Recently, the Supreme Court delivered a judicial slap to the Reserve Bank of India. The whole issue had started when some activists wanted banks to release the names of big defaulters and make them public. Banks, and even the RBI, were not comfortable with that. But the Supreme Court contended that neither commercial banks, nor the RBI had any business keeping the names of defaulters secret. Even more recently, the RBI governor Raghuram Rajan sent a communique to all colleagues where he exhorted them to not spare even the big names when it came to debt recovery. How big is the problem? According to available data, Indian banks have accumulated more than Rs 5 lakh crores of “stressed assets”, euphemism for loans taken that might never be repaid. About 80 per cent of these “bad loans” are owed by large corporate houses in India. If an ordinary Indian defaults on even a single EMI, her financial future could be in peril. But large corporate houses face no such problem. That is just one instance of how deep rooted Crony Capitalism in India is. The reason is obvious: the state continues to have and exercise discretionary powers when it comes to helping or harming private sector companies. This has been a legacy since the days when Jawaharlal Nehru was the first Prime Minister of India.
As mentioned in the earlier pieces in this series, India under Indira Gandhi became a classic case of “Crony Socialism”. Her father Jawaharlal Nehru had already reserved the “commanding heights” of the economy for state owned or public sector companies. In these sectors, private sector companies were treated like Dalits in the more regressive parts of India. Nehru called these state owned white elephants the “temples of modern India”. Like Dalits in many cases were not allowed inside traditional temples, private entrepreneurs were denied entry to these “modern temples”. But the Nehru regime was benign compared to what her daughter Indira unleashed. Whole swathes of the economy, including banking, insurance and coal were nationalized. New laws like MRTP and FERA transformed entrepreneurs and private business houses into virtual serfs of the State. All in the name of the poor, of course. To “protect” the sanctity of the Indian economy, donations made by businessmen and corporate entities to political parties were banned. And yes, the marginal income tax rate was raised to a fantastic 97 per cent.
The toxic legacy of that era still continues. Ordinary Indians, who were not prone to trust the Indian state since at least the British Raj, became even more distrustful. An entire ecosystem of corruption from top to bottom was created; a superstructure that stubbornly persists despite half hearted efforts at improving governance. The most sought after cooperate career was that of a lobbyist who could open doors in Delhi and organize a license or a permit. Wars between corporate entities were not fought in the marketplace; they were conducted in the corridors of power in Delhi. The bitter corporate warfare between the late Dhirubhai Ambani of Reliance Industries and Nusli Wadia of Bombay Dyeing that was fought during most of 1980s was a class instance of Crony Socialism. It is in this era that politics too became a “family business”. To become an MLA or an MP or even better a minister was as good as getting the keys to a stuffed bank locker. Virtually every state in India is now do, instead by political dynasties, a byproduct of Crony Socialism.
When PV Narashima Rao and Dr Manmohan Singh launched the 1991 economic reforms, many hoped that the era of Crony Socialism will soon come to an end. After all, licensing was abolished. So were the most capricious provisions of laws like MRTP and FERA. The Controller of Capital Issues where bureaucrats decided the quantum of premium of an IPO was abolished. Foreign investments were allowed; often encouraged. Tax rates were lowered and there was an attempt to simplify the tax regime. Shortages disappeared in most sectors, ending the all, pervasive incentive for “black money”. For example, as late as the mid 1990s, you had to wait for years to get a telephone connection or buy a Maruti car. But did India see an end of Crony Socialism?
Indeed, Crony Socialism came to an end. But that was unfortunately replaced by Crony Capitalism. Dr Manmohan Singh, who did so much to dismantle Crony Socialism in the early 1990s, actually became Prime Minister of a regime where Crony Capitalism became a rampant. There is no need here to give out gory details of all the cases of massive corruption. The SEZ Policy turned out to be a giant scam. The Commonwealth Games scam earned India mockery and ridicule in global circles. The reverberations of the 2G scam are still being felt. And the coal scam played a significant role in bringing the Indian economy down to its knees. How did all this happen in an era where successful Indian entrepreneurs were being celebrated? Just one example will suffice. Vijay Mallya was not just the founder of Kingfisher Airlines, but also a Rajya Sabha MP. Not only that, he had direct influence over the Parliamentary Committee on Aviation. We all know what happened. And as mentioned in the first paragraph, Kingfisher is just one example of how corporate houses have piled up debts that will probably never be repaid.
Is there any hope, then? The first 18 months of the Narendra Modi regime have not seen the explosion of any big ticket corruption. But that is small comfort. The ecosystem where politicians and bureaucrats can dole out favours to favoured industrialists is very much intact. The author is afraid it is a matter of time before Crony Capitalism sneaks back into Delhi.
Also ReadPart IV | Unleashing The Indian Entrepreneur
Part III | What Really Happened In July 1991Part II | The 'Licence-Permit' Era Before 1991Part I | How India Changed Forever In 1991
