Political Diary

New Delhi, 20 October 2012

Crony Capitalism

POLITCS OF QUID-PRO-QOUS 

By Poonam I Kaushish

From Nehru’s true-blue democracy, down criminalisation of politics to politicisation of crime and rule by law India has traversed a treacherous road. But all pales in the face of the sordid politician-businessman nexus, succinctly crony capitalism. Whereby, self-serving dostis and family ties influence Government decisions and deals to enrich each other. Welcome to 21^st century desh ki rajniti: Of quid-pro-qous and you-scratch-my-back-I-scratch-yours, yaar!

Call it plutocracy (rule by wealth) or kleptocracy (rule by theft) either which way  netas of all shapes and sizes, hues and colours, communal and secular flock together collectively cooing there’s  nothing’s wrong. Alas, today bribing bureaucrats is de rigueur wherein instead of success being determined by the rule of law, a businessman’s success is dependent on the favoritism that is shown to him by the Government. A powerful trickle down effect where the lowliest rural officials and policemen expect their palms greased just to do their jobs.

Sadly, a surfeit of classic illustrations of crony capitalism abound.  From the 2G spectrum scam, Adarsh Housing Society scandal, Coalgate to the next fraud in gas and aviation. Recall, January 2008 then Telecom Minister A Raja favoured a handful of operators on a first-come-first-served basis. Resulting in Rs 1,7600 lakh crores loss to the national exchequer. Needless to say the list included those close to DMK supremo Karunanidhi, reality czars’ et al. 

Coalgate exemplifies how coal blocks were given to families and friends of UPA Ministers, Congress and its allies MPs’ or people close to the Party. The modus operandi was simple: Coal mines were taken on their own or through a joint venture with a State public sector firm. The list is unending. Union Tourism Minister Subodh Kant Sahay's brother was allocated two coal blocks, SKS Ispat. This followed his letter to the Prime Minister ‘recommending’ the company.

Scandalously, a five-day-old company JR Power Gen headed by DMK’s Union Minister of State for Information and Broadcasting S Jagathrakshakan was awarded a coal block in 2007.The coal block was later to Hyderabad-based KSK Energy Ventures. Who gained?  Similarly, IST Steel and Power, a spanking-new outfit owned by former RJD’s Union Corporate Affairs Minister Prem Chand Gupta's sons received a coal block in Maharashtra.

More shocking are Congress MPs-industrialist Navin Jindal and Vijay Darda who both grabbed coal blocks. On the facetious plea that the industrialists had power, cement and steel businesses and hence needed captive mines. Sic! Also singed in this crony inferno is BJP businessman-President Nitin Gadhkari who was given 100 acres meant for an irrigation project at the cost of farmers by former NCP Dy Chief Minister and Irrigation Minister Ajit Pawar in Maharashtra. Resulting in diversion of dam water for Gadhkari’s innumerable factories, sugar mills and power plants. Scandalously, Pawar not only over-ruled objections raised by bureaucrats but cleared all files in four days flat!

In oil, while public sector Indian Oil, BPCL and HPCL have to subsidise petroleum products for the aam aadmi, a company like Reliance can merrily declare falling gas production due to “technical” reasons in the KG-D6 and reduce the supply of gas at a Government-mandated price!

Or take Vijay Mallaya. Today the license of his airline Kingfisher is suspended due to failure to come up with a viable plan of financial and operational revivial. But what is stopping banks from selling the shares Mallaya had pledged of his core liquor companies to secure loans for Kingfisher and recover their money. But thanks to the ‘king of good times’ political friends, he has ensured the banks do no sell his collateral, thereby leaving the door open to stay afloat.

The fiddle is in the process Crony capitalism operates at five different levels. At the first level, an asset, land, spectrum, coal block or gas-field, is appropriated at low or below market price by being cosy with a Minister, his Man Friday or babu. Next, comes pricing and profitability. Once one has a scarce asset, to extract maximum profits you have to lobby for no price restraints one can charge.

Third, after obtaining an asset at low cost one has to ensure that you don’t have to put your own money. Thus, you borrow heavily from banks with very little of your own equity. So even if a scheme sinks, it is the banks which lose money. Fourth, one has to ensure that your rival does not get similar favours. Bluntly, you have to lobby not only for yourself, but also push against your competitors.

Lastly, in industries like telecom, gas or aviation which are regulated, besides politicians, one has to ‘manage’ ex-bureaucrats manning regulatory agencies, telecom regulator TRAI, aviation’s Directorate General of Civil Aviation or Directorate General of Hydrocarbon (DGH) which regulates the oil industry.

Aware of the havoc wrought by crony capitalism, the Planning Commission in its 12^th Plan document made a reference to how crony capitalism was dictating Government decisions and suggested “transparent auction” of natural resources as the solution. But after protests from some Ministers who felt that any mention would be a tacit acknowledgment of the existence of the practice, the Government decided it was not willing to accept as the one-size-fits-all approach for all sectors. Should on read crony capitalism will continue?

What next? Clearly we need to put in place a clear and transparent regulatory framework and stop crony capitalism riding roughshod over bona fide businessman. As a starter we could take a leaf from US and Westminster. In America post the Enron scandal, the Sarbanes Oxley (SOX) Act came into effect, but it failed to put a lid on crony capitalism. Mainly, in the military-industrial complex as connections with the Pentagon, politicians and lobbyists in Washington are more important than actual competition in defense contracts.

Yet, under the Ethics Committee, Senators must avoid situations where they benefit personally from their official acts. Bribery is the most blatant example of this, but less obvious corruption also occurs, such as an inside financial deal with an industry seeking a legislative favour.

In 1988, the Committee investigated charges that the House Speaker Jim Wright had abused his office to enrich himself. Ten months later Wright was charged but he resigned, making him the first Speaker to be forced out of office during mid-term.

In UK, the Nolan Committee on standards in public life set up in 1995 recommended the House appoint a person of independent standing as Parliamentary Commissioner for Standards, who would maintain the Register of Interests, provide guidance and advise on matters of interests and investigate and respect on complaints about Members.

All in all, time to halt these political-business birds of feather flocking together to rule by wealth and rule by theft. How long will to continue to pay for the sins of crony capitalism?  ------ INFA

(Copyright, India News and Feature Alliance)