India needs ‘crony’ capitalism

If the UPA sits at one extreme on crony capitalism, Kejriwal and AAP sit at the other.

There is a reason that Arvind Kejriwal is opening a new front in his war against corruption. It has been easy for him to bash the guilty Congress on the issue of graft but it hasn’t been as easy to make a dent on Narendra Modi — his other rival on the national stage — who is widely believed to be not corrupt. Crony capital- ism, the theme of Kejriwal’s latest angst against the “system”, is somewhat different. The fact is that anyone who has governed any part of India in the last decade can stand accused of fostering crony capitalism if the latter is defined simply as the use of taxpayers’ money, or money that belongs to the coffers of government, to finance corporate profit. And if India wants to grow at near double digits in the near future, this “cronyism” must continue.

The Reliance gas price issue gets Kejriwal easy headlines. Let us assume for the sake of argument that he is right that government fixing the prices of gas to further Mr Ambani’s private profit is crony capitalism. The solution to this problem is very simple. But it isn’t one that Kejriwal is offering. The government can simply stop fixing the price of gas and let the forces of demand and supply, settle the price. The only catch is that the price may end up being higher than the governmentmandated rise, but equally it could be lower. Either way, there is no crony capitalism when the market sets prices.

Beyond the headlines, the real problem of crony capitalism lies elsewhere, most notably in public- private partnerships in the building of infrastructure whether roads, airports, or schools and hospitals. India needs massive investment in its infrastructure sector — by the Planning Commission’s estimate $1 trillion between 2012 and 2017. The nature of the infrastructure business is such — high capital requirements, high risk, and no immediate returns — that it doesn’t lend itself easily to private sector participation. And India has tried and failed with government delivery of vital infrastructure.

What is clear is that the private sector in India is far superior at delivering good outcomes, but the government is the only institution which has the money to finance (or at least part-finance) infrastructure projects on a large scale.

Kejriwal loves to rail against Gautam Adani for his “links” with Modi, but can Mr Kejriwal deny that Adani runs India’s most efficient port (Mundra in Gujarat), several times more competitive than its public sector counterparts? Kejriwal can target Ambani all he wants but can he deny that Reliance runs India’s most efficient, globally competitive, refinery? Kejriwal would rather see the crony before the capitalist, but can he deny that some of India’s major successes in infrastructure have been delivered by the likes of Adani and Ambani even if with the helping hand of the government?

It is important to recognise, and Kejriwal does not, that there is a difference between public-private partnerships where politicians make personal pecuniary gains and ones where taxpayers’ money funds private profit but doesn’t line political pockets. India can do without the former, but desperately needs the latter.

It is unreasonable to expect the private sector not to operate for profit. And it is unreasonable to expect that an inefficient government alone will suddenly reform itself and deliver the infrastructure that India needs.

Most late industrialising countries, particularly in East Asia, have grown rapidly on the back of taxpayer- supported private companies. India needs to use private participation in not just roads and airports but in schools and hospitals, and the government needs to pay for it.

The UPA, because of its brazen corruption, has given a bad name to the basic notion of government supporting private companies. Any government must devise more transparent methods before it supports private companies. For example, no PPP policy should explicitly favour a single company (that’s when the wrong kind of cronyism takes roots) but should instead offer a levelplaying field for any qualified company to bid for a project. Also, the goals of government policy should be made clear. A credible government should still argue the case for some taxpayer subsidy to private companies in the larger national interest.

Unfortunately, if the UPA sits at one extreme on crony capitalism, Kejriwal and AAP sit at the other. India cannot escape the reality of taxpayers financing some corporate profit unless it wants to live in Kejriwal’s utopia, which delivers a complete separation of the government and the private sector but delivers no growth and no jobs. For the sake of prosperity, India could do with some cronies. Dhiraj Nayyar is Director, Think India Foundation and Editor-atlarge, Firstpost. This coloumn first AppEArED on Firstpost.Com and was printed with permission.