The Economist’s latest study, places India in the ninth position in its crony-capitalism index and estimates that this sector in India has seen a sharp decrease in the past couple of years. The study states that crony wealth in the country is down to 3 percent of the Gross Domestic Product (GDP) from an estimated 18 percent in 2008. 

What is crony capitalism?

Crony capitalism is a term describing an economy in which success in business depends on a businessman’s proximity with government officials. Favoritism maybe shown by distributing legal permits, government grants, special tax breaks, or the state influencing something which otherwise isn’t directly under its control to favour someone.

Using data from a list of the world’s billionaires and their worth published by Forbes, each individual is labelled as crony or not based on the source of their wealth.

So was crony capitalism worse under UPA?

Finance Minister Arun Jaitley claimed in a Facebook post in which he said: 

“For Sale” signs hung over all Ministries. Spectrum was allocated at throw away prices to the favoured few. Investors lost their investment. Ministers, civil servants, investors were jailed and prosecuted. Coal blocks were allocated at virtually no price.  Environmental clearances were up for sale. The Congress Party leaders had become rent seekers and name lenders. The mining sector provided for a statutory mechanism of allocation based on the obsolete principle of “first come first served”. Even gold imports were controlled by a few. This was crony capitalism at its very worst”.

In the last two years, since NDA government came to power, there havn’t been any major cases of graft or nepotism in the country. 

The NDA government’s tough stand on graft and the Reserve Bank’s restriction on the state-owned lenders to not give out “sweetheart deals to moguls” have contributed to the sharp decline. Also, the middle class’ growing discontent against corruption has been a big factor in the world-wide decline of crony capitalism, the magazine noted. 

“Optimists can also point out that cronyism has stimulated a counter-reaction from a growing middle class in the emerging world, from Brazilians banging pots and pans in the street to protest against graft to Indians electing Arvind Kejriwal, a maverick anti-corruption campaigner, to run Delhi,” it said.

The magazine also rightly pointed out that ‘pin-ups of Indian capitalism are no longer the pampered scions of its business dynasties, but the hungry founders of Flipkart, an e-commerce firm’.

Other factors that have contributed to the downfall of crony capitalism

Other factors that have contributed to the downfall of crony capitalism across the world are – fall in global prices of mines, steel mills and oilfield and real estate – sectors that are linked with crony capitalists, the magazine noted.

Other countries on the list

The index ranked Russia as the worst crony-capitalist country, followed by Malaysia, Philippines, Singapore, Ukraine, Mexico, Indonesia and Turkey above India. Taiwan and China are ranked 10th and 11th after India. Germany is cleanest, where just a sliver of the country’s billionaires derive their wealth from crony sectors.

With input from PTI