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Tuesday, December 7, 2010

‘Crony Capitalism’: Leadership Alone Can Answer It


The first decade of the new millennium is coming to an end. On more than one count, it is indeed an eventful decade for India. Despite the sufferings of the whole world due to the economic meltdown which originated in the US, India managed to come out with less damage, recording a growth rate of 7.4% during 2009-10, and is poised to achieve 8.5% during the current fiscal. The analysis of India’s 500 largest companies carried out by your most obedient team strengthens that expectation.

But there remains a long-felt need still unfulfilled: our structures of governance remain ineffectual in fulfilling the basic needs of the citizens. Indeed, good governance—driven by the philosophy of participation, fairness, transparency, efficiency, decency and accountability—is still eluding us, though it is said to be “the single most important factor in eradicating poverty and promoting development.” The transactions between government and the private sector are mired in corruption even in today’s liberalized India.

Corruption—largely caused by the greed of public officials and elected representatives, who have the discretion to grant benefits to the citizens—continues to subvert development plans and divert the resources that might have been otherwise invested productively, besides disrupting the transparent and normal operation of markets, thereby creating uncertainty for investors.

The recent report of the Comptroller and Auditor General of India about the loss to the government to the tune of Rs 1,77,000 cr due to irregularities in the 2G spectrum allocation in 2008, along with procedural violations alleged to have been committed by the Ministry of Communications and Information Technology, is indeed a pointer in this direction. This is further accentuated by what Ratan Tata said about rent-seeking by the political power centers for permitting new businesses. All such practices are known to cause harm to business and stunt economic growth.

The current plight of our nation was well articulated by Prime Minister Manmohan Singh at the Hindustan Times Leadership Summit, when he said that the “threats of corruption and crony capitalism” are to be tackled effectively. Transition economies are indeed the worst victims of rampant corruption and crony capitalism which have even international implications. And the consequences of the evils of crony capitalism suffered by the East Asian countries during the 1997 East Asian currency crisis are still fresh in memory.

The irony is: on the one hand, we have a tremendous amount of positivity surrounding us as a destiny for doing business for the global players, while on the other hand, even legitimate businesses are haunted by undefined hurdles at the level of execution of projects. Over it, we are ranked so low at 133rd place out of the 183 countries surveyed by the World Bank in its Ease of Doing Business Survey ranking.

Now the question is: What can be done? Paradoxically, research studies show that policies of reducing state discretion through liberalization and privatization have done little to reduce corruption in developing and transition countries. Indeed, Harriss-White and White (1996) argue that liberalization and privatization have been accompanied by dramatic increases in corruption in most cases. A recent study by Global Financial Integrity reveals that India had lost $125 bn during 2000-2008 as illicit financial flows from the country. All these flows are said to be the “product of corruption, bribery, kickbacks, criminal activities and efforts to shelter wealth from a country’s tax authorities.”

So, the only alternative is to aspire for an honest political system in the country. This can be achieved partly by businesses joining hands in funding the political system through accounted means and collectively desisting from paying bribery seeking patronage or favors. In the ultimate analysis, what matters the most is leadership: leaders at the helm of affairs must morph into statesmen. And there is no shortcut.

-         GRK Murty


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