Modi’s silence on crony capitalism speaks volumes; Narendra Modi has said worryingly little on how he would tackle crony capitalism

March 26, 2014 2:40 am

Modi’s silence on crony capitalism speaks volumes

By James Crabtree

Narendra Modi has said worryingly little on how he would tackle crony capitalism

It is not hard to see why hopes are rising in India Inc. Polls suggest opposition leader Narendra Modi will win out in forthcoming general elections. If so, he will arrive in New Delhi brandishing a reputation that is both pro-business and anti-corruption. That combination has already sent markets soaring.

Yet oddly, little is known about Mr Modi’s plans to fix his country’s moribund economy, while he has been notably tight-lipped on what if anything he may do to curtail its unfortunate and equally well-documented reputation for crony capitalism.

The past five years have been grim for India’s commercial scene. Myriad squalid deals have been uncovered, involving everything from mining rights to major sporting events. But few of the tycoons or politicians involved have been punished. The public want blood.

It is no great surprise, therefore, that cosy relations between the nation’s plutocrats and politicians have become a campaign issue, with the nation’s richest man, Mukesh Ambani, a particular focus. The billionaire head of Reliance Industries has been attacked with special fervour by the newly formed Aam Aadmi, or Common Man, party, a populist anti-corruption outfit.

Their allegations relate to “undue benefits” Reliance may receive from an increase in the price of gas produced from a field that the company co-owns with Britain’s BP. That price rise was placed in jeopardy after India’s Electoral Commission on Tuesday suggested it could defer a decision given looming elections.

Aam Aadmi had previously trained its guns on Anil Ambani, Mukesh Ambani’s younger brother (and fellow billionaire), over supposedly excessive prices charged by his power company in New Delhi.

Both men vigorously deny the allegations, while the elder brother’s typically reticent company has even begun to issue strident public statements in its own defence, one of which decried a growing “fear psychosis” created by its critics.

As it happens, the allegations against Reliance are not especially persuasive. If India wants businesses to undertake expensive energy exploration, it must allow them to earn reasonable returns. The exact price that this implies – which is now to be set via a formula dreamed up by an independent government committee – is contestable. But the likelihood that Reliance manipulated the price-setting process, as its foes suggest, seems far-fetched.

It would be easy, therefore, to write off such accusations: bashing the rich is always popular at polling time. But in India they should be taken seriously, given deeper public disenchantment with a business elite that is perceived to bend rules in its own interests, aided by pliant political allies.

There is a good deal of truth to these perceptions, which brings us back to Mr Modi and the fact that his campaign has said worryingly little about the historically dubious relationship between India and some of its largest industrial conglomerates.

True, the opposition leader often lays into the graft-ridden record of the country’s government. Yet Mr Modi’s background also involves close links with business, notably the Adani group, based in his home state of Gujarat. Owned by billionaire Gautam Adani, shares in the conglomerate’s flagship Adani Enterprises have risen by a heady 125 per cent in the past six months, at least partly on anticipation of future favourable treatment.

Mr Modi’s supporters dispute the notion that their candidate will be partial to particular industrial titans. Instead, they claim his record of competence and clean administration points towards graft-free rule in New Delhi.

One can but hope. Yet in the absence of any clearer account of Mr Modi’s views, the suspicion remains that he plans only to bring back a more efficient version of India’s old ways of doing business, with the most egregious examples of larceny removed.

If so, this would be a major missed opportunity. Whoever governs the country, India badly needs a new framework for business regulation and the management of public resources that is predictable, transparent and accountable.

This is important for global investors, who hope that Mr Modi will reform rules in areas such as revenue collection. These appear increasingly arbitrary, as Nokia discovered again last week with the arrival of an unexpected new tax demand for more than $400m.

But it is crucial for India more generally as the country attempts to free itself from the mire of a decade’s worth of inefficiency, corruption and cronyism. Indeed, were Mr Modi to emerge victorious, this struggle ought be his first priority. If not, hopes that rose at election time are likely to be dashed soon after.