Crony capitalists, inept babus feel the heat as Modi tightens screws of a creaky system

Indians are still waiting for the proverbial acche din but a couple of recent markers suggest that the Narendra Modi regime is working behind the scenes to ensure a cleaner and more efficient government — which was part of his campaign promise in 2014.

One, bureaucratic deadwood — the biggest spanner between planning and implementation — has been rooted out and two, India's crony capitalists have witnessed a sharp reduction in their fortunes.

A study on global crony capitalism conducted by The Economist and published in its latest issue on Saturday indicates that crony wealth has dipped to three percent of GDP in India, down from 18 percent in 2008 when the Congress-led UPA government was in power.

The London-based weekly had famously written against Modi just before the General Election in 2014 and "recommended" a Rahul Gandhi-led Congress government to Indians instead.

 Crony capitalists, inept babus feel the heat as Modi tightens screws of a creaky system

Prime Minister Narendra Modi. PTI

The newspaper has now applauded the government for cleaning up its act and getting tough with corruption.

"Encouragingly, India seems to be cleaning up its act. In 2008, crony wealth reached 18% of GDP, putting it on a par with Russia. Today it stands at three percent, a level similar to Australia… The government has got tough on graft, and the central bank has prodded state-owned lenders to stop giving sweetheart deals to moguls."

To be sure, cronyism has taken a hit not just in India, but worldwide.

And it seems to be a combination of government efforts, tanking commodity prices (which affects value of mines, steel mills and oilfield concessions), emerging market woes and bursting of Asia's property market bubble.

But even if India was part of a global trend, being part of the emerging economy it had to work doubly hard to clean its backyard of rent-seeking tycoons who typically capitalise on licence-permit raj and cheap labour to further their monopoly. The unsustainable gains pocketed due to low competition evaporate when market opens up and the fat cats then arm-twist the government to bail them out.

In 2014, a poll carried out by the same newspaper had projected a bleak picture. It found that "Ninety-six percent of Indians said corruption was holding their country back, and 92 percent thought it has got worse in the past five years."

Capitalism based on sweetheart deals from well-heeled friends in government and banks that is part of the family empire is also bad for the long-term growth of economy. Crucially, it misallocates public resources.

It is here that the Modi government deserve plaudits. It is targeting profiteering from rent-seeking and has tried to break the incestuous nexus between industrialists, politicians and banks. It has also been helped by an able Reserve Bank governor in Raghuram Rajan.

The Economist index, built on the work done by Ruchir Sharma of Morgan Stanley Investment Management and Aditi Gandhi and Michael Walton of Delhi’s Centre for Policy Research, among others, uses data on billionaires’ fortunes from rankings by Forbes. It mentions India's Vijay Mallya as one of the tycoons now feeling the heat.

The Enforcement Directorate (ED) recently sought an Interpol notice against Mallya for his alleged role in siphoning off part of an IDBI Bank loan of Rs 950 crore, sanctioned to Kingfisher Airlines in 2010.

According to a report in Business Standard, ED's Mumbai office has officially moved for a "red-corner notice" against the Kingfisher Airlines promoter on the basis of a non-bailable warrant issued by a special court on April 18.

But if this is one part of the story, the other part is cutting the flab in bureaucracy. Ever since he assumed office on 7 Race Course Road, Modi has targeted the babus and India's feared red-tapism.

Last October it emerged how once a month, Modi holds a meeting with top bureaucrats at the Centre and states to check why projects have not got off the ground and how his intervention has helped revive nearly $60 billion in Central and state projects.

On the fourth Wednesday of each month, bureaucrats in the Centre and state are linked by video to Modi's office, and the Prime Minister reportedly asks the representative of the ministry "Please tell me why it (the project) hasn't happened," said a Reuters report.

Since 2014 up until November last year, the NDA government had either transferred or slapped pension cuts on 45 senior officers for "unsatisfactory performance and delivery in public service".

In January this year, Firstpost pointed out how Modi, during a meeting of the ambitious multi-purpose and multi-modal platform for proactive governance and timely implementation (PRAGATI), delivered a stern and definite warning to those creating impediments in the roll out of the government’s scheme. The prime minister had directed all secretaries of the government of India and chief secretaries of the states to devise a way to get rid of “bad apples” in the structure of governance.

That Modi was not firing blanks became clear on 5 May when 33 Class 1 officials above 50 years of age were forced to take premature retirement due to "non-performance". Never before has action been taken against such a large group of senior bureaucrats and it delivered a firm message that officials are not immune to indifference, poor performance or if they are found to be harassing the public.

The calibrated steps make it clear that Modi understands the dangers of a recalcitrant civil service which may still harbor ideological proclivity and loyalty towards his opposition. Weeding out the inept and the unwilling, therefore, is the right step. With time fast running out, Modi knows that he needs to deliver.

The fight has just begun.

Updated Date: May 09, 2016 17:29:12 IST