Crony capitalism or plain corruption?
- The crony socialism and the license-permit-quota-raj consisted of stifling controls (was subsequently reduced in 1980s and lifted in 1990s) influenced prices, production, capacity, investment, imports and exports, capital markets, banking and finance, land, labour during 1950-1980. It provided for collusion between a corrupt government (politicians and bureaucrats) to generate money to run parties and fight elections & later became a means of generating personal income & wealth.
- Reduction in controls on banking and finance and simplifying taxes reduced scope for corruption in reformed areas.
- Crony Socialism has now shifted to ‘crony capitalism.’
- Controls presently (from the corruption perspective) remain in areas of government ownership of land, minerals, energy and infrastructure accelerating
growth of demand for natural resources, faster growth of the economy, rise in rents on natural resources, provide greater incentive for corruption, particularly on tradable natural resources where global prices had shot up (oil,coal, iron ore) & non-tradables (urban land, electricity, transport networks) where gap between domestic demand and supply has widened.
- Indian politicians farmed out licences and permits to businessman in return for huge donations during election campaigns. Ex. Dhirubhai [Ambani] shared a platform with then Prime Minister Indira Gandhi at a victory rally (1980).
- The Maharashtra Chief Minister A.R. Antulay (1981) had to resign as he was exposed by media for extorting millions $ from businesses dependent on state resources and put in a private trust named after Indira Gandhi.
- In 1987, a customs notice to Reliance Industries alleged that: Reliance having unauthorizedly imported 4 additional spinning machines without payment of customs duty (Rs. 119.64 crore) on those machines. In India during socialism no industrialist could try to undertake such activity without making ‘campaign contributions’ to cronies in the self-labelled “socialist” government.
- Systemic corruption is a worsening trend over the past 4 decades. The Commonwealth Games scam in that money was spent for a short time to produce work in front of the national media.
- It was a corruption iceberg that imposes a cut of 1/5 to half on all payments for goods and services purchased by Central and State governments, the Department of Public Enterprises (DPE) and Public Sector Undertakings (PSU) from suppliers.
- 2G scam was an example of the use of government policy controls over resources to create and extract rents.
- Competitive auction was the only way to determine the correct market price to allow any “natural resource rents” inhering in the spectrum to be captured by the government.
- A new corruption opportunity has arisen in the form of Public-Private Partnership (PPP) contracts with limited experience in this areas and flaws.Governments also failed to build independent professional regulatory systems.
- Now there is experience of PPP in ‘natural monopoly’ infrastructure, to modify these contracts and build corrective mechanisms.
- The unprecedented and unique system of government controls built under the Indian version of socialism are real problems, resulting in deep-rooted corruption.
- There is a need of policy reforms that reduce the incentive for corruption and institutional reforms that catch, try and punish the corrupt.
- Crony Socialism
- Crony Capitalism
- Public Private Partnership (PPP)