The roots of cronyism

The intertwining of business and politics began decades ago, with the socialist desire to control business and limit individual wealth. Through long years of statist intervention, businessmen learnt how to circumvent the infamous ‘permit raj’ or ‘licence-permit raj.’ Policies designed ostensibly to curb the power of big business produced contrary results: the largest business house pocketed the greatest number of licences to set up industrial units (smaller businessmen found it impossible to negotiate the labyrinth of government regulations).

Price controls on everything from paper to tyres, and from cement to soap, meant that government decisions could make or destroy businesses, even as black markets of these products flourished. Lobbying with the powers that be in New Delhi became an essential feature of most businesses — and you didn’t only lobby for yourself but also to put down your competitor. Stringent import controls gave birth to a vibrant smuggling industry that survived because it had political links, while extortionate income tax rates (up to 97% at one stage in the early 1970s) made tax evasion a growth industry, and being a tax official a very lucrative career option.

The foundations for the business-politics nexus and for taxmen’s rapacity had thus been laid in the 1960s and ‘70s — a period when it was illegal to produce more than what your industrial licence allowed. But businessmen realised that licensing constraints also limited competition, and high import tariffs were a protective wall that allowed them to keep markets to themselves and make comfortable profits, especially if helpful tax laws had provisions that allowed those profits to stay free of tax under certain conditions. Many businesses became soft, prospering while turning out shoddy goods. When economic reform followed in the 1990s, there was a churn in business rankings, and some of the business houses that were unprepared for competition dropped by the wayside as markets acquired teeth. Still, policies were often more business-friendly rather that market-friendly. Whom the government liked or disliked, or whom you had cultivated over the years, could make a difference.

When reforms removed licensing, import and price controls (among others), elements like environment rules became the new playground for whimsical government conduct, a new kind of licence-permit raj. It may have been coincidental, but when the Congress was in office, the businessmen whose projects ran into trouble on environmental grounds invariable happened to be those aligned with parties other that the Congress. Later, when the BJP took office, the businessmen to face fire were people like the former Congress MP and steel magnate, Naveen Jindal. Indeed, Jayanthi Natarajan, briefly environment minister in the Manmohan Singh government, disclosed later that she used to get instructions from Rahul Gandhi (the Congress vice president) on specific projects awaiting environmental clearance — a claim that the Congress quickly denied.