India’s main problems stem from the rapidly widening gap between the rich and the poor, compounded by misguided reforms like demonetisation.
Add massive corporate and bank debts, inept tackling of its corrupt tycoons (like Vijay Mallya, Nirav Modi and Mehul Choksi) as well as growing communal discord to the mix, and the Modi government has serious cause for worry, believes James Crabtree. The former Mumbai bureau chief of Financial Times pulls no punches in his new book, The Billionaire Raj: A Journey Through India’s New Gilded Age.
Crabtree calls demonetisation “one of the worst public policy mistakes made by the government in recent political history”. “It not only caused needless collateral economic damage, but also smacked of an alarming kind of arbitrary populism, as Prime Minister Narendra Modi courted public opinion by whipping up anger against the wealthy.” He also argues that “corruption remains arguably the central issue of Indian politics.
As a former Mumbai bureau chief of Financial Times, James Crabtree, now Associate Professor in Practice at Singapore’s Lee Kuan Yew School of Public Policy, has perhaps been a witness to India’s uneven growth story which he has chronicled in his book, The Billionaire Raj: A Journey Through India’s New Gilded Age. Crabtree speaks to Ritwika Mitra on the issues of demonetisation, the deep-running economic divide in India and the flawed focus of reforms that has exacerbated this divide. He avers that India’s poor tackling of its corrupt tycoons like Vijay Mallya, Nirav Modi, Mehul Choksi has affected its global image. India does not have a Vijay Mallya problem; it has a corporate and bank debt problem, he says.
What inspired you to write the book The Billionaire Raj: A Journey Through India’s New Gilded Age?
I moved to India in late 2011. But it was just before I moved that I first came across the notion that India might be going through a similar stage of development via an article published in the Financial Times. Written when controversy about corruption was at its height, authors Jayant Sinha, a venture capitalist, and Ashutosh Varshney, an academic, argued for firm action to limit the power of their country’s new tycoon class. “In its rot and heady dynamism, India is beginning to resemble America’s Gilded Age,” they argued. I became interested in the subject from there.
What are your views on demonetisation in India? How do you think this step impacted India’s economy?
I think demonetisation was one of the worst public policy mistakes made by the government in recent political history. It was hugely disruptive, and its few benefits were vastly outweighed by its economic costs. At the very least, demonetisation was a flawed weapon to battle corruption. It not only caused needless collateral economic damage, but it also smacked of an alarming kind of arbitrary populism, as Prime Minister Narendra Modi courted public opinion by whipping up anger against the wealthy.
Your book outlines how the number of two billionaires in the mid-1990s has now risen to 120 in India. The book focuses on the concentration of wealth ‘in the hands of a few’. In this context, what in your view is the root of the country’s economic inequality?
India has developed an economic model in which the proceeds of growth have been disproportionately enjoyed by the top 10 per cent of society, and the top 1 per cent and above even more so. A strange intellectual consensus has often downplayed this conclusion. In the decades since liberalisation, many thinkers on the right of the political spectrum have argued that rapid rates of growth matter more than its eventual distribution. By contrast, those on the left have focussed more on conditions at the bottom, worrying about India’s poor progress on indicators of social development like child mortality. For both groups, the gap between rich and poor has been secondary.
There are reasons to be worried about this as countries with internal divisions are less likely to build a broad social consensus that makes it easier to introduce tough structural reforms. India needs these reforms to develop economically. Without intervention, the gap between India’s rich and the rest is likely to widen.
How will the issue of corruption impact the 2019 general elections? Will political parties be further polarised on this issue?
Corruption will be one of the dominant issues in the election. As Narendra Modi gears up for next year’s polls, he is likely to boast of his government’s scam-busting successes. Meanwhile, Congress leader Rahul Gandhi is clearly placing corruption at the heart of his own improbable attempts to return to power, attacking the BJP over Dassault Rafale fighter jets and fugitive jewellery tycoon Nirav Modi.
Earlier this month, Gandhi gave a forceful speech in the Parliament assailing Modi over crony capitalism. It was an impudent gambit, given his own party’s recent history, but also a potentially effective one. So corruption remains arguably the central issue of Indian politics. Modi claims he has stopped the mega-scams. But his record remains mixed. Surveys suggest India is the most bribe-ridden large nation in Asia.
Vijay Mallya, Nirav Modi, Mehul Choksi... have these instances marred India’s image at the global platform on how it can handle corrupt tycoons?
Yes. The examples of Mallya and Modi show that India has as yet failed to develop a system in which entrepreneurs can be allowed to fail, and the capital tied up in their businesses can be recovered.
India should not think that it will resolve its problems by bringing Mallya back from London as the country does not have a Vijay Mallya problem. It has a corporate and bank debt problem.
On the banking side in particular, little has been done yet to solve it.
Do you think India has done enough to bring down poverty levels in the past decade?
Thinkers like Jagdish Bhagwati defend economic liberalisation against its critics, pointing out that India’s prosperity post-1991 led to sharp reductions in poverty, while poorer Indians also enjoy much higher consumption of basic goods like food and clothing. They are right to do so. India now has only around 70 million poor people living on less than $2 a day. This is a huge success. But one can both compliment India’s efforts at poverty reduction and worry about its record on inequality, as I do in The Billionaire Raj.
Is the politics of communal polarisation affecting the democratic functioning of India?
The appeal of Hindu nationalism in India in particular has grown in strength, partly because of Modi himself, but also because of the thick sense of identity it provides in a country buffeted by the uncertainties of globalisation. Many liberal people want to believe that economic development and liberal politics go together. But this is far from truth. Modi’s Gujarat, one of the country’s richest and most industrialised states, also suffers from one of its most wretched records of caste and communal disharmony.
Congress politician Shashi Tharoor has described this as a dilemma for the BJP, noting “the fundamental contradiction Mr Modi faces, of advocating, as Prime Minister, liberal principles and objectives whose fulfilment would require him to jettison the very forces that have helped ensure his electoral victories”. By this, Tharoor means that there is a part of Modi that knows he ought to avoid sectarian distractions, given that these are likely to get in the way of his hopes of expanding and modernising India’s economy.