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HomeOpinionDiaryCurtail Crony Capitalism — Part I

Curtail Crony Capitalism — Part I

Image Courtesy: economictimes.com

Crony capitalism kills transparency and competition and hence, it is harmful to free enterprise, opportunity, and economic growth. By killing transparency and competition, crony capitalism is harmful to free enterprise, opportunity, and economic growth. In crony capitalism, where the rich and the influential are alleged to have received land, natural resources and spectrum in return for payoffs to venal politicians. Thus, the rich is becoming richer and the poor remains poorer.

The greatest dangers to growth of developing economies like India is the middle income trap where crony capitalism – creates oligarchies that slow down the growth. The only way of avoiding this trap is to strengthen public services, especially those for the poor, adding that financial inclusion drive of the government and the RBI is a key initiative in the same direction. Crony capitalism hampers economic growth and needs to be taken care to prevent and clear the hurdle for greater transparency in the day to day transactions.

Ideological labels like ‘crony capitalism’ are likely to mislead by channelling the debate into philosophical-ideological issues of capitalism and socialism and detract from finding and addressing the real problems. The real problem is the unprecedented and unique system of government controls built under the Indian version of socialism. This has resulted in pervasive and deep-rooted corruption. We need policy reforms that reduce the incentive for corruption and institutional reforms that catch, try and punish the corrupt.

Those who cannot remember the past are condemned to repeat it. Having forgotten the license-permit-quota-raj that enveloped us from 1950 to 1980 and its crony socialism, many intellectuals, media persons and politicians have now discovered crony capitalism. The license raj consisted of stifling controls imposed on prices, production, capacity, investment, imports and exports, capital markets, banking and finance, land, labour. This provided ample opportunities for collusion between a corrupt government initially used to generate money to run parties and fight elections, but gradually became a means of generating personal income and wealth.

A new opportunity for corruption in public contracting has arisen in the form of Public-Private Partnership (PPP) contracts. Given the limited experience in this area, initial contracts had flaws that could create opportunities for corruption. There is now sufficient experience of PPP in ‘natural monopoly’ infrastructure, to modify these contracts and build corrective mechanisms into them. Governments have also failed to build independent professional regulatory systems.

During his election campaign in 2013-14, Modi raised expectations of a great economic revival, high growth, and tens of millions of new jobs for the ever-growing workforce. The new government hit the ground running and the first two years were action-packed and raised high hopes. There was temporary slow down after initial pick up and it gained momentum on the eve of 2019 general elections. We could praise the Modi government on maintaining economic growth at over 7 per cent (although the latest data shows slowing growth, especially in the already stressed agriculture sector), we could praise the government for bringing down inflation and keeping it low, and we could praise it for maintaining fiscal discipline by and large, letting it slip only due to political desperation as elections approached.


(The views expressed by the author in the article are his/her own.)
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