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."
http://www.globalpost.com/dispatch/news/regions/asia-pacific/india/110316/india-economy-anil-ambani
