Dirty business

Normally you would have expected Indias largest,most diversified and certainly most respected corporate group to hit all the right buttons and move on. But not in this fascinating phase in our post-reform political economy where corporate India has seen its power hit rock-bottom exactly when there is talk,and with good justification,of rampant crony capitalism. Just what is going on?

It is not important which side of any inter-corporate divide you are on. Any which way,you find the conventional private sector losing not just political clout,but even access,often seeing itself denied the social niceties and respect it had come to take for granted. Those running the three main chambers CII,FICCI and Assocham would never admit it,but their power is now at its lowest point since 1991. The prime minister rarely,if ever,talks to corporate India. Government representation at the CII-World Economic Forum annual showpiece,the India Economic Summit,has rapidly declined over the UPAs six years. In fact,the edition last month was the poorest of all. The prime minister of course gave it a pass; Pranab Mukherjee made a brief visit to speak in his stead,and then most of the top ministers stayed away. This years summit had probably the poorest levels of interest ever,sometimes presenting empty halls to reasonably serious panels. Similarly,under the UPA,official Indian representation at Davos has steadily declined. At the January 2011 Davos conference India is again the theme,for a rare second time in five years; and yet CII and the World Economic Forum are struggling to get senior ministers to represent the government. It is a strange paradox: UPA enjoys the 9 per cent growth creates the good news India story and funds its populist yojanas,but is shy of being seen with those who have made it possible,our entrepreneurs.

How is one to explain this contradiction where corporate India is so orphaned that even a Ratan Tata has to hire a lobbyist from hell and Mukesh Ambani needs to pay for a share of her time as well? Once upon a time,a strategic phone call would have been enough. Or when Sunil Bharti Mittal,one of Indias most successful self-made post-reforms entrepreneurs,is driven up the political wall by a good-for-nothing minister like Raja? Or how come the redoubtable Anil Ambani has his coal linkages all tangled up while sundry nobodies with political linkages squat on millions of tonnes of reserves? And this when almost everyone,from Raghuram Rajan to The Economist to Newsweek rank crony capitalism as the biggest threat to the India story.

This paradox is rooted in economics as well as politics. Economics,because our political class has suddenly discovered an entirely new way of making money from and with the private sector,but not from the Tatas,Birlas,Ambanis and so on,the usual suspects of the old economy. In fact,it is a waste of time going to them collecting a few crores by cheque or a little bit here and there,as most of their companies are listed,with foreign investments and auditors,and thus dont quite have leeway to produce hundreds of crores in cash. Todays political class needs money on a different scale altogether. And that can only be produced by entrepreneurs of yet another new economy,built around land,liquor and natural resources. In fact,you can even include spectrum in that category. After losing licences and quotas in 1991,the political class has now discovered a way of making much more through discretionary powers to allot,allocate,authorise the use of state-owned resources,or allowing the change of land use.

Around most of our cities,the value of agricultural land can jump by a hundred times if you change its use to residential or commercial. The politician today is happy with even a small percentage of this humongous arbitrage. He has to break no law,not even to acquire that land. The builder buys,the neta changes its use. The same applies to mining leases,big infrastructure contracts where a percentage of cash or even benami equity is now built into the bid by many major contractors. That is why Raghuram Rajan is right in his latest book,Fault Lines,when he says that most of Indias new billionaires come not from conventional manufacturing,IT or finance businesses,but from infrastructure,real estate and mining,where the state and politicians still hold arbitrary powers and,therefore,arbitrage. One land deal can produce more money than a dozen top members of India Inc,so why bother about them any more? This is the economic reason why corporate India feels so lost now.

The political reason is simple. It is rooted in the Congress partys faulty reading of the 2004 verdict as being against the BJPs India Shining,and therefore against anything and anybody that represents that fraudulent idea. The logic being: poor farmers vote us to power,not fund managers. The question we need to ask is: what goodies can you take to the poor farmer,what rights to food,jobs,education,loan waivers if corporate India is not giving you growth,taxes,fiscal space,millions of new jobs? The top leadership of the Congress has to rectify this. It cannot take growth for granted.

Particularly not when,disillusioned with policy flip-flops and fearful of a new backlash from New Delhis dreaded and now rejuvenated Bhavans,the biggest and finest Indian entrepreneurs are now moving their investments overseas. Tata now has nearly 60 per cent of his turnover overseas; almost all of Mukesh Ambanis big investments over the next decade 12 billion are committed to America. Aditya Birla,Anand Mahindra,Essar,Bharti,are all looking outwards. It would be perilously complacent to mistake this flight of capital for globalisation of Indian enterprise. This is more a case of traditional corporates voting with their feet while the new billionaires of the crony capitalism of land-natural resources-politics get entrenched,hand-in-glove with the many Rajas of our scary new politics.

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