The centralisation of politics and business

Over the past decade, there have been two observable trends: Rapid economic centralisation and the changing face of business-politics relations in India
The relationship between big capital and politics has changed, complementing the political centralisation we have seen since 2014. We are undoubtedly seeing the highest levels of corporate concentration of wealth since the economic liberalisation reforms of the 1990s — the very antithesis of what many thought liberalisation sought to achieve (Kunal Patil/HT Photo) PREMIUM
The relationship between big capital and politics has changed, complementing the political centralisation we have seen since 2014. We are undoubtedly seeing the highest levels of corporate concentration of wealth since the economic liberalisation reforms of the 1990s — the very antithesis of what many thought liberalisation sought to achieve (Kunal Patil/HT Photo)
Updated on Nov 13, 2021 10:31 PM IST
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ByNeelanjan Sircar

In September 2020, protests against three controversial farm bills passed by Parliament erupted. While there may be legitimate arguments in favour and against the farm bills, the protests quickly began to coalesce around a larger criticism of “corporate interests” supported by the ruling Bharatiya Janata Party (BJP). To my mind, the persistence of these protests has less to do with reforms in the agricultural sector (which are quite necessary) and more to do with the rapid economic centralisation and the changing face of business-politics relations in India.

In this piece, I seek to grapple with how the relationship between big capital and politics has changed over the past decade, and how it complements the political centralisation we have seen since 2014.

Concentration of wealth and profits: The rise in economic inequalities in India, and the concurrent concentration of wealth in major corporations, is not mere speculation. According to the World Inequality Database developed by scholars at the Paris School of Economics and UC Berkeley, the share of national income held by the top 10% of the population in India grew from about 40% in 1998 to 57% in 2019. Over the same period, the share of income of the middle 40% (a measure of the middle class) dropped from 41% to 30%.

But these rises in income inequality are longer-term trends resulting from economic liberalisation reforms in the 1990s. The greater concentration of wealth among top corporate firms has been a more recent phenomenon. In an analysis from 1994 to 2019, Saurabh Mukherjea and Harsh Shah at Marcellus Investment Managers have shown that the percentage of profits earned by the top 20 companies grew from around 40% (of total corporate profits) in fiscal year 2014 to over 60% in fiscal year 2019. This suggests significant centralisation of wealth in the biggest companies since the BJP came to power in 2014. Indeed, the greatest increases in the percentage of profits earned by the top 20 companies occurred from fiscal year 2017 onward, after India’s demonetisation exercise.

Money and politics: As I have written elsewhere, the skyrocketing costs of electoral campaigns, combined with low rates of renomination and anti-incumbency among legislators, have made parties rely increasingly on wealthy “self-financing” candidates. Indeed, political scientist Gilles Verniers has shown that by 2017, 50% of Uttar Pradesh’s elected members of the legislative assembly (MLAs) were businessmen compared to less than 10% in the 1980s. These businessmen were predictably drawn from “local” sources of wealth, like real estate and transport.

But such local sources of wealth generate major challenges for any party seeking to engage in political centralisation at the national level. First, Indian politicians are far from dedicated members of political parties, often defecting from one party to the other. The volatile nature of party membership, and the need for local wealth, engenders complex bargaining with local capital. Second, as scholar Kanta Murali has shown persuasively, differences in local business interests can generate different economic policies from state to state — especially if local capital has a significant role to play in financing politics.

The greater concentration of economic wealth observed since 2014, and especially after India’s demonetisation exercise, aids in political centralisation at the national level in key ways. If economic wealth is disproportionately in the hands of the biggest firms that likely operate at an all-India level, then the demands that capital makes on the political system are likely more “national” and less “local” in nature. This necessarily advantages the party in control at the Centre. Furthermore, India’s demonetisation exercise has almost certainly weakened the position of local capital that relied on real estate and corruption from local contracts. Taken together, this implies that “national” capital, as compared to local capital, is increasingly in a better position to play a big role in politics.

Political financing and political centralisation: India has seen a spectacular level of political centralisation at the national level by the BJP since 2014. This can be seen in many arenas, from welfare policy and federalism to the role of the BJP’s central leadership in state-level campaigns. Fundamentally, this consolidation requires the “centralisation of political appeal”. In order to achieve this outcome, the ruling BJP must mobilise significant financial resources in deploying media resources and funding the party machinery.

The scale of funds required for political centralisation and the demands raised by increasingly wealthy big capital generate natural complementarities. Wealth concentrated in a few firms with national-level demands is likely to find it easier to negotiate with a strong centralised leadership at the Centre, rather than a fractured coalition or a collection of different regional leaders. The Centre also finds it easier to negotiate with a smaller number of business actors with less local demands.

The relationship between big capital and political financing has undoubtedly been strengthened through India’s controversial electoral bond scheme, which allows for large-scale donations in an anonymous manner. Anonymity is key for political financing from businesses, as parties do not want to be seen as biased in favour of any particular business and businesses do not want to be perceived as engaging in corruption.

According to an analysis of party funding in fiscal year 2019-20 by the Association for Democratic Reforms (ADR), 70% of funding for national parties comes from “unknown sources.” Among these unknown sources, 90% is attributable to electoral bonds. Notably, the ruling BJP has received more than 78% of its funding from unknown sources — which is 3.5 times higher than funding from unknown sources for all other national parties combined. (It is worth noting here that even for regional parties, 55% of funding comes from unknown sources.)

It is important to note here that none of this necessarily implies political corruption or even illegal activities pursuant to laws around political financing. Rather, the scale of economic centralisation in and of itself generates a symbiotic relationship which encourages political centralisation, which, in turn, fosters greater economic centralisation.

I have tried to argue here that, since 2014, India has seen a new relationship between big capital and politics, one that has generated the conditions for greater political centralisation. I have deliberately stayed away from labelling this as “crony capitalism,” which I find to be a lazy and blunt description of the relationship between business and politics (and one that can plausibly describe much of India’s post-Independence history).

Something has changed. We are undoubtedly seeing the highest levels of corporate concentration of wealth since the economic liberalisation reforms of the 1990s — the very antithesis of what many thought liberalisation sought to achieve.

Neelanjan Sircar is senior fellow at Centre for Policy Research

The views expressed are personal

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Thursday, December 09, 2021