Opinion P B Mehta writes: Can Indian capital step up when it is needed the most?

Two possibilities present themselves. The first is that the business environment has, in fact, deteriorated more than official accounts suggest, and business leaders are too intimidated to speak openly. The second is that Indian capital, with a few notable exceptions, lacks the capacity to compete globally. In this case, blaming the state becomes a convenient form of self-exoneration. Either way, the conclusion is inescapable: Indian capital itself is part of the problem.

History reinforces the suspicion of Indian capitalism. It emerged largely from trading classes, unmatched in their capacity for arbitrage but less adept at building. Much has been written about the state’s allocative indiscipline in the 1950s and ’60s, when licences and state finance were distributed with little regard for efficiency. But the other half of the story is how Indian capital exploited this system. Entrepreneurs misused finance and extracted resources from the state without producing globally competitive firms, as a recent paper by Mausam Kumar shows. The contrast with East Asia is telling. Their states were also corrupt. But their subsidised entrepreneurs, for all their flaws, actually built things — firms that went on to become Samsung, Hyundai, or TSMC. India’s entrepreneurs did not. Companies like those of the Birlas were never going to be global leaders, free enterprise or not. They were content to milk the credit system rather than transform it into productive capacity. The deeper problem may not be, as a recent paper by economist Siddharth George and others has argued, that public sector banks lend disproportionately to less productive firms. The problem may be that the supply of truly productive firms has always been thin.

Liberalisation should have marked a turning point. New entrepreneurs entered, and some new sectors emerged. But in several respects, Indian capitalism became weaker. Capital concentration has intensified, and dominance by conglomerates such as Ambani and Adani has redefined the field. Their execution capacity is formidable. Yet, their rise has distorted competition and made India geopolitically vulnerable. If these national champions were propelling India into technological or product leadership, perhaps the bargain would be worth it. But they are not. The striking fact is that Indian business has been unable to mount even a pro-capitalist critique of monopoly power. It has acquiesced in the consolidation of oligarchic dominance, even when that dominance rests on the expropriation of rivals.

Equally debilitating is the culture of finance. Conversations in India’s financial sector reveal a startling lack of ambition to back companies that might make world-class products for the Indian or global market. The imagination of Indian capital is dominated by arbitrage — quick gains from the stock market, financial engineering, or speculative manoeuvres. This creates the illusion of dynamism: Media coverage of finance makes Indian capitalism appear like a vibrant powerhouse. In reality, in global terms, it is a damp squib.

The cultural dimensions of Indian capitalism compound the problem. Business leaders often complain of weak human capital. Yet, they were historically unwilling to invest in building it. Unlike American firms, which helped establish research universities and an R&D infrastructure, Indian capital largely sought a free ride. The record on labour is equally dismal. Having comprehensively defeated the bargaining power of workers, most firms still have not learned to manage labour with dignity, or to upgrade skills in ways that enhance productivity. The notoriously poor quality of construction in India, for instance, is inseparable from the neglect of construction labour.

Outbound foreign direct investment illustrates the same lack of confidence. Much of it functions as a hedge against India itself, often in the form of brand acquisitions. Buying Hamley’s or Peter England is less about creating global products than about signalling that foreign labels carry more credibility than Indian ones. These acquisitions have generated little technological spillover at home. Outside a few sectors such as pharmaceuticals and medical supplies, Indian capitalism radiates a culture of defeatism.

Indian business also rails against populism. But the misallocation of capital it engineered is comparable in scale to the fiscal costs of populist handouts. The complaint rings hollow. More troubling still is the relationship between Indian business and media. With control over large sections of the media, business had the opportunity to create an ideological environment conducive to long-term capitalist development — promoting regulatory accountability, honest debate on policy, and a vision of enlightened self-interest. Instead, much of business-owned media has become a purveyor of faux nationalism and communal distraction. This may serve sectional or partisan objectives, but it does not serve the long-term interests of Indian capitalism. It narrows, rather than expands, the space for sensible discussion about how to create a competitive, innovative, and globally respected capitalism.

The irony is sharp. For decades, Indian business blamed the state for stifling its potential. Today, when the state is more open than before, Indian capital shows little appetite for risk, no courage, little ambition for leadership, and little confidence in its own ability to build. The new imperialism of the global order requires both state and capital to pull together. But Indian capital is conspicuously absent. It is often said that people get the government they deserve. The same is true of Indian capital. It is getting the government it deserves.

The writer is contributing editor, The Indian Express