Column : Who are the real cronies

Written by Surjit S Bhalla | Updated: Oct 29 2011, 06:52am hrs
This is not a good time to believe in markets. Indian icon Rajat Gupta gets arrested in the US for insider trading. The US economy is faltering and is still not able to recover from the body blow of the breaking down of markets. This has led the Americans to question just where, and how, they went wrong. That used to be US is the refrain of think leaders like Tom Friedman. Europe has just gone through, sorry is going through, a gut-wrenching crisis of market governance. How do you keep 17 nations from splitting apart when it is the market that has done it to the citizens Who will care for the elderly as their pensions get washed away due to other peoples, the capitalists, sins And then you have the protest against Wall Street that has captured the hearts and minds of anti-capitalists everywhere. The market as exemplified by the top 1% of Wall Street capitalists is responsible for jobs disappearing everywhere (except in developing economies like China).

Closer at home in India, the refrain is the same. Corruption is everywhere, and who gets blamed for itthe capitalists! How did this corruption come about According to a recent judgment by two Supreme Court justices, crony capitalism in India was all due to the introduction of economic reforms in India in the early 1990s. Coincidentally, the finance minister responsible for the reforms then, Dr Manmohan Singh, has been the Prime Minister of India for the last seven years. And what have these seven years witnessed Rampant crony statism. Yes, I realise that you were looking for the 10-letter word capitalism, but the buck has to stop sometime, somewhere. There are three big corruption scams in India; well, there are several but these three are likely the biggest. And, coincidentally, all the three big-time scams have occurred under the watchful eye of Indias oldest political party, the Congress. The first was the Bofors scam, which involved government purchase of a gun from Swedish capitalistssurely the best, most sincere kind, even if they are in the armaments business. Where the bribe money went has still not been found out, but no one doubts that it went to the politicians.

In September 2010, the politicians in charge of the Commonwealth Games (yes, India is so full of dumb capitalists that we need the state, i.e. the politicians, to administer, manage, control and run matches and tournaments) made sure that there were a lot of public taxes misspent or not spent at all, but accounted as spent. Close on its heels, the government-administered 2G scam led to losses to the state of somewhere close to $10 billion. And yes, mining licences given to ones favourites were also administered by the Karnataka chief minister. Now how many of these crony deals have to do with capitalism, and how many with the lack of capitalism

At least capitalist markets have checks and balanceswho is there to question the lies and corruption of the politicians The answer: another large bureaucracy in the form of a politically correct Lokpal Bill. What guarantees that it will not be corrupt (like all large bureaucraciesthe greater the absolute power, the greater the corruption) Does anything ever become simpler in India It cant because cronyism relishes complexity, and markets like transparency. So, who is the culprit Will the real crony please stand up

The real lie, and the real tragedy, is that state-administered, state-directed, in-the-name-of-the- poor programmes are the croniest of all. Not surprising, because the best way to sell corruption is if it is disguised in a human face. This administration, this government, and the ruling party, yes the Congress, has been involved in spreading the anti-market lie disguised as gospel. Examples abound. Just to name threethe public distribution system of foodgrains, the employment guarantee scheme, and the government pricing of foodgrains. All three assume that capitalism, markets, do not work in the most basic of human endeavours. Labour markets do not workso we need controls. Food cannot be marketed by the private sectorso we need the government to procure, price, market and export food. What nails the government lie is the open recognition by government experts that the public distribution system (PDS) of foodgrains is an ongoing corrupt system before which all other corruption (including 2G) pales. After recognising this lie, and this corruption, Ms Sonia Gandhis National Advisory Council (NAC) recommends the right to food.

And how will the right to food become a reality By expanding the longest, most corruption prone system in Indiathe PDS. If this were not enough, the NAC recognises that food for work programmes have been massively corrupt. How do you reduce this corruption By expanding such programmes. And then they make fun of the Americans who stated in a parallel context: we had to destroy a Vietnamese village in order to save it.

It gets worse. In the name of winning votes, the Congresss motto is that we have to destroy the economy in

order to win elections, sorry, to save it. The specialists within the Congressthe ones with the real hearts for the poordevise crony ways to win votes. Their leaders believe that they will win the next general election because where else will the poor go Especially after they have engineered to have food inflation in India in the high teens for four successive years.

Helps with the farmers vote at the time of elections. And who is to deny that it did bring them handsome rewards in May 2009. Procurement prices for 16 crops (wheat, rice, sugar, cotton, etc) rose by an average of 25% in 2008, just in time for the 2009 elections. Average procurement price increases in the subsequent three years10%, 6.7% and 10% again in 2011! The procurement price of wheat was raised by 9.8% the same day as when the RBI governor, Dr Subbarao, was futilely raising interest rates to combat inflation. Why such brazenly corrupt behaviour by the Congress Elections in UP and Punjab are scheduled to take place in the next five months.

The author is chairman of Oxus Investments, an emerging market advisory and fund management firm. He can be seen on NDTV Profits: The Bottomline with Surjit Bhalla, weekdays 7.30 am