In 1913, J.P. Morgan appeared before a hearing of the Pujo committee, a US congressional subcommittee formed to probe growing Wall Street power. “No, sir," Morgan famously said on being asked by lead investigator Samuel Untermyer if commercial credit was based primarily on money or property, “the first thing is character." Character, Morgan continued, dictates trust, and without trust, a man “could not get money from me on all the bonds in Christendom".

On the face of it, Infosys co-founder N.R. Narayana Murthy was speaking of an entirely different matter at the Indian Institute of Technology, Bombay over the weekend. His message that “the leaders of capitalism will have to demonstrate self-restraint in apportioning to themselves the part of the benefits that come out of running companies" is one that he has been pushing for some time—notably when he abstained from voting on an Infosys board proposal to hike chief operating officer U.B. Pravin Rao’s salary earlier this year.

But both of them are different perspectives on the same issue. In many ways, capitalism runs on trust. This is equally true of economic activity between individuals—Morgan’s point—and the perception of economic activity in a capitalist economy by the general public that Murthy is concerned with. Broadly, the unequal outcomes of such activity are inevitable. For the public to accept these outcomes, they must believe that the winners are not playing with loaded dice. In other words, they must trust that the system is not rigged.

Certainly, rational self-interest and the rule of law are guiding principles as well. A wealth of research and evidence has turned the importance of transparency, the rule of law and the eradication of corruption to economic growth into a truism. But as financial economist Robert F. Bruner has pointed out, a wide range of behaviour is permissible within the law; not all of it is ethical or conducive to fair competition. There is no way around this. For the state to narrow that range beyond a point would require it to take a Hobbesian view of society. That is profoundly dysfunctional. And in the absence of trust, in any case, the state can be seen to be collaborating with the economic elite.

India’s economic history bears this out. The over-regulation of the lost decades was part of a broader redistributive attempt to create economic ‘fairness’ by fiat. It was deeply counterproductive. The licence raj’s discretionary controls enabled corruption. Those with adequate capital could parlay it into rules rigged in their favour—or the freedom to ignore those rules. This symbiosis between the economic, political and bureaucratic elite evolved over the years into a polished system of crony capitalism.

This has eroded the popular legitimacy of India’s post-1991 move to a more free-market economy. Clearly, the hangover of India’s licence raj days persists; the political and economic corruption it entrenched exists in public view. Attempts to address this can result, in turn, in economic inefficiencies. The provisions to curb profiteering under the goods and services tax are intrusive and unfeasible, for instance. Demonetisation was an economic move that should have been judged as such. Instead, the perception that it would stick it to the economic elite has dictated how it was received to a large extent.

Or take the telecom sector. The switch to auctioning spectrum was correct. But it is debatable if the high reserve prices—set partly to forestall any perception or accusation of corruption following the 2G licence allocation case—had economic logic on its side. The fact that all 17 accused in the case have now been acquitted is bound to further erode public trust in Indian capitalism. That in turn could lead to more counterproductive regulations and inefficiencies—which may end up providing opportunities for corruption yet again in a vicious cycle.

Analysing Indian corporate salaries in Mint last week, Sachin P. Mampatta found that “the rise in top executive salaries over the past few years has outpaced growth in the overall compensation outlay of their companies, pointing to rising inequality within Indian corporate entities". If the populist backlash in the US and much of the developed world in the wake of the financial crisis has proved anything, it is that economic inequality, perceived to be caused by a rigged system—and the lack of legal or financial consequences for the economic elite—can result in dangerous swings to the extremes of the left and right. Murthy’s ‘compassionate capitalism’ doesn’t really provide the necessary answers. But it raises important questions about Indian capitalism.

How can India become a society that doesn’t need government fiat to create the perception of fairness in the economy ? Tell us at