Are we encouraging crony capitalism?

Are we encouraging crony capitalism?
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First Published: Tue, Aug 25 2009. 10 19 PM IST

Updated: Tue, Aug 25 2009. 10 19 PM IST
Businessmen rarely want to rock the boat, simply because they have too much to lose. They prefer to work within the system, lobbying and lubricating their way into the government’s good graces. Never in corporate history has an Indian businessman dared to openly take on the government. Anil Ambani can claim the distinction of being the first.
True, the younger Ambani may have his own reasons for doing so. We can endlessly speculate whether his motives stem from trying to get gas cheap for his power plant or whether it’s to force the Opposition or indeed even the ruling party to take a stand against the petroleum minister or whether it’s an attempt to get his older brother to the negotiating table, but that doesn’t alter the fact that Anil Ambani has levelled some very serious allegations.
It’s not just about the price of gas any more. Nor is it only about whether the price of a national resource can be fixed between two brothers. That part of the matter will be decided by the Supreme Court. But what about his allegations of gold-plating? What about his claim that the deal between the government and Reliance Industries Ltd (RIL) has been so structured that the latter makes super-normal profits? What about the demand that the expenditure be audited by the Comptroller and Auditor General of India, and why hasn’t this been done so far?
RIL, in turn, has denied the allegations and has said the ad campaign is malicious. So isn’t it time for an impartial inquiry into who is right?
Indian business has always been very cosy with the government. Even during the so-called socialist period, big businessmen had a good time, protected from competition, on the one hand, and being able to corner those all-important licences, on the other. True, taxes were punitive, but who paid them?
After liberalization, the throwing open of new industries such as telecom, infrastructure and natural resources to the private sector has provided ample opportunities for crony capitalism, while the murky deals of election funding are the most obvious nexus between politicians and businessmen. Indeed, some narratives claim that the only reason liberalization was allowed to happen was because Indian business had become strong enough to start expanding abroad and take on global competitors. There has been no shortage of cronies in Indian capitalism.
That’s not very surprising. Writing in the May 2009 issue of The Atlantic magazine, former International Monetary Fund (IMF) chief economist Simon Johnson argued that the US government had been captured by the Wall Street financial oligarchy. Johnson wrote that the US was very similar to a banana republic because “elite business interests—financiers, in the case of the US—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them”.
Forget about the Russian oligarchs, forget the crony capitalism of East Asia, forget about the nanny states of Europe, here is an ex-IMF chief economist saying that oligarchy is rife in the home of free market capitalism. Noam Chomsky has been making this point for years. So how can Indian business be any different, especially when the Tehelka affair served as a grim warning for anybody who dared to take on the government? Despite the myth of the free market, actually existing capitalism is usually crony capitalism.
Reports say that the political establishment, including the Prime Minister, wants the Ambani brothers to find a way out of the conflict. But strangely enough, it might actually be in the public interest for the two brothers to continue fighting.
Remember the skeletons that tumbled out of the corporate cupboard during the no-holds-barred battle that accompanied the split in the Ambani empire? One of them was the sweat equity that Mukesh Ambani had acquired in Reliance Infocomm (now Reliance Communications Ltd). After the news came out, Mukesh Ambani decided to renounce those shares.
So the fight between the brothers may actually be a very good thing for corporate transparency. As Medha Patkar recently said, “Fortunately, the Ambanis are fighting each other, exposing the corporate conspiracies to deprive people of their rights.”
This time, the stakes are much higher. Anil Ambani is targeting not just his older brother, but the government. It’s strange that nobody has yet filed a query under the Right to Information Act in this matter. Nor has the Opposition been very vocal about it, perhaps because it is wary of being seen as taking sides in a private dispute. But the quarrel is no longer a private matter.
In his May Day speech in 2007, this is what Prime Minister Manmohan Singh said: “I was struck recently by a comment in the media that most of the billionaires among India’s top business leaders operate in oligopolistic markets, and in sectors where the government has conferred special privileges on a few. This sounds like crony capitalism. Are we encouraging crony capitalism? Is this a necessary but transient phase in the development of modern capitalism in our country? Are we doing enough to protect consumers and small businesses from the consequences of crony capitalism?”
Anil Ambani’s allegations provide an opportunity for the Prime Minister to seek answers to the questions he raised two years ago.
Manas Chakravarty looks at trends and issues in the financial markets. Your comments are welcome at capitalaccount@livemint.com
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First Published: Tue, Aug 25 2009. 10 19 PM IST