First Biz R Jagannathan 4 Aug 2014
By any standard, the number of businessmen doing time in jail must have hit a new record in India over the last five years.
Yesterday (4 August), when the economic offences wing of the Mumbai police filed a 9,360-page charge-sheet against Jignesh Shah, Chairman of Financial Technologies India Ltd (FTIL), in connection with the Rs 5,574 crore default at the National Spot Exchange Ltd (NSEL), he was only the latest in a long list of businessmen put in the dock during the UPA regime for alleged wrongdoing.
At the time of the filing of the charge-sheet, Shah had already spent nearly 80 days in jail. Now that the charge-sheet has been filed, it is conceivable that he will get bail in the near future, but clearly the sheer number of businessmen who have been sent to jail is unprecedented in the annals of independent India.
Subrata Roy, boss of the controversial Sahara Group, has spent more than five months in Tihar jail, thanks to his extraordinary defiance of a Supreme Court verdict of 2012 in the illegal issue of optional fully convertible debentures by two shadowy companies in his group. He has to furnish Rs 10,000 crore to be out of jail, and is expected to use a conference room in Tihar to negotiate the sale or lease of his properties to find this amount.
Both Sahara and Jignesh Shah’s MCX are believed to have used political clout in the finance ministry to get their job done (read this letter from a former Sebi director to the PM to read the details).
Over the previous five years, we have seen several more businessmen and executives – Shahid Balwa of DB Realty, Sanjay Chandra of Unitech Wireless, Vinod Goenka of Swan Telecom, three senior executives of the Anil Ambani group, including group managing director Gautam Doshi, Sharad Kumar, CEO of Kalaignar TV, not to speak of B Ramalinga Raju and other executives of the fraud-hit Satyam group – have seen the insides of jails for the first time. And this list is by no means exhaustive. We have also left out the politicians and lower level business executives who went to the cooler along with their bosses and alleged partners in crime.
One way of describing this trend of so many businessmen going to jail is to link the phenomenon to growing public anger over egregious corruption – which the courts have taken note of and acted accordingly.
The other way of seeing it is to ask why: the glib answer of socialists is that crony capitalists are making hay as usual. The more likely answer is that corruption tends to peak whenever the state shifts decidedly leftwards and talks of redistributing wealth. When the poor, or some vaguely defined public interest, are used as justification for bad policy, it is crony socialism at work. When huge sums of money are earmarked for funnelling to the poor or national goals, lots of crony businessmen will turn up at the feeding trough. The UPA’s flagship scheme NREGA, and the Food Security Act, will lead to more corruption as leakages in these schemes are already enormous. (Read here and here)
The uptick in corruption during UPA-1 and UPA-2 marked the high noon of crony socialism.
The link between corruption and socialism emerges because politicians are the key decision-makers on where money is spent, where scarce resources have to be allocated, where contracts have to be awarded. When these things are done non-transparently – which was pretty much the case during UPA rule - you get crony socialism. When the state puts itself at the centre of economic activity – whether by an expansion of the public sector or by increasing spending recklessly on boondoggles – crony capitalism will spike.
Put another way, crony capitalism flowers best under socialistic practices. Hence it would be more right to call corruption as the other side of the socialist coin.
This does not mean corruption does not exist in societies that are more capitalist, but where markets decide winners and losers, the chances are lower. It is only when the state seeks to pick who gains or who loses, the scope for cronyism increases.
As I have noted before, “UPA has been joined at the hip with crony capitalists” precisely because it justified everything in the name of the poor.
When A Raja vicariously applied the first-come-first-served rule for the award of telecom and spectrum licences to his pals, he talked of making telecom services available at lower costs to the poor. He opened the door wide open to crony capitalism.
When coal blocks were awarded “free” to all comers in the name of keeping power tariffs down, which, in turn, was justified by the need to keep consumer and agricultural tariffs below cost, we got more cronyism.
When the late Congress Chief Minister, YS Rajasekhara Reddy, offered infrastructure projects to the Rajus of Maytas and Satyam, that was crony capitalism.
When GMR, which bagged the Delhi airport, managed to get its deal changed after the bid, and also got Rs 24,000 crore worth of land for Rs 31 lakh, that was also an indicator of crony dealing.
When Kingfisher Airlines got liberal loans even when it had shown only humongous losses for years, that was crony banking at work. When policies to allow higher foreign direct investment (FDI) in aviation were delayed endlessly to allow Kingfisher to sink, that too smacked of crony capitalism – this time to favour the survivors. If the FDI policy had come in 2010-11, Kingfisher could possibly have been saved.
And guess who is going to be the biggest beneficiary of the Congress party’s Land Acquisition Act, a.k.a. the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013?
Only companies with large land banks, and middlemen who will arrange for the aggregation of land banks, will benefit.
The Land Acquisition Act is the biggest incentive for political and business cronies to make a killing at the cost of India’s industrial growth.
The Act is supposed to be the UPA”s biggest pro-poor, pro-farmer legislation. It will give the biggest fillip to cronyism. If left unreformed, the Land Act will hollow out Indian industry, and neither Indian farmers nor business will benefit.
Crony socialism not only boosts corruption, but also kills jobs and growth.
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