Insights

Written by P Raghavan | Updated: Nov 30 2010, 06:32am hrs
Crony Capitalism and India: Before and After Liberalization

By Surajit Majumdar

Working paper No 2008/04, Institute for Studies in Industrial Development, 2008

Why is that scams continue to unfold one after another across the nation, with revelations of unethical practices by both corporates and political parties After all, the liberalisation of the economy over the last two decades should have ended crony capitalism, ensuring market-determined outcomes. Surajit Majumdars working paper titled Crony Capitalism and India: Before and After Liberalization sheds light on this.

The paper points out that the idea that liberalisation signals the end of crony capitalism is a misconception as it is based on the belief that the state ceases to be an important factor in the economic arena post-liberalisation. This is because liberalisation involves a transition process where the state continues to be the key agent, ensuring opportunities to favour businesses that have privileged relations with decision-makers.

At the beginning, the cronies can be helped in sectors that have been opened up because the state plays an important role in determining the initial entrants. Once they become incumbents, these cronies can be further supported through the regulation process. The continuing necessity for regulation over large and critical sectors of the economy only highlights once again that the state remains an important part in the economic arena.

The fact that the recent scams involve land and telecom spectrum, where public sector continues to play a significant role, only seems to validate this hypothesis. The states role in granting property rights in land and for the exploitation of natural resources, in influencing the development of infrastructure and its pricing etc, creates opportunities for granting favours of large economic value, notes the report. Even the software sector, one of the most notable successes, benefited from the large tax exemptions, claims the report. So the relationship between the state and business does not disappear with liberalisation; it is only modified.