Terms of Trade | Crony capitalism & politics: Narrative is stronger than facts
One of the reasons the Congress's crony capitalism attack does not work against the BJP is that the latter has been able to portray its government's incentives to big business as an act in larger national interest.
On September 21, the Central Bureau of Investigation (CBI), India’s federal investigative agency, told the Supreme Court that it found no criminality after an investigation into the infamous Niira Radia tapes which roiled the country under the United Progressive Alliance (UPA) government. When read with the fact that most of the prominent people accused in the 2G scam have also been acquitted by the courts, the stink of corruption which sank the Congress-led UPA government in the 2014 elections, seems to be more perception than reality in retrospect (although this is not to suggest that there were no improprieties or irregularities in how spectrum, a valuable national resource was allocated back then).
Those who lean towards the Congress might be tempted to remember former Prime Minister Manmohan Singh’s 2014 statement, “history will be kinder to me”. Still, despite many of the UPA-era scams such as 2G failing to secure convictions in courts, the Bharatiya Janata Party (BJP) continues to successfully attack the Congress and many other Opposition parties as extremely corrupt. While it will be naïve to ascribe electoral outcomes to just one factor, one can say with a certain degree of confidence that corruption is an important constituent of the BJP’s arsenal against the Opposition.
The Congress, on the other hand, has failed to make even one corruption allegation stick on the current BJP government. Alleged corruption in the purchase of Rafale fighter jets — Rahul Gandhi made this the talking point of the Congress campaign in the 2019 elections — is the biggest example. Gandhi has since hinted that even people within the Congress did not support him on this issue.
There is no evidence that there was corruption in the Rafale deal. And the government managed to establish this narrative as well.
For the UPA, though, the narrative that it was embroiled in corruption became entrenched much before the courts weighed in, a complete reversal of the principle of natural justice. This raises an intriguing question: Is the efficacy of allegations of corruption or crony capitalism — as most corrupt practices work in modern-day capitalist democracies — determined more by the efficiency of the opposing side’s narrative-building machinery?
The Congress leadership, especially Rahul Gandhi, would like us to believe this. He has alleged that the current BJP government has captured critical institutions in the country, thereby pre-empting any adverse opinion on what Gandhi claims are its corrupt/unethical practices.
To be sure, a recent working paper by political scientist Milan Vaishnav argues that institutional safeguards in Indian democracy have always been weak when a political party has enjoyed a dominant position. “The Indian case suggests a paradox: institutional checks and balances have functioned most effectively when they are less needed (when the party system is fragmented) and least effectively when needed the most (when a single party is dominant)”, Vaishnav writes. But nuanced social science research notwithstanding, what is preventing the Opposition from going all-out with such allegations against the BJP? The answer to this question could be rooted in a new political economy narrative the BJP seems to have perfected.
An example, which made headlines this week, is a good place to start this argument. On September 21, the Union Cabinet announced a modification in the government’s programme for the development of the semiconductors and display manufacturing ecosystem in India, which was first announced in December 2021. The crux of the programme is simple. The government will pay for 50% of the expenses in building a privately owned semi-conductor manufacturing facility on a pari-passu (both parties will provide equal funds simultaneously) basis. This is nothing but subsidising private investment without any material quid-pro-quo to the government. The total amount under the scheme was estimated to ₹76,000 crore in December 2021. This is more than the annual allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) in a year.
To be sure, it is entirely likely that the private party will end up putting in far less capital than half of the project cost, as a lot of the spending will likely be financed by debt. In fact, Mint reported that banks are already lining up to fund the proposed Vedanta-Foxconn semiconductor plant in Gujarat.
Should the government be subsidising private businessmen in profit-making activities? The government’s defence of the scheme is that promoting a semiconductor manufacturing programme in India is a strategic objective. “In the current geopolitical scenario, trusted sources of semiconductors and displays hold strategic importance and are key to the security of critical information infrastructure. The approved programme will propel innovation and build domestic capacities to ensure the digital sovereignty of India”, the cabinet announcement of the programme in December 2021 said. Not only is there merit in the claim of certain production capacities being strategic, there are also enough examples of private capital-led success stories in strategic sectors such as the military-industrial complex in the US.
The second question is not so much a first principles question as the first one. Will the government be able (and willing) to make sure that the private sector uses these subsidies and incentives to achieve the goals which the government wants it to? It is this question which has mattered the most in manufacturing success stories across the developing world. Joe Studwell’s book How Asia Works is a comprehensive and interesting account of how countries succeeded or failed depending on their handling of this question. In fact, in successful stories of capitalist transformation, private capital has often made its fortunes while working closely with the government, and bending or breaking rules has been a part of the process. The University of Michigan political scientist Yuen Yuen Ang has argued in an excellent article comparing the American and the Chinese economy recently that both the American and Chinese economies are living through a “Gilded Age” and “both share a dramatic story of renewal after devastation and prosperity amid decadence”.
A lot of the concessions which have been given to private capital under the current regime in India promise to buttress India’s strategic prowess on the economic front. Every criticism the opposition has made of these schemes or individual concessions has been countered in the name of national interest. The answer to whether or not these promises will materialise is still some time away. As things stand now, both sides can only hope to be proved right in retrospect. But for the opposition to express the sentiment that these projects will fail is to publicly wish for a doomsday scenario. This is exactly the charge that the BJP makes against the opposition — that it (the opposition) does not want the country to develop.
Of course, the opposition could have argued that the government should have set up its own enterprises — if need be in collaboration with foreign companies — rather than subsidising Indian business houses such as Vedanta. A lot of initial post-independence strategic industrial development in India followed this model. However, given the fact that this model has been criticised, almost delegitimised, by the politically bipartisan pro-reform spectrum (including voices within or close to the UPA/Congress establishment) it is not surprising that there are no sincere efforts to even pitch this idea. Here, the Indian state faces an interesting predicament. In its quest to save public resources from potential rent-seeking — which is what the pro-reform voices argue used to happen in public sector enterprises — it has to directly subsidise private capital using perhaps an even greater amount of public resources.
The discussion so far also points towards an important reason why charges of corruption had greater resonance against the UPA than the current regime. While the current BJP government has managed to convince people that its incentives to private capital are in national interest, the UPA government ran into corruption allegations in the distribution of resources such as 2G spectrum and coal mines. On the face of it, the improper and irregular sales seemed to serve no larger purpose other than to benefit crony capitalists. While some of these allegations have failed to materialise, they did build a narrative of the UPA leadership plundering the exchequer to benefit private players.
None of this is to say that the claims of the current regime will necessarily turn out to be true or that India is on a definite path to becoming an economic superpower because of these policies.
What this week’s column is trying to argue is a slightly more nuanced point. For a political party which is committed to neoliberalism or reforms (as they are euphemistically called in India) a better way to chart out a political future is to build a narrative in sync with big capital (this is what the BJP seems to be doing) rather than believe in theories of maintaining distance from capital at the level of political rhetoric while depending on it for political finance (which is what the Congress’s model has been).
At the current moment, the BJP has no incentive to change its political economy approach.
Every Friday, HT’s data and political economy editor, Roshan Kishore, combines his commitment to data and passion for qualitative analysis in a column for HT Premium, Terms of Trade. With a focus on one big number and one big issue, he will go behind the headlines to ask a question and address political economy issues and social puzzles facing contemporary India.
The views expressed are personal