Posted by: John Elliott | May 7, 2007

Prime Ministerial worries about crony capitalism

“Are we encouraging crony capitalism….Are we doing enough to protect consumers and small businesses from the consequences of crony capitalism?” Where would one think such remarks might come from – probably a leftist politician or an anti-capitalist lobby group? In fact, neither: the words came a few days ago in a speech by Manmohan Singh, India’s prime minister, who is rarely controversial but sometimes quietly raises questions about the way the country functions. He said that he had been “struck recently by a comment in the media that most of the billionaires among India’s top business leaders operate in oligopolistic markets, and in sectors where the government has conferred special privileges on a few.” That sounded, he added, “like crony capitalism” – and he was of course right. Big Indian business groups do wield massive power and do have close government links, but the word oligarchy is not in the sort of common usage that it is for example in Russia and the Philippines – hence the newsworthiness of what he said, which was prominently reported in Indian newspapers.

The media comment that Singh was referring to had come in an editorial comment in Mint, a new Indian business newspaper, which noted that many of the U.S. and European businessmen in Forbes magazine’s 2007 list of the world’s rich, like Bill Gates and Warren Buffet, had “made their billions from pure creations of the human mind.” In India and elsewhere in the world, by contrast, the billionaires mostly had industries that depended on natural wealth, where supply constraints were common – such as land, mining and metals and telecom.

One can’t take Mint‘s distinctions too far. Many of America’s wealthiest, from the Rockefellers onwards, benefited from crony government lobbying and influence. It’s been brains as well as contacts for India’s richest businessmen such as the Ambani brothers who inherited the (now split) Reliance business empire, Kushal Pal Singh of DLF – a property company – and Sunil Mittal of Bharti telecoms, all of whom are challenging or beating the brainy IT billionaires in companies like Infosys and Wipro for the top rich slots. But the newspaper has a point. Land, mining and telecoms, as well as oil and gas exploration, airline operations and, most recently, special economic zones, are all subject to government decision and thus, as Prime Minister Singh fears, crony capitalism and oligopoly since the early 1990s.

What Singh was trying to achieve with his speech is not clear, and no one close to him is explaining. But the views are not new. As a former top bureaucrat, he has often been rightly horrified by the way that many parts of India are run, and by government failings. He is also a rare caring politician concerned about the impact that government policies such as economic reforms have on the poor and relatively helpless. When, as finance minister in the early 1990s, he was introducing India to wide-ranging economic reforms he publicly voiced concerns that private sector monopolies should not replace the public sector monopoles. Now he is said to be worried that government ministers are favoring certain business groups instead of encouraging competition – not, of course, that this is anything new.

There is an intriguing historical twist here. Singh was speaking in Delhi at the inauguration of new premises occupied by the Institute for Studies in Industrial Development, which has for years specialized in studies of the concentration of economic power. Its chairman is Chandra Shekhar, a former prime minister now aged over 80 who is seriously ill in a Delhi hospital. People close to both men say that Singh was paying a tribute to Shekhar by raising an issue that has concerned them both. Nearly 40 years ago, Shekhar was a prominent member of a group of Congress Party politicians called the Young Turks who, in 1969, persuaded Indira Gandhi, the prime minister, to nationalize India’s leading banks. The banks should, the Young Turks argued, come under what was euphemistically called “social control” so that they would no longer (theoretically!) bend to the wishes of large dominant businesses. Critics said that such families regarded the banks as their fiefdoms. A particular target was the Birla family, which was then India’s largest and most influential business house. “Ask the Birlas if you want to discover who’s going to be in the Cabinet,” was a frequent remark at the time, suggesting the Birlas fixed top government jobs.

The 1969 bank nationalization is now seen as the beginning of a series of bad government decisions that slowed down India’s economic development for decades – and the new banks were scarcely less crony-prone than those they replaced. But it was crony capitalism that Singh was addressing last week, not the rights or wrongs of nationalization, and he urged the institute to “provide answers to these important questions” – an academic formula he has used before when worrying publicly about major issues.

There is of course little chance that his remarks will lead to any change. Some top businessmen – notably Reliance’s Ambani brothers – and ministers will no doubt be objecting strongly to the allusions (though none has said so publicly). They might even be tempted to complain to Sonia Gandhi, president of the Congress Party that leads India’s coalition government. Singh is, however, well protected because it was Gandhi’s mother-in-law who moved against crony capitalism in 1969 and he was, after all, only complimenting one of her old Young Turks.


  1. Thanks for providing me such knowledge about Young turk CHANDRASHEKHAR. I am belonging to his birth place Ballia. I have heard many his speeches, in speech he always talk about natinal policies. When common people of ballia questioned about developement of Ballia he always said talk about whole nation, when whole nation would depeloped Ballia would automatically developed.

  2. Crony capitalism in India favours upper caste who have access to Western Tech. That means most Jobs and opportunities are for them all while exploiting natural resources which every one has a share of. There might be a part of crony capitalists in the western world but it is not all. Next time when you fly over from India make a note about the development of the Aircraft. Will a thousand years be enough for the so called upper caste intellectuals or crony capitalists to make such developments. Yes Copy Cat drugs and retrofitted Russian rockets for launches.

  3. I am a keen follower of the Indian economy and my opinion is that US – the most advanced/developed capitalist economy did not happen overnight. It moved in stages from crony capitalis to the industrial and then the knowledge era – destroying and creating companies based on market changes. A country like India is going through similar change at a very rapid pace.
    It is better to create more wealth and then hope it cascades due to employement and marketing needs than hope to have the perfect policy. If India does not do it someone else will. It is a capitalist jungle.

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