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COMMENTARY

proposition to the phenomenon of crony


The Anatomy of Crony capitalism. Liberalism and its corollary,
capitalism emerged in the West to cater
Capitalism in India to the burgeoning aspirations of the
middle class who liberated themselves
from the stranglehold of the landlords,
Kapil S Kamble nobles, religious dogmas and entrenched
traditions in the then society. Liberalism

T
Crony capitalism is the direct he unholy nexus between the politi- as a political doctrine upheld the princi-
consequence of the liberal and cal class and the business persons ples of individualism, freedom, reason,
is called crony capitalism. It is an justice and tolerance. To put it more em-
neo-liberal policies embraced
indicator of the overall health of an eco- phatically, liberalism and capitalism eu-
by the governments. Of course, nomic system and the nature of the gov- logises freedom of choice and equality of
the licence permit raj has also ernance. In India, crony capitalism is a opportunity. Corresponding importance
played a substantial role in the direct result of the licence permit raj and is also accorded to the principle of merit
the subsequent adoption of the liberal where special talents and skills are given
emergence of this monster but
and neo-liberal economic policies of suc- due weightage so that the entire society
the way the neo-liberal policies cessive governments, irrespective of the enjoys the fruits of their endeavours. As
vitalised it perhaps has no political parties they belong to. Though such, the theory of liberalism reflects
counterparts anywhere in the we can trace the existence of crony capi- the Aristotelian concept of equality: the
talism in almost all economies of the like should be treated alike. But crony
world. The emergence of the
world, its presence is more rampant in capitalism is profoundly in antithesis to
one-party majority rule opened India due to certain structural problems. these notions.
up new vistas for the functioning Before we delve deeper into various In the same vein, crony capitalism is
of crony capitalism. dimensions of crony capitalism, it is per- contradictory to the ideas of socialism as
tinent to understand clearly the mean- well. Fundamentally, the ideology of so-
ing of this novel phenomenon. Simply cialism emerged as a strong reaction to
speaking, crony capitalism is a system of the cacophonies of liberalism in the 18th
favouritism and partiality where only a century. Socialism extols the principles
few selected business persons or busi- of common ownership of the means of
ness houses are showered with special production, equality, equity, justice, and
treatment from the political class and community. According to this doctrine,
the bureaucracy. Such a precipitation of the idea of atomistic, egoistic and pos-
rewards and concessions are provided sessive individualism, owing nothing to
not because of the superior or outstand- society for its success, is the root cause
ing talent that they possess or the dis- behind the emergence of self-centred
tinctive abilities they have inherited, but and socially divorced tendencies like crony
out of predilections and predispositions. capitalism. The never-ending greed for
It is a symbiotic relationship between personal property, power, influence and
the political class and the capitalists, authority morally corrupts human beings
where they both gain handsomely due to and when such cupidity transgresses all
the mutual aid and assistance at the cost the limits by consummating with poli-
of certain essential attributes of a sound tics, it corrupts the individual absolutely.
economy, such as open market, perfect Crony capitalism as an economic doc-
competition, rational price mechanisms, trine befits well only with fascism and
transparency, rule of law and the princi- other such extreme ideologies. The reason
ple of natural justice. is simple: nepotism, favouritism, and par-
Crony capitalism, truly speaking, is a tiality are at their zenith in totalitarian
perverted form of capitalism. It is an regimes. Theoretically, fascism is in
abettor; a bigot. The father of political great estrangement from capitalism for
science, Aristotle in his classification of it has a strong distaste for private prop-
governments, argues that any pure form erty and unbridled capital. However, to
of government, over time, turns into a per- stay in power, fascism desperately needs
Kapil S Kamble (kapilrocks27@gmail.com) verted form: monarchy into dictatorship, to win the legitimacy of the masses and
teaches political science at the Government aristocracy into oligarchy and so on. for this particular task, robust propagan-
First Grade College, Kokatanoor, Karnataka.
Aristotle is right when we apply this da in the name of emotive issues, such as
Economic & Political Weekly EPW MAy 20, 2023 vol lViii no 20 23
COMMENTARY

race, nationality and ethnicity is much adoption of the liberalisation, privatisa- and kind to woo the voters. According to
needed. Such propaganda works in pros- tion, and globalisation policies opened up the audit report submitted to the Election
elytising the ideas of fascism and totali- new horizons for the market economy. Commission of India by the various par-
tarianism by contriving political sociali- The role of the state in deciding what to ties, `6,500 crore was spent by 18 political
sation and political culturalisation. The produce, how to produce and who should parties (seven national and 11 regional)
big industrialists because of their strong- get what retrenched gradually and such between 2015 and 2020. Two major par-
hold on the means of production, espe- an abatement of the state made the way ties, the Bharatiya Janata Party (BJP)
cially on the means of propaganda, for the private players to determine these and the Indian National Congress (INC)
handsomely do this work for the fascist basic premises of the economy. In recent spent `2,000 crore and `560 crore re-
tendencies. Hence, Marx was right when years, the abdication of the government spectively on publicity alone! The 2019
he avowed that in every epoch the rul- of its onerous task of looking after the Lok Sabha elections broke all the records
ing ideas are the ideas of the ruling class essential needs of the people and the wherein around `55,000 crore was spent
since the class which owns the means of transfer of these seminal activities to the according to the report of the Centre for
material production also owns the means whims and fancies of the selected capi- Media Studies. It means, more than `100
of mental production. talistic interests, has further bolstered crore for each constituency and about
the phenomenon of crony capitalism. `700 for each vote! Therefore, Indian
The Indian Context However, the roots of crony capital- elections have turned out to be the most
Our Constitution provides for democrat- ism can be found in the Indian social expensive elections in the world, even
ic socialism where both capitalism and system itself. The varna system and its beating the record of the American pres-
socialism interplay in the form of a by-product, the caste system, can be at- idential elections. The important ques-
mixed economy. Democratic socialism tributed as the major forces that favoured tion that sprouts in everyone’s mind are:
envisages relative equality and not the the emergence of crony capitalism. The from where do the political parties get
absolute equality that pure socialism en- most important features of the caste sys- money for their activities? The answer is
deavours to achieve. Whether social tem are nepotism, favouritism, partiali- quite simple: from the capitalists, espe-
equality and community ownership get ty and prejudice. One can conspicuously cially from cronies.
the preponderance or individual liberty experience the intercourse of these mali- The nexus between the capitalist and
and private property occupy the promi- cious factors behind the emergence and the politician in the Indian sociopolitical
nence, eventually hinges on the ideolog- functioning of crony capitalism in India. and economic set-up is beautifully sum-
ical makeover of the ruling classes. The hegemony of some castes on politi- marised by Raghuram Rajan in the fol-
Though we have adopted democratic so- cal power and the means of economic lowing words:
cialism and made the early pronounce- production, in addition to their purported the crooked politician needs the businessman
ments of forging a socialistic pattern of caste coalitions for ostracising the lower to provide the funds that allow him to supply
society, capitalistic forces always played castes of the social hierarchy from the patronage to the poor and fight elections. The
corrupt businessman needs crooked politi-
a dominant role in the socio-economic and circles of power, led to the phenomenon
cians to get public resources and contracts
political system of India both overtly and of crony capitalism. Political scientist cheaply. and the politician needs the votes of
covertly. Hence, programmes for allevi- Robert Michaels while explaining his the poor and underprivileged. Every constitu-
ating income inequality, regional dispar- ideas on elitism in democracy made two ency is tied to another in a cycle of depend-
ity and eradication of poverty have been important observations: the iron law of ence which ensures that status quo prevails.
the sine qua non of almost all the five-year oligarchy and the circulation of the elite. The moral degeneration of the voters,
plans. Despite the extensive planning and The former says that political power the never-quenching thirst of politicians
huge expenditure made on tackling (while reading this article economic for power and the never-extinguished
these socio-economic problems, India is power also) is the prerogative of elites in greed of the capitalists for money, have
still groaning under the overwhelming society who by their intelligence, dexter- systematically contributed to the strong-
weight of these maladies, which is a clear ity and manipulation always see that er relationship between politics and eco-
testimony of the mismanagement of power remains at their disposal. Where- nomics which has made a mockery of
means of production, forces of produc- as, the latter enunciates that the old elite
tion and the relations of production. may be replaced by the new ones but the Permission for Reproduction of
stronghold of the class on the power in Articles Published in EPW
Politics–Business Nexus its entirety is continuing unabated.
No article published in EPW or part thereof
The embracement of liberal policies in The politicisation of the castes in should be reproduced in any form without
the Indian economy and the correspond- India and increased awareness among prior permission of the author(s).
ing structural changes which were in- them of the importance of holding politi- A soft/hard copy of the author(s)’s approval
troduced more enthusiastically after the cal power turned the electoral democra- should be sent to EPW.
1980s readily furnished a fertile ground cy of India into a plutocracy. Elections In cases where the email address of the
for the indulgence of the capitalistic have become a highly costly affair as bil- author has not been published along with
the articles, EPW can be contacted for help.
forces in the national economy. The lions of rupees are spent in both cash
24 MAy 20, 2023 vol lViii no 20 EPW Economic & Political Weekly
COMMENTARY

democracy. Some of the politicians are of some capitalists are so enormous that Crony capitalism flouts the basic princi-
themselves entrepreneurs, who due to they are part of many official delega- ples of democracy since it is based on in-
their power easily get concessions, re- tions to foreign countries. Because of vidious factors, such as favouritism,
wards and contracts clandestinely from such favouritism and policy of protec- nepotism, and partiality. It has system-
the government. tionism, selected capitalists multiplied atically corroded the Indian democracy
Plato exhorted for the separation of their wealth in many folds, and that also in several ways by making sarcasm of
politics and economics when he pro- in a short period. Despite the opposi- the sublime principles ingrained in the
pounded that those who exercise politi- tion’s relentless demand for a thorough preamble of the Constitution.
cal power should have no economic mo- probe into the matter, the government First of all, let us discuss the deleteri-
tives and those who are engaged in eco- was unmoved. This is a clear testimony ous effects of crony capitalism on the
nomic activities should have no share in of what formidable heights he has at- Indian economy and the overall devel-
politics. What is happening in India is tained in the Indian democratic set-up! opment of the nation since it is an eco-
diametrically opposite to this gospel. The preferential treatment made to- nomic phenomenon. It strangulates the
Many industrialists, business persons wards such selected capitalists put Indian competition by creating a monopoly
and landlords have been elected to the democracy in a bad light. India ranked market. The capitalist resorts to preda-
union and state legislatures. According seventh in the crony capitalism index tory pricing as he can sell his goods at
to a report of the Association for Demo- 2021, prepared by the Economist. Ac- throwaway prices which have become
cratic Reforms, 34% of members of the cording to this report, crony capitalism possible by the favours and concessions
lower house and 38% of the members of wealth accounts for 8% of the Indian he has obtained from the political lead-
the upper house of the Indian Parlia- GDP. Marcellus’s investment manager es- ership and the bureaucracy. Once he
ment own assets worth more than `10 timates that the 20 most profitable firms decimates all the competitors, he starts
crore. The average asset of a Lok Sabha produced 14% of total corporate profits raising the prices of his goods as has
member is `20.47 crore whereas that of in 1990, 30% in 2010 and 70% in 2019. happened in the telecom sector. Further,
a Rajya Sabha member is `79.54 crore. Crony capitalism has instigated huge in- to favour the favoured capitalist, the rules
When the houses of public policymaking come inequality. The Oxfam report re- and regulations are arbitrarily changed
are replete with so many wealthy peo- veals that 10% rich hold 77.4% of total and government undertakings which are
ple, policies in favour of crony capital- national wealth, whereas the bottom functioning in a particular sector are ei-
ism are bound to be made since the law 60%, only 4.8% of it. The soaring in- ther weakened or privatised as has hap-
of attraction enunciates that like forces come disparity will further debilitate In- pened in the case of BSNL and Air India.
attract each other as they are in the same dian society which is already fractured The policy of disinvestment is rigorously
direction and parallel to each other. along the lines of caste, religion, region, applied and even profit-making public
ethnicity and gender. Even during the sector units are privatised only to clear
Crony Capitalism at Its Zenith time of the COVID-19 pandemic, while the way for the capitalists. It affects the
Crony capitalism is the direct conse- the income of the majority of Indians price of goods and services in the coun-
quence of the liberal and neo-liberal shrank drastically, the wealth of select- try as they are left to the market forces,
policies embraced by the governments. ed capitalists increased exponentially which badly hits the consumers.
Of course, the licence permit raj has also because of the patronage they could enjoy The income and savings of the poor
played a substantial role in the emer- from the political class. and the lower-middle class are steadily
gence of this monster but the way the eroded which eventually leads to in-
neo-liberal policies vitalised it perhaps Impact on the Indian democratic set- creased poverty and greater dependence
has no counterparts anywhere in the up: The founding fathers of the Consti- on government patronage to meet even
world. The emergence of one-party ma- tution espoused representative democ- the basic needs. The introduction of
jority rule opened up new vistas for the racy for India. In this system, people are popular schemes one after another re-
functioning of crony capitalism. It is not regarded as supreme and the means of quires huge funds, a part of which will
that crony capitalism was innocuous be- all power. Indian democracy envisages flow from capitalist funding. Due to pri-
fore the resurgence of one-party rule in the inclusive development of its entire vatisation and a monopolistic market
the Indian political horizons with the people irrespective of religion, race, system, the number of employment op-
2014 general elections. However, the caste, sex, place of birth and so on. Indian portunities shrinks which leads to fur-
swiftness and buoyancy it has attained democracy is the confluence of the prin- ther unemployment and a poverty. Of
for the last 10 years are unprecedented. ciples of both liberalism and socialism. It course, such a precarious situation boosts
During these years, the Indian economic seeks to ensure socio-economic and po- the income of the selected capitalists
system turned into a monopolistic mar- litical justice by distributing equal op- and the wealth of political parties but re-
ket system from its previous avatar of portunities for all. At the same time, it duces the purchasing power of the peo-
oligopoly; prominent business houses appreciates the principle of merit where ple, and lowers demand and innovations
have more or less become household one gets rewards according to his talent in the economy. Foreign firms also keep
names. Today, the power and influence and skills, abiding by the law of the land. away from India as they are reluctant to
Economic & Political Weekly EPW MAy 20, 2023 vol lViii no 20 25
COMMENTARY

invest in an economy where fair compe- replenished by either increasing the wake of heightened intimacy between
tition is absent and rampant corruption is quantum of existing taxes or by intro- the political leadership and business per-
present. Such an egregious condition es- ducing new ones. It lowers public morale sons in general and decision-making bod-
chews not only foreign investment but and erodes the credibility and legitimacy ies and the cronies in particular, is a
domestic entrepreneurship also. of the government. matter of serious concern to the Indian
In the same manner, crony capitalism Let us move on to the political effects democracy. It has morally degenerated
affects the stability of lending institu- of this phenomenon on Indian democracy. the electoral democracy, representative
tions. The banking institutions are hit Crony capitalism works as a formidable democracy, participatory democracy and
hard when loans made to the big busi- pressure group and squarely influences deliberative democracy.
ness person turn into non-performing public policymaking. Capitalistic inter- The control and manipulation of the
assets (NPAs). The financial frauds where ests lurk behind most of the policies im- information by their control of the me-
some industrialists deliberately default plemented in various sectors. It is an dia, in clear terms, is the murder of de-
on repayment of loans leave the banks in open secret that public policies are mocracy. A major segment of the print
poor financial health. In many cases of shaped and reshaped by business interests and digital media are owned by big in-
financial fraud, financial institutions before being officially announced. Neo- dustrialists. Even social media sites are
were compelled to extend loans to the liberal policies ensure greater private used effectively to promote nefarious in-
likely defaulters. The increasing propor- participation in economic activities even terests and hidden agendas. Recently,
tion of NPAs impels the banks to set aside in those areas which were so far regarded Wikipedia divulged how certain busi-
more funds which in turn leads to the as moral and ethical responsibilities of ness groups manipulated the web pages
lower bank credit in the economy. The the elected governments. The growing to build an impressive image of the group.
sectors with inadequate flow of institu- role of the invisible hand in policymak- The misappropriation of the data by
tional credit like micro, small and medi- ing causes a legitimacy crisis as the com- high-tech companies to study voter pref-
um enterprises (MSMEs) have to bear the mon people experience the functioning erences is yet another instance of how
brunt of this impact. To revitalise the of the parallel power structure guiding the real anti-social and anti-national ele-
banking sector, a huge amount of gov- policymaking, policy implementation ments influence the course of Indian de-
ernment funds are diverted to these in- and policy adjudication. The infiltration mocracy. Conspiracies are hatched to
stitutions. The revenue loss accrued to of large-scale corruption in the political fool the people using emotive issues and
the exchequer by this funnelling is again class, bureaucracy and the media, in the given wider media coverage to establish

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26 MAy 20, 2023 vol lViii no 20 EPW Economic & Political Weekly
COMMENTARY

hegemony on Indian society. People rais- peculiar arguments like India and Bharat (vi) A practical code of conduct for the pri-
ing voices against ideological indoctri- and one country, two nations. In addi- vate sector and incentives for their active
nation are either put behind the bars or tion, the concentration of wealth creates participation in inclusive development.
declared as anti-nationals. An atmos- atomistic and egoistic individualism (vii) Strict audit of the finance of the po-
phere of vindictiveness, enmity, hatred that owes nothing to society for its for- litical parties and their inclusion under the
and intolerance is created so that dis- tunes. Further, it subscribes to the con- ambit of right to information regulations.
senting voices do not gather momentum. cept of the situated self instead of the (viii) Encouraging the active role of the
The common people are always denied embedded self. Social adhesiveness and opposition parties and civil society organi-
factual information which is itself the cohesiveness deteriorate leading to fur- sations in exposing instances of cronyism.
negation of the right to life and liberty. ther ghettoisation of Indian society. (ix) Proactive interventions by the busi-
The preferential treatment showered Such a divided society easily becomes ness class and their associations against
upon certain capitalists infuses an atti- prey for the self-aggrandising and mean- crony capitalism to ensure a level play-
tude of submissiveness among the entre- minded politics. ing field.
preneurial class. When the capitalists (x) Simplification of laws and devising a
realise that their fortunes will only shine Reining in crony capitalism: Finding transparent and merit-based system for
by tangoing with the political leadership reasonable solutions to the menace of project approvals.
and the bureaucracy, business ethics gets crony capitalism is not so easy, for the (xi) Promotion of ethical media practices
derailed. It ends up in political socialisa- arguments related to its emergence are and establishment of professional bodies
tion and culturalisation of such virulent divergent and at the same time often to safeguard the interests of the media
ideas. The rule of law is replaced by arbi- contradictory. While liberals accuse the persons and protect ethical media houses
trariness and the principle of natural strict state control in the economy as the from interferences by the government.
justice is overtaken by the matsyanyaya. principal reason behind its emergence, (xii) More weightage to the collection of
The law of survival of the fittest and the socialists criticise unbridled capitalism direct taxes such as income and corpo-
belief that might is right is established. and its conception of atomistic, possessive rate taxes instead of indirect taxes such
The impunity that crony capitalism en- and egoistic individualism as the impor- as goods and services tax.
joys despite being exposed undoubtedly tant cause of crony capitalism. Since India (xiii) Introducing a ceiling on the expend-
instigates others to toe the same line. Such has espoused democratic socialism where- iture of political parties instead of limit-
a precarious situation hurts the senti- in both liberalism and socialism negoti- ing it to the individual candidates alone.
ments of the young entrepreneurs who ate with one another, the solution for (xiv) More effective laws against political
find the situation in the economy dia- crony capitalism should be India-specific. factionalism and defection by elected
metrically opposite to the lessons imbibed The following measures will prove to be legislators to prevent horse-trading.
in educational institutions. This disillu- more effective in regulating the menace (xv) Ensuring internal democracy among
sionment and the resultant frustration of crony capitalism in India: the political parties. The concentration
lead to a brain drain and constrain all in- (i) Excessive government regulation of the power in the higher echelons of
novative efforts in the economy. should be shunned. Reasonable and well- political parties should be curtailed by
Coming to the social impact of crony deliberated regulations should be intro- effective checks and balances.
capitalism, the income inequality engen- duced instead of hasty and ambiguous (xvi) Ethical voting practices should be
dered by the phenomenon creates a social legislation. promoted and a more proactive role should
hierarchy of the haves and have-nots. (ii) The public–private mode of production be taken by the Election Commission and
Indian society, which is already organised should be given more weightage instead the media to spending on elections.
on the lines of caste, further deteriorates of exclusive domain production models. (xvii) Swift adjudication by the Indian
when additionally saddled with divisions (iii) Greater transparency in decision- judiciary on the matters of political cor-
on the basis of class. There has always making and awarding contracts. Due ruption and unethical business practices.
been a close relationship between caste process of the law and procedures estab- The aforesaid measures can play an ef-
and class in India since the concentra- lished by law should be adhered to. fective role in regulating the menace of
tion of wealth is also on a caste basis. (iv) Independence and autonomy of the crony capitalism but they cannot root out it
The creation of the dominant and de- constitutional and statutory bodies must completely. It is not merely a law-and-order
pendent class on the one hand and a su- be ensured so that they can uphold the problem but also an ethical issue which
preme and subordinate relationship on rule of law and perform the duties and requires strengthening personal and so-
the other leads to the further congeal- responsibilities bestowed upon them by cietal values in India. The need of the
ment of the vertical division of society. the Constitution. hour is to encourage the Gandhian ideas
The concentration of power in the domi- (v) A robust mechanism to evaluate the of swaraj and sarvodaya in the length
nant class leads to the exploitation of the ethical practices of the political class and and breadth of the country so that poli-
dependent class in innumerable ways. appreciation of such behaviour through tics with principles and commerce with
It causes the emergence of fissiparous incentives, such as devolution of more morality is practised and where pleasure
tendencies by bringing to the forefront resources to their constituencies, etc. with conscience becomes the reality.
Economic & Political Weekly EPW MAy 20, 2023 vol lViii no 20 27

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