Is something rotten in the state of Indian capitalism? In the uproar over corruption that has gripped the nation's middle class since the New Delhi Commonwealth Games last October, it's hard not to detect a sourness over the allegedly outsize influence of big business on government. If the venal politician is the equivalent of Dr. Evil in the popular imagination, then Mini-me, his sidekick, is a deep-pocketed tycoon with access to the corridors of power.
India's incipient anti-business rhetoric misdiagnoses both the problem and the solution. Unlike Suharto's Indonesia or post-Soviet Russia, India's business landscape is not dominated by classic crony capitalists, but by genuine businesses that need more than the right connections to thrive. And as shown by the dodgiest sectors of the economyreal estate and telecomIndia's trouble is not too much capitalism, but too much government control.
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Associated Press
New Delhi Commonwealth Games chief organizer Suresh Kalmadi.
At no point since the advent of economic reform in 1991 has private enterprise been in such poor odor. Niira Radia, a lobbyist for two of India's best known businessmen, Ratan Tata and Mukesh Ambani, has become a symbol of the $40 billion 2G scandal: the 2008 allocation of telecom spectrum to private firms at allegedly throwaway prices. About half a dozen top executives of telecom firms caught up in the scandal are cooling their heels in Delhi's squalid Tihar jail awaiting trial. The income-tax department tapped Ms. Radia's phones; tapes of these were released last year, leading to more revelations about corporate India's nexus with New Delhi.
By now the contours of the case against an out-of-control business classas alluring as it is misleadinghave become familiar. As Brown University professor Ashutosh Varshney and former McKinsey consultant Jayant Sinha argued in a widely cited op-ed in the Financial Times earlier this year, "India has 6.9 per cent of the world's 1000 or so billionaires, while its gross domestic product is only 2.1 per cent of world GDP."
The total wealth of India's 55-odd billionaires comes to about 20% of GDP, a proportion rivaled only by infamously crony capitalist Russia. Many of India's richest have allegedly used political and regulatory connections to augment their fortunes.
Look at things another way, however, and a different picture emerges. A cursory comparison of the 20 richest people or families in India and Russia reveals dramatic differences. In India, only one of the top 20, K.P. Singh of DLF Limited, made a fortune in real estate, where, thanks to primitive record keeping and convoluted regulations, official favor carries disproportionate weight. Another, Sunil Mittal of Bharti Enterprises, is a telecom tycoon. (This is not to suggest any wrongdoing on either Mr. Singh's or Mr. Mittal's part.)
Two more of the top 20, Anil Agarwal of Vedanta Resources and Kumar Mangalam Birla of the Aditya Birla Group, owe their fortunes in large part to mining and metals and commodities respectively, favorite targets of those who bemoan India's alleged turn toward crony capitalism.
But Mr. Agarwal's fortune was built largely in Africa, and says more about his drive and business acumen than about India's political economy. Similarly, Mr. Birla has built a globally competitive Indian multinational spanning aluminum, telecom and cement. The fortunes of the other 16 people on the list encompass steel, petrochemicals, information technology, health care, media and banking, hardly the symbols of a typical crony capitalist economy.
Even those who apparently benefit from having the right connections, such as the Ambani brothers, have built real businesses that create consumer value and tens of thousands of jobs. In Russia, by contrast, 10 of the 20 richest owe their wealth at least partially to their control of natural resources including coal, metals and oil and gas. Many of Russia's fortunes were created not by building viable businesses, but by asset-stripping government firms acquired through official favor.
None of this is to suggest that Indian businessmen are saints. Indeed, operating in a country that ranks a lowly 87 in Transparency International's Corruption Perceptions Indexbetween Malawi and Djiboutifew can afford to be as squeaky clean as their counterparts in better run climes. And if economic reforms keep stalling, the next generation of the megarich in India may well come mainly from mining, real estate and construction, where the ability to bend a politician's ear counts for more than the ability to read a balance sheet.
Nonetheless, as India's anti-corruption effort begins to resemble a dog chasing its own tail, spawning more government oversight to combat the failure of government oversight, it makes sense to repeat a few truisms that a more mature polity would have learned by now.
First, historically speaking India's businesses overall, and especially small and medium-sized ones, have been more victim than victimizer, shackled by 40 years of socialism and the travesty of the license-permit Raj. Even today, the World Bank ranks India a dismal 134 out of 183 in terms of ease of doing business. Second, successful countries find ways to attract wealth creators rather than chase them away.
In the end, India's problems stem not from crony capitalism but crony socialism, the continued hold of an often corrupt and inept political class on economic decision making. Like most countries, India could do with greater competition and fewer barriers to entry for new businesses. But it's India's politicians and bureaucrats who need reining in, not its billionaires.
Sadanand Dhume: India's Crony Socialism - WSJ.com
Very old article but related to our current economic problems.
India's incipient anti-business rhetoric misdiagnoses both the problem and the solution. Unlike Suharto's Indonesia or post-Soviet Russia, India's business landscape is not dominated by classic crony capitalists, but by genuine businesses that need more than the right connections to thrive. And as shown by the dodgiest sectors of the economyreal estate and telecomIndia's trouble is not too much capitalism, but too much government control.
Enlarge Image
Associated Press
New Delhi Commonwealth Games chief organizer Suresh Kalmadi.
At no point since the advent of economic reform in 1991 has private enterprise been in such poor odor. Niira Radia, a lobbyist for two of India's best known businessmen, Ratan Tata and Mukesh Ambani, has become a symbol of the $40 billion 2G scandal: the 2008 allocation of telecom spectrum to private firms at allegedly throwaway prices. About half a dozen top executives of telecom firms caught up in the scandal are cooling their heels in Delhi's squalid Tihar jail awaiting trial. The income-tax department tapped Ms. Radia's phones; tapes of these were released last year, leading to more revelations about corporate India's nexus with New Delhi.
By now the contours of the case against an out-of-control business classas alluring as it is misleadinghave become familiar. As Brown University professor Ashutosh Varshney and former McKinsey consultant Jayant Sinha argued in a widely cited op-ed in the Financial Times earlier this year, "India has 6.9 per cent of the world's 1000 or so billionaires, while its gross domestic product is only 2.1 per cent of world GDP."
The total wealth of India's 55-odd billionaires comes to about 20% of GDP, a proportion rivaled only by infamously crony capitalist Russia. Many of India's richest have allegedly used political and regulatory connections to augment their fortunes.
Look at things another way, however, and a different picture emerges. A cursory comparison of the 20 richest people or families in India and Russia reveals dramatic differences. In India, only one of the top 20, K.P. Singh of DLF Limited, made a fortune in real estate, where, thanks to primitive record keeping and convoluted regulations, official favor carries disproportionate weight. Another, Sunil Mittal of Bharti Enterprises, is a telecom tycoon. (This is not to suggest any wrongdoing on either Mr. Singh's or Mr. Mittal's part.)
Two more of the top 20, Anil Agarwal of Vedanta Resources and Kumar Mangalam Birla of the Aditya Birla Group, owe their fortunes in large part to mining and metals and commodities respectively, favorite targets of those who bemoan India's alleged turn toward crony capitalism.
But Mr. Agarwal's fortune was built largely in Africa, and says more about his drive and business acumen than about India's political economy. Similarly, Mr. Birla has built a globally competitive Indian multinational spanning aluminum, telecom and cement. The fortunes of the other 16 people on the list encompass steel, petrochemicals, information technology, health care, media and banking, hardly the symbols of a typical crony capitalist economy.
Even those who apparently benefit from having the right connections, such as the Ambani brothers, have built real businesses that create consumer value and tens of thousands of jobs. In Russia, by contrast, 10 of the 20 richest owe their wealth at least partially to their control of natural resources including coal, metals and oil and gas. Many of Russia's fortunes were created not by building viable businesses, but by asset-stripping government firms acquired through official favor.
None of this is to suggest that Indian businessmen are saints. Indeed, operating in a country that ranks a lowly 87 in Transparency International's Corruption Perceptions Indexbetween Malawi and Djiboutifew can afford to be as squeaky clean as their counterparts in better run climes. And if economic reforms keep stalling, the next generation of the megarich in India may well come mainly from mining, real estate and construction, where the ability to bend a politician's ear counts for more than the ability to read a balance sheet.
Nonetheless, as India's anti-corruption effort begins to resemble a dog chasing its own tail, spawning more government oversight to combat the failure of government oversight, it makes sense to repeat a few truisms that a more mature polity would have learned by now.
First, historically speaking India's businesses overall, and especially small and medium-sized ones, have been more victim than victimizer, shackled by 40 years of socialism and the travesty of the license-permit Raj. Even today, the World Bank ranks India a dismal 134 out of 183 in terms of ease of doing business. Second, successful countries find ways to attract wealth creators rather than chase them away.
In the end, India's problems stem not from crony capitalism but crony socialism, the continued hold of an often corrupt and inept political class on economic decision making. Like most countries, India could do with greater competition and fewer barriers to entry for new businesses. But it's India's politicians and bureaucrats who need reining in, not its billionaires.
Sadanand Dhume: India's Crony Socialism - WSJ.com
Very old article but related to our current economic problems.
