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Corruption and India's 1 percent

Thomson Reuters Foundation - Mon, 21 Nov 2011 13:03 GMT
Author: Chrystia Freeland
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Chrystia Freeland is a global editor at large for Reuters. Any opinions expressed are her own

The only important question in the West right now is how to restart stalled economic growth. So it is easy to be dazzled by India, where a 7 percent rise in gross domestic product is the nightmare scenario, and optimists are shooting for 9.

But Indians themselves are starting to worry about how that growth is being achieved — and who is benefiting. The headline complaint is corruption. That is nothing new here, of course. But the country now has a middle class self-confident enough to feel humiliated by paying quotidian bribes and resentful of the rise of baksheesh billionaires. Anna Hazare’s hunger strike became a national political event because it tapped into this anger of the urban bourgeoisie.

“India has been overwhelmed by corruption scams,” said Kiran Bedi, the first woman officer in India’s elite police service and one of Hazare’s chief lieutenants. “While it has been apparent that India is shining, India has also been declining in many ways in that there has been rampant exposure of corruption.”

Nor is it just the activists who say that alongside India’s remarkable economic surge the rot has been spreading, too.

“Corruption is endemic,” said Rajiv Lall, chief executive of the Infrastructure Development Finance Company, a partly state-owned financial institution. “I don’t think anybody here is pretending that there’s no corruption in the country. And corruption can take on a new dimension, especially in this time of great transformation.”

Graft is just part of the story. One of the reasons to celebrate India’s astonishing economic rise is that the subcontinent desperately needed to get richer. In 1991, when Manmohan Singh, then the finance minister and now the prime minister, began the liberalization program that underpins the country’s transformation, India’s 854 million citizens had an average annual per capita income of only $1,300. The problem, said Arun Maira, a former industrialist who is a member of the country’s influential planning commission, is that India’s economic rise has had the least impact on the people who need it most.

“My thesis is that most people are not feeling included in the growth,” Maira said. “This has become a very loud voice which is saying ‘Come on guys, the economy is growing very fast now. You’re celebrating this 8, 9, 10 percent growth, but what about us?”’

B.N. Kalyani, the chairman of Bharat Forge, India’s largest exporter of motor parts, sees the same inequitable growth.

“It saddened me a lot to see that even Bangladesh has a better social index, in terms of what it was in 1990 to what it is today, compared to India,” Kalyani said. “All this glitz and glamour and everything that we see about business, the high-rises in Mumbai and businesses moving ahead and the stock market and everything, don’t seem to travel too far beyond the urban setting of India.”

But even many of these critics of India’s lopsided development think it is inevitable — one of the growing pains of the country’s swift economic rise.

Maira pointed to a commonly used measure of income inequality, the Gini coefficient, saying “it always rises whenever growth takes off.”

“When you open more opportunity, like more free markets and the opportunity for people to do their own thing, those who already have some capital, or they have some education, or they have access to people in power so that they could help get access to the new opportunities more easily, they will first grow themselves, their own wealth,” he said. “So you will get the people with something becoming richer faster than those who don’t have access to education, to some capital and to the system.”

As Maira points out, one of the most powerful advantages of the wealthiest 1 percent is “access to people in power.” Corrupt business deals are the most extreme use — and abuse — of those relationships. But there is a more subtle reason the game is most effectively played by those who are already winning it. S. Gopalaskrishnan, the co-chairman of Infosys, the pioneering Indian technology company, said that “the tendency is that people who have access to power and access to governments, etc., tend to get a better deal.

“The policies, the roots, are framed because they are people who give inputs to those policies,” he said.

This is the Indian version of what Willem Buiter, the former London School of Economics professor who is now chief economist at Citigroup, calls “cognitive capture,” and which he blames in part for the regulatory and legislative lapses that helped create the 2008 financial crisis.

Just as that financial crisis and the more recent populist protests have shaken some of the certainties created by cognitive capture in the West, the unexpected success of the Anna Hazare movement has focused the Indian elite on the shortcomings of its own model.

But breaking out of what the economist Raghuram Rajan has warned risks becoming “oligarchic” capitalism will require more than correctly diagnosing the problem. Ashutosh Varshney, a professor of international studies at Brown University, likens India’s thriving and dirty capitalism to the United States’ Gilded Age. That apt comparison suggests that India watchers should be on the lookout for a Hindu version of the Roosevelts — a Teddy to break the grip of the robber barons and an F.D.R. to offer the 99 percent a New Deal.

There is, however, one important difference. India’s robber barons have emerged in the age of globalization and at a time when the United States, still the world’s dominant economy, is experiencing its own second Gilded Age. The wealthiest 1 percent is a global class, and cognitive capture is an international phenomenon. The world may need its own global Roosevelts, too.

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