Capitalism, Indian style

In a uniquely Indian phenomenon, blessed by the established democratic process, political corruption and market capitalism thrive by feeding each other, writes C. Rammanohar Reddy.

THE YEAR is far from ending but we have already witnessed four major scandals/controversies at the Centre and countless others in the States. Besides tehelka, which was a sting operation, there has been the controversy in telecom about the new terms for operation of the Wireless in Local Loop technology, the Ketan Parekh/Madhavpura Bank/Bank of India affair and now the collapse in US-64.

But it would be a mistake to see these events as a unique characteristic of the NDA Government, though it does put the last nail in the coffin containing the old BJP claim that when in power it will provide ``clean'' governance. It is instead the sign of the maturing of a frightening phenomenon in which business and politics feed on each other by manipulation of the law, misappropriation of public funds and plain old-fashioned corruption which now operates on a gigantic scale. It is a process the seeds of which were planted in the Congress regime of 1991-96, that took root in the United Front Government of 1996-98 and reached full- bloom during the tenure of the two BJP-led Governments in office since 1998.

The intertwining of business and politics through the medium of illegality is, of course, not new since it has been part of the nation's fabric even before 1947. The regime of industrial licensing did encourage corruption by giving a premium for those first in the business, but, to use an Americanism, what has been happening since the abolition of industrial controls makes the subversion of rules in the earlier era look now like ``small beer''.

The regularity with which economic scandals have been taking place and the huge amounts now involved are indicative of two distinct processes. The first is that with the state vacating a number of economic sectors and new areas opening up for business, the stakes involved are now much larger than before. This is why the policies and rules in petroleum, civil aviation, power, telecom and broadband have been seeing so many tussles within the Government and between businesses. Companies, old and new, abandon ``normal'' business practices and leave no stone unturned as they attempt to acquire public sector assets for a song, influence Government policy and become the first private entrants in new sectors or establish monopoly positions by shutting out possible competitors. The complaint earlier this week by no less than the Union Minister of State for Disinvestment, Mr. Arun Shourie, that the privatisation of Indian Airlines and Air India has been sabotaged by possible competitors is just one example of the murky happenings where vast sums of money are exchanged.

The manipulation of the rules of operation in the market and the subversion of all norms would not have been so easy to carry out were it not for political personalities and formations making themselves available to the highest bidders, which is the second process that developed in the 1990s. High-level corruption was earlier spoken of in terms of providing the finance for election expenses and, in addition, (relatively limited) private gain that was invested in gold, real estate and the commonplace Swiss bank accounts. But, as the stakes have grown, so have the appetites and the desire to see the money grow. The mammoth funds collected by agreeing to manipulate Government policy or sell off public assets to preferred buyers are first parked abroad, then re- routed to India through benami companies and finally ``legally'' invested in enterprises. This is how the past decade has seen the sudden emergence of huge enterprises, presided over by faceless boards, in aviation, metallurgy, finance, telecom, entertainment and more. The corrupt politician-cum-entrepreneur operates through shell companies established in Mauritius or the many Atlantic tax havens and accesses funds stashed in Singapore, Dubai, London and Zurich.

``Black money'' now has a logic of its own, which is why the many amnesty schemes that have been floated since 1991 have hardly scratched the surface. The schemes were used only to the extent the corrupt wanted to legalise the illegal.

The emergence of the bribe-taker-cum-entrepreneur in high places has been facilitated by the presence of weak Governments or coalitions with single-point agendas that have held sway since the early 1990s at the Centre. As political analysts have pointed out, the rules of the game are that the Prime Minister's Office retains control over broad policy but leaves it to the individual Ministries to function in an autonomous fashion. The logic of the coalitions has been single-point agendas - ``Keep out the Congress and the BJP'' in the United Front, and ``include everyone other than the Congress and the Left'' in the NDA - and not a common programme, which if it exists does so only in name. This means that policies and rules in the powerful economic Ministries can be easily and without fear manipulated for the benefit of favoured companies or individuals.

In the aftermath of the East Asian crisis of 1997, ``crony capitalism'' was an attractive but condescending term given by the media, the economists and the financial institutions in the West to the unique industrialisation strategy of the region, where Indonesia was more an exception than the norm. What is beginning to mature in India is a different and larger phenomenon that lends itself to another but less attractive alliterative term: ``corrupted capitalism''. In this uniquely Indian phenomenon, which unlike in China, Indonesia and Russia is blessed here by the established democratic process, political corruption and market capitalism thrive by feeding each other. Capitalism grows not through competition in the market, but by excluding competition through large-scale corruption of the policy-maker and administrator in high places. This is what changing the rules of the game in new sectors means. Likewise, the stunting of the public sector, the sale of state assets to preferred buyers and the provision of subsidised finance to favoured enterprises - all for a price - have been giving a new meaning to capitalism, Indian style, in the 21st century.

In the other side of this diseased two-way relationship, corruption grows by the ability of Governments to change policy and tilt administration in the economic sectors according to the demands of the enterprises and entrepreneurs who have the resources and connections that matter. The ease with which Government policy is manipulated and rules changed is, however, not one that every Indian company does or can indulge in. It is the domain of what can be called `big business' which has the access and resources to do so. Most small and medium enterprises, considerably weakened by the neglect of manufacturing in the past decade, for the most part lie outside this `grand sale' of Governemnt that is going on and just struggle to survive.

Since most political parties have an interest in the system as it exists now, it is not surprising that all the heat and dust that is raised whenever a scandal bursts into the open leads nowhere. The only sacrifices that are made are of high-level officials and low-level political functionaries who are hounded by a suddenly energised investigation agency, the end result of which is silence after decades, not years, in courts.

How long can India's ``corrupted capitalism'' keep growing unchecked? The corruption of the political process makes it highly unlikely that the purging of the system will take place from within. The twin powers of corrupt business and corrupt politics are too strong to feel more than pin-pricks from Joint Parliamentary Committees and the like. The seeds of destruction will come from within because avarice clouds vision and breeds short-termism. The first threat will come from crime, which finds a ready home in the system. An example is the gangland wars of Mumbai, one of whose roots was the nexus between the textile industry and local politics. The second threat, the stirrings of which are beginning to surface now, will come from the steady weakening of the financial sector. The effects of years of manipulation for conferring benefits on the powerful and the connected cannot be hidden for ever. The hollowing out of the Unit Trust of India and the weakening of the IFCI could be the sign of more to come. And there will come a point when Governments find they cannot afford to pick up the pieces yet again.

If it is not averted, the deluge, when it comes, will unfortunately consume the citizen. The corrupt and the powerful will once again escape retribution.

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