Crony come lately?

Prime Minister Manmohan Singh has asked, 8220;Are we encouraging crony capitalism? Is this a necessary but transient phase in the development of modern capitalism in our country?8221; He held together these questions by worrying over the dominance of a few large business houses and over the threat to small enterprises. To the first question, we must unfortunately answer in the affirmative; and to the second, we cannot help but be baffled at the length of time implied by his use of the word 8220;transient8221;. Crony capitalism in India is a consequence of the licence raj, which is anything but transient in this country. Some capitalists will always find cronies in government but that even post-reforms deals are being made behind doors is a consequence of politics. Most politicians don8217;t understand the free market. But they like the returns that accrue from market-violative discretionary policy. If the PM is worried, he should worry about his colleagues most. Hardly any of them would want a system where capitalists don8217;t have to lobby ministers.

Dr Singh also seemed to posit the existence of large corporations and business houses in a zero-sum situation with small enterprises. This is a bit romantic. Indian business8217;s problem today is not just that it does not have enough viable small businesses; it is also that it does not have, alongside, enough big business houses. How many Indian corporates are truly big? Plus, let us remember that sarkari concern for small business is expressed via the myopic SSI policy, which is another licence regime.

A look at the IT sector is instructive. Indian companies8217; success in business process outsourcing and software stole upon the government virtually unanticipated. The sector does have a few big companies, some of whom own global brands. But these big companies exist amidst a much greater number of small operations and 8212; this is key 8212; an ever-growing number of start-ups. And but for the talent shortage that is coming with the government8217;s inertia over liberalising higher education, India8217;s big and small IT companies would have remained globally the most competitive. Education has a flourishing licence raj and, unsurprisingly, crony capitalists setting up shady teaching shops.