Over the past quarter century, there has been immense reduction in poverty in India. But a richer economy also means more high-profile corruption. This in turn is seen as being closely linked with the rapid rise of India’s tycoons. In 2002, there were five Indians on the annual Forbes list of the world’s billionaires. In 2018, the number has risen to 119. When it comes to billionaire wealth as a proportion of national output, India perhaps ranks only behind Russia. In an interview, Crabtree talks about inequality and crony capitalism in India and their consequences. Edited excerpts:
Do we put inequality on the back-burner, let the Ambanis and Adanis build and create wealth and jobs, or do we focus on inequality now?
I don’t think there’s a contradiction between these things. The problem India faces is that while it has had a good record on basic poverty reduction—much more impressive than it’s given credit for—it has a much worse record on inequality reduction than it’s given credit for. The evidence is right in front of your eyes. Look at Antilla—Mukesh Ambani’s residence in Mumbai, built at an estimated cost of $1 billion—and look at what’s around it. Whether you look at International Monetary Fund research or the work that Thomas Piketty has done, or the World Inequality Report, they all point in the same direction. Which is that India is one of the world’s most unequal countries—probably up there with South Africa or Brazil. It’s more unequal than the successful economies of East Asia and it’s at a very early stage of its development.
So the risk comes from it going on at the same rate over the next 10-15 years. There’s all sorts of new research that suggests that inequality is more damaging than we had thought. That’s true economically and that’s true in terms of human happiness. We are not arguing for red in tooth and claw socialism here. This is simply about more inclusive growth, perhaps a more progressive taxation system than India has now, a support system for people coming out of the fields and into other forms of employment. There is no contradiction between this and being pro-business. Businesses need reasonably skilled, healthy workers after all. So this debate in India where people on the centre-right say, well, we only care about how people on the bottom are doing, the top doesn’t matter, that’s a bit old fashioned now.
You argue in your book that the Left in India approaches the issue from the same angle. They care largely about how people at the bottom are doing rather than inequality per se.
This, I thought, was interesting. The totemic intellectual debate in India’s recent past has been between Jagdish Bhagwati and Amartya Sen. In a sense, neither of them places inequality front and centre. For Jagdish, it’s growth that matters, everything else can follow. For Amartya, what matters is the condition of the people at the bottom. Neither of them is really looking at the gap between the top and the bottom. That means you’re missing an important component of what makes a successful growth model.
Inequality isn’t just about the billionaires, it’s about the fact that the top 10%, and particularly the top 1%, have done disproportionately well. The vast mass of everyone else, including those who you’d consider to be middle-class, although in absolute terms they’re doing much better, in relative terms they’re doing much worse. That’s not how you build a successful country. It’s pretty clear that very unequal countries find it much harder to modernise. Look at Latin America, that’s the classic middle income trap. Countries that have managed to break through to become rich countries either have fantastic natural resources—like the oil emirates, and they’re not the ones you want to follow—or they’ve managed to create a kind of social and economic model that takes everyone along with them.
What happens if India continues on this path of the top pulling away from the rest? What does that mean for modernisation and reform?
Reforms are complicated, they require winners and losers. You have to have a sense that the winners will look after the losers. Farmers, for instance. This is not a good time for them. A lot of them are going to have to work somewhere else because India desperately needs a much smaller and more efficient farm sector. But if the sense is that everyone’s in it for themselves, then that makes it much more difficult to create the coalitions that you need for such changes.
It’s not just interpersonal inequality, though. There’s a large amount of spatial inequality too. That has consequences for economic federalism and policy making for the sort of structural reforms and inclusive growth you’re talking about, doesn’t it?
It’s complicated, isn’t it. People have begun to talk about a division between the economics and the politics of the country, where the north is much more dominant politically and in terms of population but it’s the south and the west that rule economically. Now, what do you do about it?
None of these things are simple. The same is true when it comes to urbanisation. That divide is only going to grow as more people move to cities and cities grow more prosperous, increasing the spatial urban-rural divide. I suspect a degree of further federalism is good, but to make the most of that, you also have to ensure there is capacity at the state level. And the capacity of the states to deliver good policy and governance is often quite patchy.
So I agree that the inequality that has arisen in India over the past 10-15 years is complicated and multifaceted. The point is, it’s all moving in one direction. Unless steps to cap that and move things in a better direction start happening, this stuff will run away with you.
Do you see inequality—as distinct from corruption—as an electoral issue?
I don’t. But if you consider what inequality means—which is access to opportunities for advancement, the chances of your kids getting into a decent school, the quality of public services, social insurance if you get sick, these things very much matter. They are the meat and drink of Indian politics—for instance, former AIADMK chief and Tamil Nadu chief minister Jayalalithaa saying she will give you a free stove or free gas or cancel your farm loans. So while inequality might be an abstract concept, there are plenty of aspects of it that matter at the ballot box.
Both Jayalalithaa and Karunanidhi, former DMK chief and Tamil Nadu chief minister, oversaw corrupt administrations in Tamil Nadu. But the state’s development indicators also did very well under them, which goes against conventional wisdom. It seems to tie into what you quote political scientist Samuel Huntington saying in your book about the strategic use of corruption to lubricate growth.
Andhra Pradesh as well. It’s a toss-up, which of them is more corrupt. Strategic corruption. Can you use it as East Asia did? Can you allow people to cream a bit off the top if they do what you want them to do, and the thing you want them to do is good? Namely, making sure kids have school meals or building irrigation projects.
Some southern states have been much better than the northern ones in this respect. They’re corrupt but they don’t take everything; it isn’t a looting. The principle is, they’ll take their 5% and the job will be done in a reasonable way. So there is perhaps a theoretical case that India could do with more corruption rather than less.
But the research is fairly clear that this sort of strategic corruption works best in autocratic regimes. You could say that was true of Jayalalithaa, she certainly governed in autocratic fashion. It’s very difficult to imagine using corruption to get the wheels turning again in other parts of the country, though. Besides, corruption is a function of growth. Part of the reason there has been so little corruption in India over the past five years is that they haven’t been building anything. All the growth has come from consumption and public spending. The proof of Modi’s corruption record is really going to come only when the next boom happens.