A new Gilded Age threatens to make India the world's largest oligarchy.
By Jason Overdorf
GlobalPost - March 17, 2011
Editor's Note: The Shiva Rules is a year-long GlobalPost reporting series that examines India in the 21st century. In it, correspondents Jason Overdorf and Hanna Ingber Win will examine the sweeping economic, political and cultural changes that are transforming this nascent global power in surprising and sometimes inexplicable ways. To help uncover the complexities of India's uneven rise, The Shiva Rules uses as a loose reporting metaphor Shiva, the popular Hindu deity of destruction and rebirth.
NEW DELHI, India — Shortly after industrialist Anil Ambani exited the offices of the Central Bureau of Investigation last month after a taxing, two-hour interview, his $80 billion-dollar company issued a press release.
The Reliance Anil Dhirubai Ambani Group stated that Ambani had not been "summoned" by India's federal investigators but had simply met with them to clarify "ongoing issues" related to the telecom scandal Indian reporters have dubbed the 2G spectrum scam.
But the grim expression on the billionaire's face as the flashbulbs strobed told a different story. As impossible as it might have seemed just 24 hours before, this was a perp walk.
Over the past few weeks, that billionaire perp walk has turned into a parade, a veritable who's who of Indian business have visited the CBI offices to make their own "clarifications" — including Ratan Tata's right-hand man, Tata Realty CEO Krishna Kumar; the $15 billion Essar Group's scion and CEO Prashant Ruia; the $4 billion Videocon Group's Chairman Venugopal Dhoot; and the $650 million Unitech Group's Managing Director Sanjay Chandra.
“We still have economic might concentrated in relatively few people's hands.”
Their market muscle may well be the engine behind the Indian economy's projected 8.6 percent growth this year and their firms may well be fueling the rise of the Indian middle class — a phenomenon that will move nearly 300 million Indians out of poverty over the next two decades, according to McKinsey & Co.
But even though nothing has been proven in court and all of the companies involved have denied wrongdoing, in the eyes of the people, India's captains of industry have turned into robber barons overnight — with the Supreme Court instructing the CBI to go after the guilty "even if they are millionaires or feature in the Forbes rich list.”
Dark as the horizon seems, though, the current disgust could mark the beginning of a much needed correction.
Just as during America's Gilded Age, when bankers and industrialists like Andrew Carnegie, John D. Rockefeller and John Pierpont Morgan amassed their enormous fortunes, India's celebrated entrepreneurs have capitalized on the country's rapid economic growth to rocket up the charts of the world's rich list over the past decade.
But as Forbes feted the rise of the self-made Indian billionaire and free market champions credited the decision to liberate the economy from government quotas for manufacturing in 1991, some vital features of the enormous increase in India's wealth were overlooked.
Taking into account family associations, India's BusinessWorld magazine's list of this year's 10 richest Indianslooks a great deal like the list one might have drawn up in the 1980s — featuring Tata, Birla and Ambani — only the sums are vastly larger. Despite claims that Indian business flourishes in spite of the state, virtually every name on the roster has reaped dramatic gains through accessing or taking over government-owned resources.
Meanwhile, ever greater wealth has increased their influence in politics and control over regulatory policy — raising concerns that the world's largest democracy is quietly becoming the world's largest oligarchy.
"We are still relatively small as an economy and we still have economic might concentrated in relatively few people's hands," said Pramath Sinha, a former longtime McKinsey & Co. partner who founded 9.9 Media-Worx in 2007. "If you start writing the names down, you quickly run out of names."
Since 2000 or so, when India's "growth story" started to take off, the conventional wisdom has been that the dismantling of the so-called License-Permit Raj in 1991 had dealt a mortal blow to corruption — though it kept hanging on — and opened the field to a host of creative and dynamic entrepreneurs.
But the recent wave of alleged scams and an examination of the companies that have dominated Indian business since liberalization shows that the opposite may well be true: Government influence is as important as ever, and the state's dependence on its largest corporations to fight off global competition has given India's big industrialists even greater political clout.
Thus, as many as 15 of a recent list of India's 25 largest business groups were also among the top 25 in 1969, when the Monopolies and Restrictive Trade Practices Act came into effect, argues Surajit Mazumdar, a professor at New Delhi's Institute for Studies in Industrial Development.
"[Despite liberalization] things didn't really change that much," Mazumdar said. "If you had new entrants, it was essentially from within the set of large groups or international firms. So in a sense what you got was a process of competition between the big and the dominant."
To be sure, there are strong arguments for succeeding Indian governments' support of the country's dynamic tycoons. In the essay that coined the phrase "captains of industry," Scottish historian Thomas Carlyle told an England increasingly concerned about the plight of its workers at the height of the Industrial Revolution in the mid 19th Century, "Government can do much, but it can in no wise do all."
And in India, that seems especially true. As graft absorbs nine out of every 10 dollars spent on government projects, India's 10 largest business groups account for as much as a fifth of the entire economy. Ratan Tata's Tata Group alone accounts for as much as 5 percent of India's GDP, while Mukesh Ambani's Reliance Industries contributes another 3 percent and Kumar Birla's Aditya Birla Group adds another 2 percent.
It's therefore easy to see why state planners might turn the responsibility for providing the country's essential services to companies like Tata, which in Jamshedpur, the headquarters of its flagship Tata Steel, provides roads, utilities, health care and sanitation infrastructure superior to most Indian cities. After all, the land grants that built America's railroads in the Gilded Age not only helped create great fortunes for eight of the 40 richest Americans of all time, but also helped to quadruple U.S. gross national product and nearly double the per capita income of average Americans between 1865 and 1900, according to Northeastern University professor Ballard C. Campbell. For most part workers' wages also increased over the same period.
But critics of the business-friendly policies of India's own golden era say that under the auspices of stimulating industrialization and the building of houses, roads, bridges and ports, the country's leaders seems to have forgotten that government can do anything except give public land and resources to big capitalists — even as spending dwindles for the social programs intended to deliver "inclusive growth."
Given India's huge population, it's hard to imagine a scenario where industrialization creates a tight enough labor market to result in the kind of wage increases that America saw in its Gilded Age. And deals aren't only being cut to increase the wealth of the nation, they say; in the back room, the country's elected leaders are signing a raft of policies and contracts with the express purpose of lining their own pockets.
"Collusive arrangements exist in all the areas where the government maintains control over limited resources, whether it's minerals, forests, airwaves, frequencies, spectrum, water or land," said Praful Bidwai, a writer and activist who is among the most trenchant critics of the India's recent economic policy. "The land grab is extraordinary. It's never happened on this scale."
Perhaps that's why India's recent policies in areas like telecom, real estate and mining have seemed so flexible when it comes to accommodating the new robber barons.
The so-called 2G spectrum scam captivates India today. But the CBI allegations that billionaire industrialists used shell companies to violate regulations and engineered payoffs to former telecom minister Andimuthu Raja are only the tip of the iceberg. And while one might argue that the people have benefited from those allegedly corrupt deals with a rapidly growing mobile market and low airtime charges, that kind of justification is much more difficult when it comes to other government policies like the allocation of Special Economic Zones and mining rights.
Since 2005, India's SEZ policy has allowed corporate developers to acquire hundreds of thousands of acres of land, running roughshod over the protests of small landowners with the aid of the state. Supposedly to encourage employment-generating industries, India granted developers and zone-based businesses exemptions from import and export duties, excise and sales taxes, and up to 15 years of tax holidays on profits.
Yet most of the SEZs mushroomed in desirable areas where no incentives were needed, and many turned into residential real estate plays or IT sector office complexes. Moreover, few of the 400,000-odd jobs resulting from the scheme are of the type that could absorb the farmers that the zones displaced, and their net effect actually appears to have exacerbated, rather than reduced, inequality, argues Loraine Kennedy, deputy director of the Centre for South Asian Studies (CEIAS) in Paris.
Similarly, in the mining sector, various state governments have required forest dwellers and indigenous tribal groups to turn over mineral resources to industrialists like Vedanta Resources' Anil Agarwal. And while the industry displaced some 2.6 million people between 1959 and 1991 — most of them from indigenous tribes — the pace of mining clearances has accelerated dramatically in recent years according to a recent Times of India report that synthesized government data. Between 1998 and 2005, 216 mining projects a year were granted clearance to extract minerals from India's forests, compared with only 19 per year from 1980 to 1997, the paper found.
The resulting concentration of wealth is stunning. Going by the Forbes list, the combined wealth of the 10 richest Indians, at around $150 billion, accounted for 12 percent of the country's gross domestic product in 2010 — the annual income of some 150 million average people.
But it's the influence and sheer power of the new robber barons and the changing character of the Indian political system that's most disturbing. According to an analysis of mandatory filings conducted by India's Association for Democratic Reforms (ADR), the number of Indians in the parliament with more than 10 millionrupees in assets — known here as crorepatis — doubled from 2004 to 2009.
While it's true that America's Congress is also stacked with millionaires, the amount of wealth amassed by India's leaders over the past five years alone is remarkable: The assets of the average MP increased from around $400,000 in 2004 to around $1.2 million in 2009. Meanwhile, the composition of the committees that steer government policy has also changed.
"Money has been playing such a huge role [that] it's obvious," said ADR's national coordinator, Anil Bairwal. "If you look at the committee on finance, mostly industrialists are sitting on it. If you look at policy making, in the Lok Sabha [lower house] or Rajya Sabha [upper house] most people represent industry one way or the other."
Conflicts of interest go unmonitored or ignored. MPs in the lower house do not have to declare their interests in corporations, and the declarations of MPs in the upper house have not been made public — though a Right to Information request from ADR is pending. A similar RTI request revealed that no objections to the inclusion of an MP on any parliamentary committee on the grounds that he or she had a personal or financial interest in its affairs over the past five years, according to PRS Legislative Research, another civil society group.
And there were only two instances during the 2004-2009 session when upper house MPs voluntarily declared their personal stakes in the proceedings before speaking before the parliament, while no such declaration was made by lower house representatives.
Perhaps they didn't bother, thinking that the conflict of interest was glaringly obvious — with flamboyant Kingfisher Airlines promoter Vijay Mallya sitting on the civil aviation committee and enjoying day-to-day interactions with the minister.
But consider some of the cases illustrated by muckraking journalist Shafi Rahman in India Today magazine. During the 2004-2009 session, for instance, MP Nageswara Rao asked for details about the government's plans to build eight-lane expressways without mentioning that he also happened to be the non-executive chairman of the Madhucon Group — a company involved in a dozen-odd projects with the National Highways Authority of India.
Meanwhile, although the composition of parliamentary standing committees often changes during a government's five-year term, Rahman pointed out at the time that the standing committees on finance, industry, public accounts and health included tycoons with massive holdings in IT, media and cement, hotels and shipping and medical colleges — though on the parliament's website they ticked industrialist along with a laundry list of other professions, calling themselves agriculturalists, educationists and social workers. Since then, little has changed but the names of the players.
"They are writing policies more or less," said Bidwai. "This is something that perhaps not even Rockefeller or Morgan was able to do as successfully."