This suit-boot business
Rahul Gandhi may not represent the most robust or convincing opposition to Prime Minister Narendra Modi, but his 2015 Suit Boot ki Sarkar crack about the Modi government has clearly rankled. That the phrase, a folksy reference to crony capitalism, figured prominently in the debates during the no-trust vote this July highlights an uncomfortable truth about India’s post-liberalisation political economy.
It is this: The licence raj is dead, long live crony capitalism. The government-business complex that flourished in the heyday of licensing and controls remains in modified form. Some of the marque names have changed, of course, and the faces are younger.
To clarify before Mr Modi’s sentinels pounce, the cronyism label applies with varying levels of adhesiveness to all regimes since 1991. Think Harshad Mehta’s dramatic fingerpointing press conference back in 1992, recall the stink over disinvestment and telecom licensing in the early 2000s and consider scandals over telecom and coal licensing that paralysed the United Progressive Alliance and cost it the 2014 elections. Add in the soaring debt from Vijay Mallya’s crashing airline — all courtesy helpful policy tweaks to aviation policy — and Mr Modi’s riposte to Mr Gandhi and his party could easily be: If the boot fits, wear it.
If the accusation endures into this regime, despite the clean image cultivated by our current prime minister, who is lucky to be free of coalition concerns, the problem has to do with the inadequacy of economic reforms and ease of doing business norms that keep India Inc in a perpetual state of upscale mendicancy (also known as lobbying). Note also that the most scandal hit sectors are those that remain under licensing norms or pricing controls.
This is not to say that the private sector has not grown and expanded after 1991. As the principal job creator since then, the private sector’s role in the political economy has grown exponentially. IT, automobiles, hotels and hospitality, real estate, healthcare, retail, telecom, banking and, more recently, e-commerce, are all symbols of the brave new post-liberalisation India. That is why conclaves organised by industry lobbies such as CII, Assocham and Ficci have become the first stops for finance ministers after annual Budgets are presented. Mr Modi is right to point to their importance in the economy. Perhaps that explains why he continues to have business delegations accompany him on overseas trips, though the non-government press has long been banished.
But the budget exercise also betrays the government’s dominance over economic activity. The business community waits for it with the same anxiety as it did pre-nineties – not just for tax proposals but also for projections for the fiscal deficit and its embedded indications of the government’s borrowing programme. Till today, that debt routinely crowds out the private sector and makes access to domestic debt capital scarce and expensive. Pre-nineties, we learnt to scour the budget for which business house was gaining from which duty cut or hike; that exercise persists today.
Now, it is true that lobbying is a key activity in even advanced economies, including the US. But strict disclosures on political funding, and a requirement for the formal registration of lobbyists add a considerable degree of transparency and width to the exercise. In India, disclosure laws have a low bar and this government’s proposal to introduce RBI bonds as a means of campaign finance is too bogus to be taken seriously. Fixers and sundry chancers continue to haunt the corridors of Raisina Hill, not just for defence deals either.
The beauty of the crony capital mechanism for politician and the business community alike is that it allows for deniability — even though its impacts are publicly visible. That may explain why the culture endures. But here’s the problem: As long as cronyism endures in some form or the other, the width and depth of business will be constricted. It is evident in the structure of India’s business sector in which a handful of family-owned houses dominate the scene and small and medium businesses struggle against such formidable odds, including local-level corruption. India’s billionaire raj, as James Crabtree has called it, epitomises little more than new-age cronyism. In the long run, India will be the loser as a result of it.