Swadeshi and Crony Capitalism

Crony capitalism is not anything which is new. It is been a part of modern Western Anglo-Saxon variation of the market system from its very inception. However in different times and in different cases and under various different regimes it has evolved to take a pernicious form whereby it has attempted to capture the entire market system for the benefit of the very few.

Cronyism if we can call it that has been a part of economic structure from the time modern economics has been formulated. Those who have been close to the government have always benefited from the rulers munificence. In modern terms that would mean business people who were close to close presently governing the country managing to control all the levers of the economy.

In India the very basis of the economy as we know it from colonial times has been based on crony capitalism. Originally when the British were in India British companies which were close to the then British rulers were patronised largely and substantially. This obviously gave rise to a large amount of hostility from Indian businessmen who were more interested in having a level playing field in the growing economy of India. The assertion of Indian business asking for a level playing field along with British businesses in India came to be known as swadeshi. It is in this spirit of swadeshi that various scientists and businessmen in India set up Indian businesses to take on the British companies who had a stranglehold on the Indian economy. These businessmen also played a sterling role in the Indian independence movement. They were also at the forefront of acquiring and pushing technology for the purposes of spreading manufacturing and science through the country. A large number of them went on to endow educational institutions for the spread of science in every region where they worked. In many ways these swadeshi entrepreneurs were responsible for the fact that after India achieved independence the basic manufacturing sector of the country could be created in such a short period of time.

However the downside to this creation of an Indian business class was that they were Intricately linked with the Indian National Congress. Even before independence it was rumoured that every famous Congress leader had one or more famous industrialist as his friend. It is a known fact that during the entire independence movement a large number of Congress leaders did advocate the cause of such industrialists. In many ways at that point of time it was perceived as a patriotic  act of promoting Indian businesses over foreign businesses. In the year 1945 the top Indian industrialists of the country came together and find a declaration called the Bombay plan. The Bombay plan was in two parts and the basic thrust of the Bombay plan was that while the industrialists would be responsible for production of goods in the country the government would take the responsibility for distribution. It was an evident attempt to carve out the oncoming independent Indian economy. An apparent reading of the names would indicate that the roster of the industrial houses which signed on to the Bombay plan and those who are known to be very close to the present political establishment of the Congress has largely remained unchanged give-and-take one or two names.

Thereafter after the independence of India the links between these industrial houses and the Congress governments continued to grow. So much so that Congress governments were accused of acting at the behest of such industrial houses. It is interesting to note that even at the height of socialism which had been adopted as the governing credo of the country such industrial houses were never touched. Pandit Nehru justified the same saying that though he would like to have socialism in the country but going after the existing industrialists would mean de-stabilising the economy which he was not inclined to do. With Mrs. Indira Gandhi , though socialist rhetoric became more and more pronounced and efforts were made to shore up Public Sector Units but again the said industrial houses were largely left untouched. There were large amount of nationalisation of industries and some point out that the said process of nationalisation is an indicator as to the genuineness of the commitment of Indira Gandhi towards promoting socialism in the country. However coincidentally this period of promoting socialism interestingly coincided with the same time when a large number of these old industrial houses attempted to prop up political opposition to the then existing Congress government. The fact that the Swatantra party had been gathering up support of Indian businesses would definitely have weighed in the mind of Mrs. Gandhi when she decided to go after the industrialists who had till then form the backbone of the economy and the economic and financial arm of the Congress Party. It is also around that point of time that new industrialists were attempted to be promoted so as to be able to take on the old disaffected industrialists who were then attempting to prop up an opposition to the regime. Some of these new industrialists who been promoted at that point of time are today some of the biggest industrial houses in the country.

The imposition of what is today known as the License Permit Raj was formulated as a means to  handicap the old industrialists against the new industrialists which were being promoted by the then government. The government went out of its way to promote these new industrialists and facilitate their business interests in the country. Cronyism had been converted into a matter of economic policy.

From the time of 1984 to 1998 and specially after 1991 winds of liberalisation were introduced into the Indian economy. Most of the liberalising process was brought in more as a result of compulsion rather than conviction. However though the economy was supposedly opened or liberalised there was no movement to ensure that the playing field was ever levelled. In other words while the economy was opened up for investment from foreign companies there was no concrete move to ensure that a common person in the country could with ease do business. Even while doing business for big corporates were made relatively easy,  small businesses continued to find it difficult to do business in this country. The reason for this was very simple as the government was not interested in increasing competition to its cronies who had more or less captured the market.

The NDA regime from 1998 to 2004 was the sole exception where along with moves to make it easy for investment by both Indian and foreign investors in India,  it was coupled with a genuine move to ensure that a common business person who was interested in doing business in the country could genuinely do business without the government interfering in it. It is during this period that most of the big corporate's of the 2000s were born. In fact it is these group of companies which have threatened the status quo of the old businesses in the Indian economy. It was during this period of time that genuine improvement of infrastructure took place because the philosophy of the government was that common people should have access to better roads so as to increase their business. The idea of a market in the NDA regime was a market of the people and not a market simply controlled by the interests of the cronies of the government. It is true that in that large parts of the economy were delicensed so as to facilitate the common people or an ordinary businessman to participate in the process of creating business. The thrust of the NDA regime was to create a Swadeshi market. A free market which would be bottom-up and would be spread across to all participants. It would give the opportunity to every person to be in effective participant in the Indian economy. This can in many ways be called Swadeshi 2.0 version in the area of market economics in India.

However all this remarkably changed when the first UPA government came to power. In the name of working for the “aam admi” the government from 2004 onwards has reinforced license permit Raj. The objective of such reinforcement has been to ensure that its cronies are the only beneficiaries of the expanding Indian economy. The thrust of allowing everybody to do business which was the major focus of the NDA regime was furiously turned away for supposedly the betterment of the poor. The major beneficiaries of all the pro-poor schemes were the old cronies of the government. The old cronies of the Congress were back with a bang. This entire process was cloaked in the magic words of being pro-poor. Some of the biggest scams which were to haunt the UPA were to be initiated during this point of time. It's old cronies wanted to catch up for the lost period of 1998 to 2004 which had been a substantial period of growth of the Indian economy. However because of clever media management and because of the shine of the leftists who supported the government the scams did not come to light. This had the effect of convincing both the government and its cronies that they could actually get away with any thing they wanted.

The last vestiges of the pretensions which cloaked the first issue UPA government were given up during the second UPA government. The second government has been a government whose agenda has been driven by the cronies to the government. The government has given up's duty to even frame economic policy since its economic policy is being framed by cronies who have achieved such power in decision-making of the economy that the entire government is hostage to them. These cronies have captured the regulators of the market and have captured the policy framers of the government as well. The rule of cronies have resulted in complete paralysis of constructive decision-making. Interestingly this government has framed all its policies to either help its cronies or to bail them out. It has used either free-market rhetoric or populist rhetoric to suit itself and to disguise its hidden agenda of helping its cronies. In every aspect of the economy whether it be of the auction of spectrum, making available land at cheap prices, making available coal blocks at throwaway prices, organising India's aviation policy to suit a few operators, gifting away India's infrastructure projects to its cronies, allowing foreign investment in media and retail to bail out its cronies,  it has conveniently formulated its logic and rhetoric to suit itself , sometimes on populist grounds and at other times on free market ideas. It has played politics of “economic votebanks” very cleverly for the benefit of itself and it’s crony businesspeople .

As a backlash against the exposure of scams which continue to pour out of the cupboard of the government every day , there are those who today blame the existence of market forces as being responsible for cronies. Some of these people are those who have benefited the most by the actions of the regime of the UPA. This solution advocated by them is to bring in more licenses and permits and to bring in greater state control that is in other words the solution to crony capitalism are measures which would increase cronyism. This cannot be effective answer. The answer is to look for hard measures which has to be implemented in the Indian economy.

For the purposes of this article I would suggest four :

(a)    the government should ensure that the economy is governed by regulators who are not captured by business interests. The government should ensure that big businesses don't get to frame government policy and the sole criteria for framing economic policy for the government is that one which benefits people of the country.

(b)   The government should ensure that more and more people join business and have the ability to take part effectively in the economy by increasing their business and being able to promote their business interests. One of the biggest roadblocks for this is the availability of loans. It is well-known that while most of the credit for business of this country is enjoyed by a few industrial houses the common people and the small businessman does not have access to loans or credit. It is also a known fact that while industrial houses can get licenses very easily to participate in the economy a small person and or a small businessman is effectively kept out by this license permit procedure.

(c)    It should be the objective of every government that in issues including the allocation of national assets and wealth the benefit of such asset and wealth is ploughed back into the community and not sent to the coffers of the government. It is also important that the most affected should have a say in the allocation process .The process should be to make the economy accountable to the citizens of the country and not controlled and only used for the benefit of a few businesses who are close to the government.

(d)   Lastly it is high time that we explore alternate models for carrying out business based on older Indian models of collective entities. This is important because the older Indian entities included clear, conscious, social control over business interests which is lacking in the case of the Anglo American methodology of carrying out business through companies. Needless to say companies like the other invention of Western Europe the state has no inbuilt ethics and is therefore prone to be misused by the most powerful. If indeed we have two stop crony capitalism and ensure that the society and the people have a say in framing their economy, it is important in the long run to change the topic of conversation as to how economies are run. Allowing socio corporate entities more closer to Indian roots which would automatically reflect ethical code values within it is the need of the hour. It is the time that we start thinking afresh . We could call this the next step in the evolution of the Swadeshi market system or Swadeshi 3.0.