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What is the meaning of crony capitalism? Rahul Gandhi doesn't know

In this election season, where normally inaccessible political leaders offer themselves for interviews as long as they are spiked with softball questions where no follow-ups are allowed, both Narendra Modi and Rahul Gandhi have been having a ball. In TV and other interviews, both got to answer questions the way they wanted to, leaving us with nothing beyond motherhood statements.

The Hindu newspaper (on 24 April) carried one Q&A with Rahul Gandhi where he got to say many things that made him look like a saint on development. So he wants growth with equity, he wants a manufacturing revolution to make India the No 1 destination, he wants to create jobs by building the Delhi-Mumbai industrial corridor, etc. But the topic that caught my eye was his view on crony capitalism, where he lit into Modi’s alleged preference for crony capitalism.

He said: "The Opposition leader’s predilection to favour one or two business houses is nothing but crony capitalism and must be challenged. Such practices not only result in crores being lost but also signal to the rest of the world that India is not a level playing field. This is detrimental to the interest of creating a sound business environment in our country.”

 What is the meaning of crony capitalism? Rahul Gandhi doesnt know

Rahul Gandhi. Reuters.

Viewed as a neutral statement, you can't get anything more sensible out of a politician out on the stump. But viewed in the context of the UPA's own record and that of the Gujarat Chief Minister, it is laughable.

For starters, Rahul Gandhi, or whoever scripted this response for him, does not seem to understand the difference between being business-friendly and crony capitalism. Crony capitalism is about showing favours to some businessmen and not some others. It is also about offering quid pro quo benefits for businessmen by using discretionary powers.

Modi's record does not seem to suggest that he has favoured only one or two crony businessmen – though there can be two views on whether Gautam Adani got special favours in a land deal. As for the rest, it does not appear that favours were done to only some businessmen and not the others. If Mukesh Ambani got to set up a refinery in Jamnagar, so did the Ruias. If the Tatas got to put up their automobile factors in Gujarat, so did Maruti Suzuki.

Till date, no businessman has even hinted that he is getting a raw deal in Gujarat. Most of them seem gung-ho about Modi.

On the other hand, the UPA has been joined at the hip with crony capitalists.

When A Raja vicariously applied the first-come-first-served rule for the award of telecom and spectrum licences, that was nothing but crony capitalism. But Rahul did not talk about it.

When coal blocks were awarded arbitrarily to various parties – for which not only the Congress but various state governments must also be implicated – that was crony capitalism. But Rahul had nothing to say on it.

When a Congress Chief Minister, the late YS Rajashekhara Reddy, offered infrastructure projects to the Rajus of Maytas and Satyam, that was crony capitalism.

When GMR, which bagged the Delhi airport, managed to get its deal changed after the bid, and also got Rs 24,000 crore worth of land for Rs 31 lakh, that was as much a crony deal as what is now being alleged about Adani in Gujarat.

When Kingfisher Airlines got liberal loans even when it had shown only humongous losses for years on end, that was crony capitalism. When policies to allow higher foreign direct investment (FDI) in aviation were delayed endlessly, that too smacked of crony capitalism. If they had come in 2011, Kingfisher could possibly have been saved.

So, clearly, Rahul Gandhi does not know crony capitalism in his own backyard but finds it convenient to talk about it in Gujarat. If anything, Gujarat has been a consistent performer on the economic freedom index, where it keeps topping. As Swaminathan Aiyar wrote in The Times of India: “Economic freedom is not identical to good governance. But lack of economic freedom typically means poor governance — a jungle of rules and obfuscating bureaucrats that promote corruption, delay and harassment. This hits everybody from farmers and consumers to industrialists and transporters.”

Aiyar adds: “Gujarat is not a classical free-market state. It has large, expanding public sector companies, and substantial taxes on capital and commodities. It has many subsidies, though fewer than in other states. Still, business thrives in its business-friendly climate. “

So Rahul’s claim that (Gujarat’s) crony capitalism “not only result(s) in crores being lost but also signal(s) to the rest of the world that India is not a level playing field” is hogwash. On the contrary, did the 2G scam and Coalgate send the right signals on a level playing field? Did the retrospective Vodafone tax send the right signals?

As for creating a sound business environment, we know what foreigners think of India as an investment destination and what they think of Gujarat.

But most businessmen have not had good things to say about India's investment climate so far under UPA-2. As we noted before, in March 2013, Kumar Mangalam Birla said: “Country risk for India just now is pretty elevated and chances are that for deployment of capital you would look to see if there is an asset overseas rather than in India. We are in 36 countries around the world. We haven't seen such uncertainty and lack of transparency in policy anywhere," he told Bloomberg TV in an interview.

Cipla chief Yusuf Hamied, a pharma industry pioneer, had this to say: "The tax policies and lack of basic infrastructure are huge problems in India. Because of lack of prudent tax and stable policies, all big Indian companies are going abroad. The time has now come for us to say goodbye to India," he told Business Standard.

Before him Rata Tata told Financial Times that he was frustrated with the investment climate in India.

As for making India a global destination for manufacturing, Rahul Gandhi is probably unaware industrial production in 2013-14 will be zero or negative.

Rahul may have said the right things, but his business illiteracy is considerable. Or maybe it is a case of willful blindness to reality.

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Updated Date: Apr 25, 2014 12:03:52 IST