Politicians figure out new and innovative ways to enable growth, skirt corruption charges, and woo voters to either remain in power or capture it
By Alam Srinivas
- Politicians, whose family members were invariably in business in the pre-reforms period, decided to wildly and widely turn into part-entrepreneurs
- “Blurred boundaries” view led to “joint partner” one, in which politicians and businesspersons aided and abetted each other’s efforts in business and politics
- the State, the Chief Ministers, their colleagues, and civil servants also work within the “letter of the law”
- Chandrababu Naidu, the former CM of Andhra Pradesh, was one of the first to entice global IT and technology players
As late as 2017, the late Arun Jaitley, the former finance minister, admitted that there was systemic corruption in the country. In that year’s Budget speech, he said that “we are largely a tax non-compliant society”. We evade and avoid taxes. This was evident from the number of taxpayers, as well as the extent of income declared by us. Less than 40% filed tax returns. Only 172,000 people showed an annual income of more than Rs 5 million. Of the 1.4 million firms, less than 8,000 earned profits of more than Rs 100 million.
In the same speech, he railed about an extreme form of corruption – tax evasion that propelled illegal funding of political parties. “Even 70 years after Independence, the country has not been able to evolve a transparent method of funding political parties which is vital to the system of free and fair election,” he said. Jaitley introduced electoral bonds to clean up the system. One could buy them from the authorised banks against “cheque and digital payments only”. The money would flow into the accounts of registered political parties.
Remember, Jaitley spoke after India banned the old Rs 500 and Rs 1,000 notes in late-2016 to blank out black money and the cash economy, which was essential to fund elections. A few experts feel that this was among the main reasons for the demonetization drive – to weed out cash that was hoarded by opposition political parties and politicians, and which was used to woo voters. The stark truth: black money still remains the most important ingredient to win elections. ‘Cash is King’ for those who seek votes.
The number of members in Lok Sabha, who were engaged either in business or trade, almost doubled since 1991. In 1994, less than 10% of such people were a part of Rajya Sabha. The figure went up to almost 16% in 2009. The most shattering trend was witnessed in the state assemblies. Fourteen Union Territories and states had 30% or more representatives from the business community – from 30% in Rajasthan to 50% in Maharashtra and 70% in Goa
Why? One of the objectives of economic reforms was to eject nefarious and insidious ways to hide incomes and dodge taxes. As businesses mended their ways, they would have less, or least, incentive to illegally fund political parties. There would, thus, be a systemic change that could root out black money and corruption, especially in electoral practices. Sadly, this didn’t happen. The reason: reforms further welded the links between business and politics. Corruption surged. There was more illicit money in the system than before.
THE BLURRING BOUNDARIES
Reforms did increase the role of private capital in India’s economy. In a chapter in a recent book, Business and Politics in India, Kanta Murali says that capital formation by the private sector, as a percentage of GDP, “increased from the mid-1980s, and particularly after 1991”. The private sector’s share of paid-up capital (equity) of all firms declined after 1965, “and particularly after 1969 (due to anti-business policies like bank nationalisation and MRTP Act to restrict big business)”, plateaued in the 1980s, and surged since the 1990s.
Obviously, this happened since the state shrank its presence in business, dismantled the licence-permit-quota raj, and encouraged private businesses to invest money. As the central and state regimes competed to enhance growth, which was expected by the growing sections of middle-class and aspirant voters, they had to attract money from the private players. “To do so, they have to undertake business-friendly measures,” writes Murali. Apart from policies, these were in the nature of several and severe tax concessions and benefits.
Investment summits held by the Centre and States hint at how the political leaders bend over to accommodate the needs of businesses. In Gujarat, huge sops are granted in terms of cheap land, resources (like water and electricity), and tax breaks. Uttar Pradesh wishes to make Noida the global investment hub. States vie to attract investors, both the large Indian firms and foreign ones. Chandrababu Naidu, the former Chief Minister of Andhra Pradesh, was one of the first, and not the last one, to entice global IT and technology players.
But, in the process, the interests of business and politics enmeshed and embedded with each other. Aseema Sinha, in another chapter in the book mentioned above, observes that “business interests have moved inside state agencies and that political actors have become businessmen”. From the earlier era of “mutual dependencies”, “dominant-junior actor” (state is dominant over business), and “agenda setting” (businesses shaped policy agenda), India entered a period of “blurred boundaries”, as dubbed by Sinha.
THE POLICY CAPTURE
Sinha points out that businesspersons entered Parliament in a more expansive manner. The number of members in Lok Sabha, who were engaged either in business or trade, almost doubled since 1991. In 1994, less than 10% of such people were a part of Rajya Sabha. The figure went up to almost 16% in 2009. The most shattering trend was witnessed in the state assemblies. Fourteen Union Territories and states had 30% or more representatives from the business community – from 30% in Rajasthan to 50% in Maharashtra and 70% in Goa.
Government bodies and regulatory entities chose to include business figures. This was evident from overwhelming members from industry and trade in the commerce ministry’s Board of Trade, and Prime Minister’s Council for Trade and Industry. N.K. Singh, former Secretary, Prime Minister’s Office, told a journalist, “The council was created to develop a lasting partnership and trust with the industry. That, to me, is more important than any set of recommendations.” The government, in fact, encouraged this trend. The same was true of regulators in areas such as the stock market and electricity.
Clearly, being in Parliament and other agencies helped entrepreneurs to shape policies. The above-mentioned book provides several examples. Shyama Charan Gupta, a beedi baron, was a member of the parliamentary committee on health, which recommended “NOT to display a warning covering 85% of tobacco products”. Vijay Mallya, the runaway loan defaulter, served on committees related to civil aviation and fertilisers, or areas he operated in. Jairam Ramesh of Congress party told a journalist that it gave Mallya “access to information and unfair advantage to influence policy”.
Clearly, being in Parliament and other agencies helped entrepreneurs to shape policies. For example, Shyama Charan Gupta, a beedi baron, was a member of the parliamentary committee on health, which recommended “Not to display a warning covering 85% of tobacco products”. Vijay Mallya, the runaway loan defaulter, served on committees related to civil aviation and fertilisers, or areas he operated in
Politicians, whose family members were invariably in business in the pre-reforms period, decided to wildly and widely turn into part-entrepreneurs. With prior information about policies, easy and deep access inside regulatory bodies, and money from legal and corrupt sources, it was easier to do so. The “blurred boundaries” view led to “joint partner” one, in which politicians and businesspersons aided and abetted each other’s efforts in business and politics. The former also ran businesses, and the latter also entered Parliament and state assemblies. There were little distinctions between the two.
Rajeev Chandrasekhar, who is ironically a businessman-turned-politician, gave an insight to a journalist: “We have a completely unique phenomenon in India, which I call political entrepreneurship…. They [politicians] are saying: ‘We don’t want briefcases full of cash and Swiss bank accounts and all that any more. We want to own businesses ourselves. We want equity stakes.” Thus, there was a trend among politicians to create their own money, rather than regularly depend on business sources to fund and win elections.
CORRUPTION VS PATRONAGE
Now, try and understand the layered scenario. At one level, the political leaders had to deliver on growth to enthuse certain sections, and were forced to court businesspersons for that purpose. At another level, they needed to either extract money from businesses, or create their own via legitimate and illegal means, to fight elections. At a third one, the politicians needed to save themselves from voluble charges of corruption because of the favours they gave to businesses. This evolved into a new patronage-corruption system.
Reforms didn’t kill corruption. In many ways, they accentuated the black economy. The first, as Kanchan Chandra, who was quoted in the book mentioned above, says, “Governments… retain considerable discretionary power over various aspects of the policy process.” This was evident from several controversies in the past decade or so, which were related to 2G spectrum, allocation of coal blocks, favours given to business empires like Adani, and Rafael. Crucial inputs such as land, credit, and raw materials are doled out by the policy makers. Despite business freedom, businesses are still gripped by new laws.
So, there is ample and growing scope for corruption, especially at the level of States, which have more powers to pursue investments. In some States, files don’t move without exchange of money. Decisions, especially related to real estate and infrastructure, are taken to make extra bucks on the “black” side. Even the proposed locations of state capitals may be influenced by the latter. In most States, the Chief Ministers and their loyal civil servants decide who gets the green signal to set up a project, and at what additional cost.
Indian politics in this century is swayed, induced and impelled by a pro-incumbency factor. “Repeat mandates” in several States are in fashion these days. In fact, growth, employment, incomes, and aspirations matter less, despite the demographic dividends, when the majority of citizens are young, and hope to do better than their parents in the near future. It is the manner in which political leaders gain and regain power that proves the great delink between politics and economics
Given the pressures to pursue growth, and encourage money inflows into the State, the Chief Ministers, their colleagues, and civil servants also work within the “letter of the law”. As Chandra explains, “They exploit and expand the discretion available within the law, rather than breaking it outright.” As other experts contend, there is a bit of “blurring” and “skirting” of legal boundaries. Sinha writes that “while they (their actions) certainly provide ample opportunities for rent-seeking on both sides, state officials may also be motivated by business-friendly notions… and business owners may also cultivate relationships with state officials as a necessary evil….”
In 1977, Charles Edward Lindblom dissected this tendency among the civil servants and politicians to view businesspersons as those who perform “functions” that they consider “indispensable”. This nudges the former to grant entrepreneurs a “privileged position”, and the bureaucrats or ministers don’t always need to be “bribed, duped, or pressured to do so”. They understand that business and politics need to collaborate, and “to make the system work, government leadership must often defer to business leadership”.
GROWTH VS ELECTIONS
But in such situations, it was difficult to escape corruption allegations. Whether it was a case of outright bribery or genuine patronage, people believed that there was a quid pro quo, that money exchanged hands, that there is no free lunch. Smart politicians, therefore, tried to decouple economics from politics, growth from elections, and attempts to boost investments from the objective to win the hearts of the voters. Thus, they unintentionally clamped brakes on the efforts by business to deliberately take over politics. This was imperative in scenarios where political parties from varying ideological spectrum had the same impetus to rope in capital to spur growth. As several researchers find, there were “similar pressures on politicians across the political divide” to cosy up to businesses, either in a corrupt manner or to extend patronage. This was evident more in a decentralised system, which intensified due to the rise of regional political parties, and coalition governments since the late 1980s. In recent times, a single party has won the majority, but the states have more freedom to spend the money given by the Centre.
While growth was critical, and enabled Prime Ministers and Chief Ministers to don credible images, the leaders realised three great truths. First, the private sector in its present form doesn’t generate jobs to the extent required in a country like India
Hence, the “electoral realm” was separated from “policy-making” one. Murali argues that “clientelistic dynamics, and issues of identity and ethnicity remain central to Indian electoral politics, particularly in linking politicians to voters.” She adds that such links “continue to be foundations” to win elections and gain political power. In the pre-reforms age, and in present times, politicians ratcheted up divisive factors, either in the name religion, caste, class, and community, to simply sidestep notions of pro-business image.
Contrary to views, like those of Milan Vaishnav and Reedy Swanson, that economics matters in electoral outcomes, there is growing evidence that “this mechanism remains weak”. In the recent past, several Chief Ministers – in Bihar, Uttar Pradesh, Odisha, West Bengal, Gujarat, and Telangana – came back to power despite poor growth rates in their respective states. The same is true about the Centre, as the BJP won in 2019 despite demonetization, high unemployment, and ongoing slowdown, even in the pre-Covid years.
A recent book, not mentioned earlier, states that Indian politics in this century is swayed, induced and impelled by a pro-incumbency factor. “Repeat mandates” in several States are in fashion these days. In fact, growth, employment, incomes, and aspirations matter less, despite the demographic dividends, when the majority of citizens are young, and hope to do better than their parents in the near future. It is the manner in which political leaders gain and regain power that proves the great delink between politics and economics.
WELFARE IS THE KEY
While growth was critical, and enabled Prime Ministers and Chief Ministers to don credible images, the leaders realised three great truths. First, the private sector in its present form doesn’t generate jobs to the extent required in a country like India. Sadly, the post-reforms era witnessed jobless or less-job growth. One could get in billions of dollars as investment, but this was unlikely to satisfy the voters, who wanted better lifestyles and higher disposable incomes, and wished to migrate to the towns and cities.
Second, as Arvind Subramanian finds, “a significant portion of employment in the organised sector is in public (state-owned) enterprises.” More importantly, the post-reforms growth was biased towards the services sector, and in areas that were capital intensive. In fact, more than 90% of the workforce is employed with the informal sector, even as casual and temporary workers in the formal one. While this “automatically places limits on capital’s influence”, it forces people (read: voters) to depend more on governments.
Finally, the ruling classes realised that the sure-shot way to woo voters in a consistent manner, and buck anti-incumbency, was to build a welfare state that may converge or diverge from a growth-oriented one. As long as citizens enjoyed enough benefits, and as long as they reached them, growth, incomes, and jobs won’t matter in elections. The States took “increasing responsibility”, not just for growth, but also development, “pushed by”, as Sinha contends, “the rising demands for growth, education, infrastructure, health insurance, jobs, etc”. In a democratic structure, the “directive role of the state combined with new developmental requirements”.
Sadly, the post-reforms era witnessed jobless or less-job growth. One could get in billions of dollars as investment, but this was unlikely to satisfy the voters, who wanted better lifestyles and higher disposable incomes, and wished to migrate to the towns and cities
Irrespective of the sections, castes and communities that they stood for, political leaders democratised the welfare system. Everyone, who was a potential voter, was given sops. This was especially true for the poorer, underprivileged and marginalised sections, as also women and young voters. Cycles, laptops, gold (for marriages), and food were given free or at subsidised rates. There were provisions for pensions, insurance, and education. In most States now, the poor receive benefits that straddle from cradle to funeral.
Technology and delivery systems put cash directly in the bank accounts of the beneficiaries. In the earlier times, most of the funds meant for welfare schemes were pocketed by politicians and bureaucrats. In the 1980s, the former Prime Minister, Rajiv Gandhi, admitted that only 15 paise out of every rupee spent reached the people it was meant for. Now, since the ruling classes can openly and brazenly join hands with businesses, they aim to win elections through effective and transparent welfare schemes.
Not that everything is hunky dory. There is corruption in government schemes too. But there is so much money being channelled that there is enough for everyone, including the beneficiaries. There are States that borrow to fund these projects. There are Chief Ministers, who are highly corrupt, yet leave no stone unturned to charm their voters. In a sense, business and politics are in bed together; so are the voters and politicians, albeit in a different one. The first one is king-size, the second queen-size. A win-win for everyone.