Not too long ago, James Crabtree, the former Mumbai bureau chief of the Financial Times, wrote about the new “billionaire raj” in India. He spent most of his time hobnobbing with the rich and powerful in Mumbai, and even acted in a Bollywood movie.
This former acolyte of Tony Blair made an interesting argument: A new billionaire class was taking over India. He had a point. In 2019, a simple question follows: Is that billionaire class still on the ascendant or have things changed a wee bit?
The Billionaire Raj
In Hindi, raj means rule. The Mughal Raj was the rule of the Mughals and the British Raj was the rule of the British. The billionaire raj simply means that billionaires now rule India. It is certainly true that India does have a disproportionately high number of billionaires. Furthermore, many of these super-rich have made their wealth in sectors associated with rent-seeking, suggesting a degree of political power that their counterparts in Germany or Japan lack.
In 2016, the World Economic Forum (WEF) published an article on inequality in India. Unsurprisingly, it found this caste and class-divided country to be highly unequal. In fact, only South Africa had greater income inequality than India in 2011. In 2016, the richest 1% of Indians owned 53% of the country’s wealth, an increase from 36.8% in 2000. By comparison, the richest 1% in the US owned 37.3% of the country’s wealth in the same year. Prima facie, it would seem that billionaires were ruling the roost even more so in India than in the US. The poorer 50% of Indians merely owned 4.1% of national wealth, leaving them very vulnerable to exploitation, manipulation and even starvation.
There is another fly in the ointment. Unlike the US, Indian business has long been run by close-knit clans, not self-made buccaneers. A story by Forbes revealed that a number of princelings taking over their parents’ business had studied at Harvard Business School (HBS). Such was the strength of their balance sheets and cash flows that these Indian dynasts turned into big philanthropists for American universities, grandmasters in targeting the global rich.
In April 2010, Narayana Murty’s family gave $5.2 million to Harvard to establish the Murty Classical Library of India. In October that year, Anand Mahindra donated $10 million to Harvard as well, which the university called the “largest gift for the study of humanities in [its] history.” Ten days after Mahindra, Ratan Tata gifted HBS a whopping $50 million.
Many in both the US and India found such gifts deeply unsavory. They felt India’s business houses were demonstrating status back home by name association with Harvard. Some also wondered why Indians were giving to Harvard in the first place. As of June 30, 2010, Harvard already had an endowment of $27.6 billion. Thanks to gifts by rich people from around the world, this figure shot up to $39.2 billion as of last year. In contrast, Indian schools, universities and libraries are still pathetically short of cash, libraries and all kinds of resources.
A professor at a top Ivy League university who insists on anonymity argues that money flowing from India to the US is not only unsavory but also unethical. He takes the view that it is akin to poor American and European taxpayers bailing out New York and London bankers. The Murtys, Mahindras and Tatas made their money in relatively poor India, which is still desperately short of capital and needs philanthropy in all sorts of areas. The fact that Indian billionaires choose to give to obscenely rich Harvard, instead of directing that money to drinking water projects in poor villages, demonstrates the heart of their moral darkness.
Giving to Harvard might be a minor sin, but many Indians felt that the new billionaire class increasingly behaved as if was above the law. The land of the license-permit-quota raj where industrialists lived on the patronage of politicians and bureaucrats had changed. Now billionaires could buy bureaucrats, politicians and even judges. Everything was for sale and billionaires could pay any price. It was indeed their raj.
As with many powerful ideas, the one of the billionaire raj had more than an element of truth. Under Manmohan Singh and Sonia Gandhi, the de jure and de facto leaders of India from 2004 to 2014, there were welfare schemes galore for the poor. Yet dollar billionaires emerged and inequality shot up like Elon Musk’s rockets. Why?
There were two reasons for this phenomenon. First, state-owned banks lent money to those who were well-connected. This meant they had huge pools of capital to take great risks with. Second, large chunks of the economy were given to cronies in a land grab that resembled the post-Soviet era in Russia. From land to spectrum, coal to defense equipment, scams emerged with chilling regularity. The enterprising could make billions if they were ready to bribe in the millions.
In 2010, a major Indian politician wrote about the “crony capitalism” that Singh and Gandhi had unleashed on the country. He had a point. By 2013, two out of three Indians believed that the Congress party-led government was incorrigibly corrupt. Unsurprisingly, Prime Minister Narendra Modi won his first term in 2014, promising to run a clean government that would deliver development.
Enter Sanatan Socialism
When Modi ascended to the throne in 2014, India’s industry and stock markets rejoiced. By then, Harvard-donor Mahindra had prophesied that “people [would] talk about the Gujarat model of growth in China.” As chief minister of Gujarat, Modi had wooed industry relentlessly, courted investment like an ardent lover and even tamed truculent anti-business bureaucrats with missionary zeal.
Big business almost uniformly hailed Modi’s election as prime minister. If the Gujarat strongman was now the presiding deity in New Delhi and Mumbai, it followed that his corporate bhakts, the Indian word for devotees, would be laughing all the way to the bank. These authors also believed that Modi would push for economic growth because he won the election on the promise of delivering prosperity to the people. Deutsche Bank’s global strategist, Sanjeev Sanyal, also assumed the same. He interpreted Modi’s slogan “minimum government, maximum governance” as a sign that the Gujarati was “the first genuinely post-socialist political leader of India and the first to be unapologetically in favour of pro-market reforms.”
It turns out that all analysts, including the authors, were wrong. Instead of being the market-friendly figure Modi was assumed to be, he has entrusted power into a coterie of bureaucrats who believe the economy can be directed by government fiat. The Modi government had to remove none other than the finance secretary for gross incompetence that led to one policy blunder after another. Because of his experience in Gujarat, Modi trusts bureaucrats. Sadly for him, senior bureaucrats are dyed-in-the-wool statists who began their careers when Indira Gandhi unleashed full-blown socialism upon the country.
Modi’s trusted bureaucratic coterie believes that the state should intervene in all aspects of life, including the economy. In some ways, this cabal is engaging in a good old fashioned power grab. If the Indian state plays a bigger role, then bureaucrats naturally become more important. Since 2018, this has certainly been the case. In February that year, the authors explained how India had entered an era of Sanatan socialism, a term now increasingly used for Modi’s economic policies in many circles.
To be fair to Modi, his economic policies won him reelection in May 2019. He focused single-mindedly on delivering housing, electricity and money to the poorest Indians. His welfare schemes built toilets and put money directly into the bank accounts of those who until now had been given the runaround by India’s notoriously corrupt bureaucracy. Yet this was not a market-based system centered on growth, investment, consumption or jobs.
In April, one of the authors argued that an economic contraction might be taking place. Demonetization was a terrible idea that was implemented atrociously. The goods and sales tax (GST) was a good idea that was implemented badly. Between the two of them, they gave a one-two knockout punch to what Indians have called the shadow or black economy. Hundreds of thousands of small businesses closed. GDP figures might show growth, but the real economy has most likely shrunk. Even car and motorcycle sales figures have fallen. The economy is not on its knees, it is on its back.
The financial crisis that these authors analyzed last year in October has only deepened in 2019. To be fair to Modi, Singh and Gandhi are responsible for much of the financial mess. Their cronies borrowed a ton of money from banks and often used it unwisely. Many were reckless with the savings of largely middle-class Indians who trustingly put their money in supposedly safe banks. Some cronies stole the debt they had taken out in the name of their companies and put this money into their own private coffers. They cleverly built their personal fortunes on the bankruptcy of their companies.
Modi’s reaction to this crisis has not been implementing reforms recommended by the authors. Instead, he has used India’s bureaucratic apparatus to sort out the financial and economic mess. This apparatus still functions like the Soviet Gosplan. More importantly, its members have no domain expertise. Often, they have moved from defense to agriculture to finance with little understanding of any sector of the economy. Therefore, policymaking under Modi suffers from an ad hoc amateurish approach that often leads to uncertainty, volatility and even chaos.
Despite or perhaps because of stints at Harvard Kennedy School, India’s bureaucratic elite largely lack policy chops. Their favored approach is command and control that combines the worst of their colonial and socialist heritage. Their overnight policy changes have made it difficult for anyone to do business regardless of what World Bank rankings may say. So, both small shopkeepers and big billionaires have been left reeling.
Furthermore, the Modi government has decided that billionaires who looted the country must be brought to heel. It believes that the best way to recover assets for state-owned banks is to go strongly after billionaires and make an example of them. Therefore, the Modi government brought in a new Insolvency and Bankruptcy Code in 2016, giving teeth to creditors. It also strengthened the anti-corruption legislation and brought in tough measures targeting fugitive economic offenders last year.
The once high-flying Nirav Modi is in jail in Southwest London. The bank accounts of his sister and brother-in-law have been frozen in Singapore. Mehul Choksi might be on his way back from Antigua. Vijay Mallya is battling extradition in the UK. Naresh Goyal and his wife were not allowed to fly out of India even though the founder of Jet Airways is yet to be charged with a crime. Even Reliance Communications, the group owned by Anil Ambani of the all-powerful Ambani family, is facing bankruptcy proceedings. So is the behemoth Essar Steel. What is going on?
Tax authorities have gained more teeth since Modi was elected in 2014. They have aggressively targeted businessmen across the country, leading one Ahmedabad-based entrepreneur to remark that he was experiencing tax terrorism. The death of V.G. Siddhartha, the founder of Café Coffee Day, is blamed both on implacable private equity partners and unreasonable tax authorities.
Mukesh Ambani and Gautam Adani might be flying high, but most of India’s billionaires are running scared. Modi has widespread public support for going after billionaires and businessmen. Most Indians believe that India’s business elite did not play by the rules and amassed ungodly fortunes. So, India’s bureaucrats now have a metaphorical license to kill any businessman for the slightest of infractions.
In the land with a cyclical view of life and death, it is fitting that the wheel has turned yet again. Once, Jawaharlal Nehru’s socialism ended the British Raj. When the Soviet Union fell, socialism turned into crony capitalism under Nehru’s heirs that led to a brief billionaire raj. Now that raj is over. An entrepreneur as savvy, likable and well-connected as Siddhartha is dead. In Modi’s second term, the sun of Sanatan socialism is now shining bright.
*[Authors’ note: P. Chidambaram, the Harvard-trained, high-flying, former finance minister, was recently arrested on charges of corruption. Allegedly, he indulged in crony capitalism and facilitated the billionaire raj.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.