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The Government Is The Trustee, Not The Owner

The regulator must address issue related to competition or lack of it. Competition, transparency, and innovation are the bedrock of a fair business milieu.

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India deserves a ‘fair’ economic ecosystem. 

Corporate cronyism is all-pervading, and a pinnacle of corruption

India’s sojourn with capitalism was riddled with fear of the capitalist and distrust of the ‘Boxwallahs’. The policymakers’ reference point were the maharajas and landlords (rent-seekers). They equated competitive capitalism with cronyism, and apprehended labour exploitation and profiteering. Naturally.  

Mass and momentum

The Nehruvian Socialism model addressed this fear with state-owned enterprises and the licence raj. Then it went downhill, gathering mass and momentum.

The key to governance is the appreciation that trusteeship is not ownership.

The approach, design, and the methodology to either allot or ‘sell’ natural resources defines the intent towards cronyism. Both the UK and Norway privatised natural resources, but with very different outcomes. Thatcher saw herself as the ‘owner’, (not trustee) and ‘gave’ it to the highest bidder. Norway got more out of it both socially and economically. 

Mrs Indira Gandhi’s bank ‘nationalisation’ (disguised as pro-poor, blocking monopolies) is another example of wrong intent. The subsequent prime ministers and lesser leaders bestowed themselves the ‘ownership and the right to ‘distribute’ the silver, leading to sick industries and well-fed industrialists.

Similarly, the Janata Government ‘packed off’ the multinationals. By the mid-70s almost every economic activity was controlled by the government or by those people who were ‘licenced’ to. 

Dr. Manmohan Singh, a great mind, too fell to cronyism. ‘Auctioning’ coal and other resources brought his downfall. 

Cronyism is ‘influence peddling’

Post liberalisation, the Indian economy took a dramatic U-turn. From a hyper regulated economy to an economy functioning by hybrid rules that defined deals and pivoted for the dealmakers. Things are not getting any better. 

Honest business spends more time in Delhi than at the workplace.

Cronyism is ‘legal’ plunder, committed in an infinite number of ways and characterised by both formal rules and ‘less formal’ deals. It originates and is strengthened by state patronage. They coax subsidies, persuade patients & protection, lobby for tax loopholes, brow beat favourable tariffs. They bully competition and ensure entry barriers.

Sample this. 

We are now being ‘threatened’ that a single bidder will run the railways. If the concept is not ludicrous and anti-consumer, the selection criterion (‘Maximum’ revenue) is equally disturbing. It doesn’t take much imagination to foresee that profitability will be the only or the primary criteria to ‘power’ the garib raths. 

A clutch of airlines ‘fly’ 95% of the passengers. Similarly, the airports and communications are run by two big houses. We are increasingly experiencing a concentration of power and creation of unsurmountable moats. 

‘Lubricating’ the wheels of commerce 

About 10 years ago SEBI had ‘decreed’ that the top 100 companies need to submit business responsibility reports, now widened the net to the top 1000.

Under this ‘mandate’ regime we had the Essar, ILFS, the Jet, the Dewan, and the YES bank fiasco.

Monopolies, and business activities are not illegal, but surely the conduct is unfair, values unethical. A Crux study, tracking 4 decades, highlights a disturbing trend. Data validates that liberalisation, instead of reducing has often facilitated, even enhanced a degree of ‘state capture’.

Pre-liberalisation, the top 20% of the listed corporates used to contribute no more than 15% of the corporate profits. Today it is more than 75% and accelerating. Few corporates (families) get bigger at the cost of most. This metric is a loadstar to crony capitalism.

Cronyism gaining virulence 

Crony capitalism started small and is now fully embedded. The Crux insight on how crony-specific sectors and non-crony sectors contribute to wealth creation highlights that the net worth of the crony industries ballooned 24 times. The study reveals and substantiate a positive correlation between the ‘level and intensity’ of their interaction with the state. 

The Economist's crony-capitalism index validate these studies. Similarly, a Forbes study places India at 8th in the crony-capitalism index but at pole position amongst the large economies. 

It should not have been so. Unlike other economies India has a history of an evolved and thriving market, supported by an entrepreneurial class and   well-developed commercial law. 

Policymakers and the society at large must be concerned. Most individuals, who ‘experience’ corruption, regrettably do not understand the malaise nor appreciate the impact it has on the economy and society, and therefore neither fight back, nor ‘discourage’ the corrupt.

To them corruption is ‘localised’, they a victim., 

Vanquishes spirits, erodes our souls 

The impact on society is intangible, yet more profound. Cronyism leads to a permanent loss in productive & human potential, limiting opportunities, narrowing mobility. Democracy is the victim when the society disregards officials, loses faith & trust in the rule of law and government.

The business community and the economy nurturing policymakers must also wake up to the risk of capital and talent flight, hurting the economy perpetually. The economic cost of cronyism is easy to measure. It shows up in diminishing growth, unequitable development, and unfavourable trade ratios.

Dinosaurs extinct. Destruction is good

21st century India cannot be governed with 20th century institutions. However, there are several to look up to. The RBI (proactive, agile approach) and the IBC, CAG (doing right things the right way). Similarly, the election commission can teach other institutions a lesson or two.

Citizens have responsibilities too. 

Integrity, agility, and even activism is required to rein cronyism. They must not be taken in by the belief that people in authority have been ‘chosen’   and therefore ‘entitled’ to exercise arbitrary patronage. The role of the civil society is equally important. The independence of the judiciary and regulatory agencies are the pillars of democracy. 

The policymakers must focus on creating a new framework for state-business relations, that punishes the bureaucracy from transfiguring the business-politician deals into rules. Policymaking must strengthen and nurture, the ‘checks and balances’ (key to accountability) and develop metrics that traces, highlights and incarcerates cronyism.

Policymakers must go beyond and induce robust mechanism to punish both the offender and enabler. 

Leaders must follow people 

The regulator must address issue related to competition or lack of it. Competition, transparency, and innovation are the bedrock of a fair business milieu.

People must recognise that our leaders are the followers. If we demand of them, we are more likely to get what we want. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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policymakers democracy magazine issue 7 Oct 2020

Dr. Vikas Singh

The author is a senior economist, columnist, author and a votary of inclusive development

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