All governments are crony capitalists

The Adani saga has dented the government's image of incorruptibility. But it is doubtful whether the cronyism embedded in India's economic fabric will disappear anytime soon

Depending on which side of the political divide you favour, l’affaire Adani has provoked righteous anger, outright glee, consternation and embarrassment. Rahul Gandhi, having found a convenient issue to build on the image he crafted during the Bharat Jodo Yatra, has ensured that the issue stays front and centre of Parliament, demanding answers from the government on its connections with a business group that grew meteorically after the National Democratic Alliance II came to power.

Mr Gandhi may think he’s on to a good thing politically, but he isn’t really in a position to protest. No government — at the Centre or state — nor regulators can claim to practise strict abstinence when it comes to the business-political nexus. If anything, the Hindenburg report, with its implications of sustained regulatory tolerance, has underlined this fact. Beyond the prurient fascination with Gautam Adani’s fabled power and wealth, or the shenanigans highlighted in the Hindenburg report lies the old systemic weakness of governments’ overweening powers over economic life and the feebleness of industry regulators to counter it.

It is worth noting that the basis of Mr Adani’s business growth lies in a dominant presence in areas in which government policy plays a major role — ports, airports, electricity, green energy — and the principal competition mostly comes from the public sector. With notable exceptions of companies in IT, consumer products and automobiles, Indian big business has flourished in sectors where the government — central, state, local — stands to play a heavy interventionist hand.

Mr Gandhi may have forgotten, but it was the telecom sector that proved the undoing of the Congress-led United Progressive Alliance 13 years ago, though it was a coalition partner that was the principal transgressor in this case. That particular scandal — amplified by the active grandstanding by the Comptroller and Auditor General (CAG) of the time — was the product of a long-standing and opaque allocative policy for telecom licensing that enabled select entrants to apply in preference to others through a “first-come-first-served” policy and, extraordinarily, the physical blocking of unwanted applicants.  

That various politicians implicated in the scandal were acquitted on an extraordinary technicality in 2017 was only one unusual aspect of that case. The Supreme Court’s crusading judgement cancelling all those allocated licences was the other, a landmark that set back the industry by decades. The only benign outcome of this mess was that auctions rather than allocative policies have become the norm in telecom and coal, the other CAG revelation of the time. 

These were headline-grabbing issues that dictated the rise and fall of a government. But as any small or medium industrial house operating outside the glare of publicity will attest, it’s the intensity of cronyism — whether with the local MP, MLA or MLC — that determines the survival of a business. Complex rules and regulations — or the evasion of them — are considered valid reasons for seeking political connections for business purposes. The construction business, which has long been India’s largest and fastest growing employer, is a good example of cronyism that impacts our daily lives: The sand mafias, which are destroying the environment in double-quick time, would never have flourished without local political backing; likewise, the flagrant violation of labour codes, which keeps millions of migrants on the breadline.    

These are blatant violations that are ignored for being all-pervasive — and also because any journalist runs a serious risk of murder if he were to poke his nose too far in these transgressions. Indeed, it is notable that in the days before Hindenburg’ global bombshell, Mr Adani himself had been the recipient of less complimentary headlines in India. But the cynical acceptance of cronyism at the highest levels has meant that they achieved little more than raised eyebrows. We know, for instance, that Adani received land for his mammoth SEZ at rates far cheaper than other businesspeople (including the Tata Nano project). Or that the CAG raised questions about “undue benefits” that the Gujarat government gave to Adani Ports by waiving waterfront and other charges. 

In 2014, for instance, questions were raised (but not answered) on why the government-owned State Bank of India signed an agreement with the Adani group for its controversial Australian mining project.  In 2016, came revelations the government had waived a Rs 200 crore penalty for environmental infringements by the Mundra Port project, following the findings by the Sunita Narain committee. When the Adani group was awarded six airports, both NITI Aayog and the finance ministry raised questions citing financial risk and performance issues. Strangely, no MP chose to raise any of these issues in Parliament, although their impact would have been more deleterious than Hindenburg’s allegations of Mauritius-based share rigging.

As the Adani group works overtime to prepay loans and bond redemptions by way of damage control, it is hard to predict the political outcome of this scandal. At the very least, Gautam Adani’s alleged proximity to Narendra Modi has now entered the popular lexicon and may dent the latter’s self-styled image of incorruptibility. It may prompt some degree of moderation. But it is doubtful whether the cronyism embedded in India’s economic fabric will disappear anytime soon.