India's Crony Capitalism

Net wealth of the 100 richest Americans is $836 billion; that of 100 richest Indians is $300 billion. That is, the richest Americans are only three times richer than their Indian counterparts. There are eight Indians among the top 100 billionaires of the world.

Ratan Tata characterises India’s capitalist class as crony capitalists. Crony capitalism is a system in which businesses multiply their wealth not by rules of the market, but through their nexus with governments. Examples are the distribution of legal permits, licences, land, contracts, tax breaks and so on.

There are now 69 billionaires in India, up from 49 in 2009 and 13 in 2004. Of these, Lakshmi Mittal, Anil Agarwal and Micky Jagtiani are non-resident Indians. The net wealth of the rest is $244.6 billion —roughly one-fourth of the national gross domestic product (GDP). Until 1998, billionaires in the country accounted for less than 1% of GDP; this remained less than 4% until 2005, but then shot up to at least 27% in 2008. The spike in the number of billionaires appears to be fairly consistent with India’s growth story in the last decade.

In 2010, out of 69 billionaires, 11 created their wealth in pharmaceuticals and six in IT. In comparison, 18 billionaires made their fortunes in construction and real estate, 15 of them in real estate alone; seven made their fortunes in commodities (metals and oil), and two in telecom. The total wealth of the knowledge-based sectors (IT and pharmaceuticals) is $55 billion, against $132 billion in the rent-thick sectors.“Rent-thick” sectors that essentially rely on government permits and contracts for public infrastructure. These include ones that are dependent on mining, metals, constructions, land, real estate and so on. Telecom too, since spectrum is also a natural resource distributed by the government. Clearly, all these would not have been possible without the invisible hand of crony capitalism.

Of the top 20 billionaires in the US, eight are from the IT sector, three from finance, five from retail and one from the media. Of the remaining three, two are from engineering and only one from real estate. In other words, one billionaire out of 20 is from a "rent-thick" sector. Among the top 20 in India, nine are from such sectors. All 15 real estate billionaires in India joined the billionaire club between 2005 and 2010. Incidentally, they have also seen the fastest rate of wealth growth. Clearly, all these would not have been possible without the invisible hand of crony capitalism.

India is not only home to the largest number of billionaires outside the US. It is also home to large numbers of poor, of hungry and malnourished, of child labourers, of people without access to safe drinking water, of illiterates. Rankings on food, nutrition, gender and poverty issues in the last decade have either stagnated or worsened.