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India's problem is not too many crony capitalists, but rather too few wealth-creating tycoons.
If a crime can capture the temper of the times, then nothing symbolizes India’s rough-and-ready brand of capitalism better than a recent fratricidal double murder outside New Delhi. A shootout November 17 involving heavily armed guards left 55-year-old liquor baron Gurdeep Singh “Ponty” Chadha and his younger brother dead. The alleged flashpoint: a dispute over a multimillion dollar farmhouse in a tony neighborhood favored by some of India’s wealthiest politicians and businessmen.
For many, Chadha’s rags-to-riches story—from roadside snack vendor to billionaire in the space of a few decades—encapsulates all that’s gone wrong with India. He owed his wealth not to invention or innovation, but to an uncanny ability to cultivate dodgy politicians. Chadha’s fortune, estimated by the Indian press to be as much as $10 billion, was built on fistfuls of state-granted favors—a liquor monopoly in Uttar Pradesh state, a near-monopoly in Punjab, and assorted land deals equally dependent on government largesse.
But while Indians have good reason to fret about the rise of Ponty Chadha-style crony capitalism, the country’s discourse about the problem risks doing more harm than good. Bluntly put, as a still poor country India’s biggest challenge isn’t ending cronyism, it’s ensuring that a growing backlash against it doesn’t end up hurting legitimate business as well.
A public and political discourse that focuses too much on the alleged sins of businessmen, and not enough on flagging growth, risks coming up with a cure that’s worse than the disease. Exhibit A here is anticorruption activist Arvind Kejriwal’s new Aam Aadmi (Common Man) Party, formally launched in New Delhi Monday.
Mr. Kejriwal, a former income tax official, believes that “people’s consent,” not markets, should determine the price of petrol, electricity and water. His party rails against “corporate giants” that “make more profit” and against “windfall gains” by foreign companies. The odds of Mr. Kejriwal’s party gaining a foothold in Parliament may be slim, but his staggering economic illiteracy reflects a deeper malaise in society.
The idea that Indian business needs taming also expresses itself, albeit in subtler form, in the notion that this country is in the midst of a “gilded age” akin to the United States in the late 19th century. As the argument goes, like Mark Twain’s America, India is a rapidly industrializing country marked by deep chasms of inequality, and the likes of Chadha are the approximate equivalents of America’s robber barons. The large number of Indian billionaires—61 by Forbes magazine’s count, up from none before the advent of reforms in 1991—underscores the unsustainable glitz of the times.
The emergence of dazzling wealth in a country that was long a byword for poverty is certainly noteworthy, but the “gilded age” metaphor can potentially mislead. To begin with, in per capita terms late 19th century America was already one of the richest countries in the world. The International Monetary Fund ranks India 130th of 185 countries on this score.
Similarly, in terms of technology, 19th century America gave the world the telephone, the electric bulb, and much else. Even the loudest India booster can’t claim that it occupies an analogous place in the front ranks of innovation.
The worst part about the supposed resemblance between 21st century India and 19th century America is that it could inadvertently send policy makers the wrong message. To wit, that India’s march to U.S.-style prosperity is more or less preordained.
Arguably, it’s exactly this assumption that’s underpinned the economic missteps of the ruling Congress Party-led coalition. After its election in 2004, the government assumed tax revenues will keep rising. It ignored wealth creation by postponing structural reforms, and instead focused on redistribution through a rural jobs guarantee in 2005 and, now, a proposed food security bill.
This political turn has affected the legitimate ways India’s world-class companies were creating wealth. The economy can’t hope to prosper without their active cooperation, but faced with policy drift and corruption many are choosing to invest overseas rather than domestically. The Mumbai-headquartered Tata Group, for example, now derives nearly 60% of its $100 billion in revenues from abroad. Indian firms have invested $14.3 billion in overseas mergers and acquisitions this year, up from $10.9 billion in 2011.
Meanwhile, the Philippines has overtaken India as the world’s largest employer of call center workers while Thailand is set to replace India as the world’s largest rice exporter. Even India’s telecom industry is imploding, thanks in part to poor regulation and corruption allegations.
All these developments add up to the sobering truth that India has its work cut out. It can’t prematurely congratulate itself on following in America’s path. Only the ruddiest optimist can assume that India will join the ranks of the First World without extraordinary effort.
In practical terms, this means finding ways to combat cronyism without adding to the woes of a private sector already overburdened by red tape and lackluster decision making. Ultimately, the likes of Chadha will remain part of India’s landscape as long as voters elect the politicians complicit in their loot, but the media and civil society must learn to draw a sharp distinction between cronies and legitimate businessmen. In philosophical terms, it means recognizing that India’s problem isn’t too many Ponty Chadhas, but too few Ratan Tatas. Only then can India hope to truly enter a gilded age.
Mr. Dhume is a resident fellow at the American Enterprise Institute and a columnist for WSJ.com. Follow him on Twitter @dhume01
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