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‘Crony Capitalism’:

Leadership Alone Can Answer It

GRK Murty
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

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.