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What is Crony Capitalism? How Crony Capitalism Affects India? Research Team | Posted On Monday, May 27,2019, 12:42 PM

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What is Crony Capitalism? How Crony Capitalism Affects India?



Crony capitalism is an environment where businesses thrive, not because of the risk they take in the business. They thrive because of the nexus between businesses and politicians. So, businesses don’t take risk to make profits. They amass wealth with the “I scratch your back, you scratch my back” approach between politicians and the business. These are mutually beneficial relationships between business leaders and Government officials.

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What is Crony Capitalism?

How Crony Capitalism Affects India?

Crony capitalism is very bad for the common man in India. A lack of transparency in the market encourages crony capitalism. A market friendly policy encourages entrepreneurship and thereby, the growth and development of the nation.

For crony capitalism to thrive, the Government must play its hand. If the Government controls industries it would exert money and muscle power, which eventually leads to dictatorship. This is why many nationalized businesses lack competitiveness.

Government Manipulates Industry: This is quite simple for the Government. Politics is all about opinions. Politicians create a fear psychosis against industry among the common man saying industrialists harass workers. Politicians strike a chord with the common man. The banner is, Stop the rich. The accusations may be correct or the Government uses this as a tool to hammer industries.

Why the Government Targets NGOs?

NGOs with their so called charitable activities are no Gods. They always look for their benefits and you mustn’t be fooled by their attire and speech. Many of these NGOs are foreign funded and look to scuttle projects crucial to the growth and development of India. Foreign nations always look to give their industries the edge vis-à-vis local industries. They would bribe politicians to get what they want.

The Delhi Government has banned an NGO funded by Bloomberg Philanthropies for not disclosing sources of funding. This NGO was engaged in anti-tobacco activities in Delhi.

How Industries Manipulate the Government?

Let’s go way back into the 1960’s. This is when managing agencies dominated the industrial landscape in India. These managing agencies ran 70 Companies in the Tata Group and 49 firms in the Birla group. These agencies were called “Boxwallahs”. Even SBI wouldn’t lend to any Company without the approval of the managing agencies. Managing agencies were used by businesses to build empires in the guise of offering managerial expertise.

Let’s take the New Jersey based Cognizant. Cognizant had allegedly leaned on a prominent construction firm to bribe the Tamil Nadu Government, to get permits to build its campus on the outskirts of Chennai. This construction firm hired a third-party consultant to pay $2 Million in bribes. L&T has been unfairly targeted in this case. Cognizant paid a $25 Million fine and blamed somebody.

The Radia Tapes controversy: The Radia tapes are basically telephonic conversations between Nira Radia a political lobbyist and A. Raja who took charge of the Telecom Ministry in 2007. The IT Department tapped Nira Radia’s phone lines for 300 days in 2008-2009 as part of their investigations. This is for restricted financial practices and tax evasion. A PR firm named Vaishnavi communications used to be run by Nira Radia. Top clients included Mukesh Ambani’s RIL and Tata Teleservices. A. Raja has since been acquitted in the 2G spectrum allocation case.

Crony Capitalism and the Vedanta Group:

Many people in Tuticorin protested against Vedanta’s sterlite unit for its adverse impact on the environment. The protests turned bloody when police fired killing 13 unarmed protestors in the port town of Thoothukkudi in Tamil Nadu. These protestors were demanding the closure of sterlite’s copper smelting unit.

The following day the Madras High Court ordered the Vedanta Group to immediately stop the expansion of the copper unit. Wrongly interpreted environmental regulations were blamed for the expansion of the copper plant as public consultations were not held.

What is the effect of closing sterlite’s copper smelting unit? This has caused unemployment on a large scale. Several thousand employees mainly contract employees lost their jobs as Sterlite Copper absorbed only the permanent employees. Lorry owners who invested in lorries to help in sterlite’s expansion are in a financial crisis.

Many small scale industries were hit by the sterlite protests. There is a huge gap in India between the demand and supply of copper. Small scale industries which depend on the copper produced within India were severely affected.

Lessons To Be Learnt:

For crony capitalism to end in India, the focus needs to shift from pro-business to a pro-market approach. Pro-business means promoting existing businesses, at the cost of the new entrants. Pro-market is fostering competitive markets for the growth and development of all citizens in India. The Government must maintain a fair distance from industry, promote independent, legal and regulatory framework, and promise the right physical infrastructure for the business environment with minimum intervention in the market function.

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