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In the kingdom of crony capitalism
"The state must structurally move away from a pro-business policy frame work to a genuinely pro-market one where the benefits are more evenly spread. Put bluntly, India's economic policies are often tailored to benefit big business houses in the name of development and employment creation" - Above were the strong observations of a foreign-trained economist.
The above narration has a lot to do with the way Raghuram Rajan has chosen to leave his job even before hearing from New Delhi about his possible extension for another two years. The RBI governor's no-nonsense attitude in dealing with debt default, perhaps, did not go down well with the big business interests, leaving the political class feeling uncomfortable and insecure.

'For a sustained growth, India should move away from the big business-oriented policy frame work to a much more broad-based, pro-market one': That was Rajan's firm belief. His first public remarks against the entrenched big business came around the end of 2014 when he said many big business houses in India enjoyed 'riskless capitalism'; in good times they enjoy profits and in bad times they are bailed out by the banks. Incidentally, such remarks had directly targeted some of the top indebted business groups whose names were listed by reputed independent research institutions as defaulting on loans.

He had begun to turn the heat on some of these powerful business houses. He instructed the banks to tighten the screws on the big business houses that had not repaid interest and principal for a considerable period. The banks, which had been lax for some years, suddenly started pressuring these groups to sell their profitable assets to pay back the debt on projects that had not taken off, especially in the infrastructure sectors. So Essar has been negotiating to sell its profitable refinery project to pay back its debt in steel and power, while the Anil Ambani group and JP Associates have sold some businesses to pay back their massive loans.

In the past, business houses, politically connected to both national parties, never felt compelled to sell their assets to pay back loans. This does not seem to be happening now as, under Rajan's supervision, the PSU banks have been quite emboldened and have refused to even meet some of these promoters to negotiate deals. PM Narendra Modi has supported this up to a point. But when the pain exceeds a certain limit, these businesses begin to ask for leniency in return for their past political funding.

When Rajan made a caustic remark against Vijay Mallya's lavish display of wealth, some official high-ups in New Delhi tried to counter the RBI governor by saying personal lifestyle should not be dragged into business dealings.Last fortnight Rajan retorted that personal lifestyle must certainly be commented on if the promoter has given personal guarantees against the bank loans. The public has a claim on the promoter's personal wealth in such situations.

The Empire strikes back

Obviously, Rajan's attitude has not gone down well with the big business interests, which have run a subterranean campaign against him. Some powerful ideological advisors of the Sangh parivar have been carrying out a strong campaign against Rajan's policies for over a year.

The campaign is couched politically correct as a dire need for lower interest rates for small businesses but clearly there are multiple agendas at work. It must also be noted that prominent industrialists running their business well with modest debt from banks have supported Rajan fully and endorsed a second term for him.

Some of the business groups in the top indebted companies' list are also known to have strong historical links with the RSS leadership. Rajan may not have fully understood the complex nexus between business and politics when New Delhi encouraged him to nominally go after the big loan defaulters. Perhaps Rajan did not devote some time to listen the notorious Neira Radia tapes and the latest Essar tapes to understand the power and reach of the big business houses in India.

The politicians in Delhi are known to run with the hare and hunt with the hounds. Look at the ease with which Mallya, declared a proclaimed offender, attended a function co-sponsored by the Indian High Commission in London.

Modi too tries to project himself as a crusader against crony capitalism, but the circumstances surrounding Rajan's exit shows that entrenched interests have struck back successfully. In public perception the Modi government appears more and more compromised now. How else do you explain no action being taken on the elaborate investigative findings of the economic enforcement agencies, which have reported massive over-invoicing of power equipment imports by the very top business groups that are struggling to pay back bank loans?

By unduly inflating the value of imports, these companies have reportedly diverted excess bank funds out of the country, and put them away in foreign tax havens. This is a classic case of funds diversion and qualifies to be described formally as wilful default if these companies are unable to pay back their bank loans. Will Modi ever take action on these reports? With someone like Rajan supervising banks at such a critical juncture, the political class might have even felt a bit uncomfortable and insecure. And hence a thank you note and bon voyage to Rajan.

Who is next?

I invite the readers to go through the points made in the succeeding three paras:

"India's rich feed off subsidies worth over rupees one lakh crore a year that are meant for the poor commodities that are primarily consumed by the rich have a low tax rate. Any tax incentives that are given, for example, for savings, neither benefit the middle class, nor the upper middle class but the super-rich who represent the top 1-2 per cent.

Most commodities primarily consumed by the rich have a very low tax rate, in effect subsidising them at the cost of the poor. For example, the rich consume 98 per cent of the gold in the country, and yet gold is taxed at only 1-1.6 per cent. The rich avail of an 88 per cent subsidy on kerosene, amounting to Rs. 5, 501 crore and 86 per cent subsidy on LPG, amounting to Rs. 40, 151 crore.

Some commodities are subsidised more for the poor than the rich, such as railway tickets (since there are different categories of tickets), but even here, the rich avail of a subsidy of 34 per cent. Similarly, the tax structure has resulted in aviation fuel being cheaper per litre than petrol and diesel. Aviation fuel is taxed at about 20 per cent (average of tax rates for all states), while diesel and petrol are taxed at about 55 per cent and 61 per cent (as in January 2016). The real consumers of aviation fuel are those who travel by air, who essentially are the well-off." Unquote

If some of you conclude that these may be the views of Comrade Sitaram Yechury or the ultra-left Naxalites or the liberal jholawala armchair intellectuals living in 19th century, I will not be surprised. None of them issued the above statement. These are some of the points taken from the Economic Survey presented to the Parliament on Feb 26, 2016 by the Finance Minister Arun Jaitley. Chief Economic Adviser (CEA) Arvind Subramanian was the Survey's lead author. In the past two decades, we never came across such bold and blunt views on the state favouring super rich in the guise of the poor.

Immediately after the good news of Rajan's certain exit, vested interests have started their business as usual. BJP leader Subramanian Swamy has a new target - Chief Economic Advisor, Arvind Subramanian, who is among those being discussed as the likely new chief of the RBI. Like Rajan, the CEO has been attacked by Swamy for being a green card holder and of earlier backing Washington in a row over intellectual property rights.

These are just excuses. Real purpose is to protect the business houses by ensuring the continuation of crony capitalism under the Maai Baap Sarkar. The staggering bank loans due from business houses, annual bumper tax concessions doled out to corporates running into several lakh crores, the daring sell outs like the nuclear deal with Westinghose etc will all certainly face resistance from people like Rajan and Arvind Subramanian. Crucial elections in several states and the most important one in 2019 cannot be fought without huge funding from business houses. Why disturb the apple cart for the sake of a few NRIs!


1) 'Rich feed off subsidies worth over Rs. 1 lakh crore: Economic Survey', The Hindu, New Delhi, February 27, 2016.

2) 'Saving Crony Capitalists from Raghuram Rajan', The Wire, June 20, 2016. 

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of In case you have a opposing view, please click here to share the same in the comments section.
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