even as politicians feel more convenient to offer contracts to entrepreneurs who come from their own kin groups or social circles.
Not all of this is historically new. Since when India had been a closed economy, enterprising businessmen had perfected the art of cultivating politicians or bureaucrats in order to secure licenses and contracts. Some of the new billionaires have reportedly inherited those earlier contacts and expanded them even further. Yet others have developed them afresh. In either case however, it belies the common sense assumption which had followed the opening up of the economy that there has since emerged a culture of conducting business in which the politician and bureaucrat no longer held a decisive authority to control growth or its distribution.
This is where Crabtree’s formulation is most striking. It upsets the reassuring consensus that open economies necessarily perform better by giving entrepreneurs freedom from excessive government control. Crabtree shows that it may be true of only some sectors. But in sectors where the government still plays a key role, especially as a stakeholder in public-private partnerships to build large infrastructure or as the dispenser of leases to exploit natural resources, large entrepreneurs still heavily count on a culture of patronage. Bribes are no longer played in cash, for they look vulgar, but favours are now exchanged in kind such as a seat in an elite college for the ward of a senior bureaucrat, for instance, or sponsoring medical treatment of a politician in an expensive foreign hospital.
Finally, these trends are not exclusively Indian. They mirror comparable trends across the globe. Politicians now specialize in promising and delivering populist giveaways, such as laptop computers or free rice, in lieu of sustained delivery of quality human development resources such as universal basic health or education. These in turn ensure them victories in election after election, while their grateful industrialist clients sponsor their campaigns. Populist politics and billionaire raj arguably goes hand in hand, along with adulatory coverage in a largely subservient media ecosystem.
Yet, crony capitalism is not uniformly criticized. As the coverage on south India shows, there the politicians are notoriously corrupt but they have yet managed to preside over a fairly defensible record in terms of welfare delivery and industrial growth at the same time, tempting global conglomerates to set up base and expand their Indian operations. In case of the northern and eastern states, however, the dip in the public welfare delivery has been directly proportional to the rise of robber barons. Some of them, such as the late Ponty Chadha, built a notoriously diverse and fast growing empire, entirely by dint of his cultivation of politicians who made sure he kept getting monopoly contracts of liquor distribution in a very large state.
All in all, it would seem that in India the second generation of liberalization has been marked by what may loosely be called industrialization of politics. Instead of a clear distance between political and industrial leaders, there is an increasing convergence between the two. This convergence is made possible, ironically, on the strength of a historical continuity of the culture of ‘managing’ politicians and bureaucrats which had been a legacy of the license raj that liberalization was expected to gradually dismantle.
One of the cases Crabtree compares this rather regrettable phase in the current Indian political economy to is the gilded age in early twentieth century America. The excesses of those times came to be later corrected, he notes, in favour of a greater public investment in social security and public service delivery. But these corrections were encouraged only partly by conscious policy measures. A good deal of those corrections followed the depression of 1930s and the miseries enforced by the second world war.
The question the book raises for India, therefore, is whether or not it is at all possible to delink large scale growth in the economy from active political mediation or cronyism. Crabtree admits that the billionaires do not control the entire economy, and that gentleman billionaires can yet make steady progress. What he does not identify clearly is what exactly happened in 2004 that set off this particularly pernicious form of billionaire hegemony. Is it that the sectors were opened up to the extent that they required the government to set the rules? But then the government has to set the rules for opening up its economic sectors anyway. Or is there hope still that there could be more ‘government-neutral’ sectors that could be opened up in future, encouraging more gentlemanly billionaires? What it will take to successfully halt this politician-billionaire nexus is hard to anticipate yet. Till there is a clearer body of knowledge about that possibility, it will be more interesting to study the politics or economy of the more successful southern states of India more closely. The only answer Crabtree offers is that the south Indian politicians are cannier in that they have worked out a way to both take a cut from the growth cake and expand it too, and relatively more equitably. There is immense corruption there but institutions work and deliver nonetheless, possibly because the politicians and industrialists are both markedly more efficient.
We need more research on contemporary south India, by journalists and academics alike. Corruption there does not appear to bring human or infrastructure development entirely to a halt, unlike in the north. Populism too does not appear to inhibit consistent industrial progress. If there is a north south divide which calls for immediate attention, it is here in India.
(Anirban Bandyopadhyay teaches at Karnavati University in Gujarat. The views expressed are entirely his own.)