Crony capitalism dead? No way!

Among its other virtues, economic liberalisation levelled the playing field for Indian business by shifting the balance of power from business groups with a strong talent for lobbying. India today is bustling with entrepreneurs with awesome capabilities even as the hegemony of the old powerful business families have - with exceptions - declined.

But is the gradual demise of licence raj-type crony capitalism being replaced by another avatar? It may be almost gratuitous to raise the point, given the huge amount of euphoria over exuberant Q1 growth. Yet, over the past five years, the evidence suggests that the inexorable juggernaut of economic liberalisation is becoming exclusionary in new ways.

Despite each government's nominal obeisance to "social justice" and expenditure on patently unviable social schemes, the focus of policy appears to favour corporate interests at the expense of fair governance. Small signs of this have been emerging over the past five years or so. It is evident in the tribal unrest in east India over inadequate compensation for land appropriated for grand new steel projects, the recrudescence of rural extremism (loosely termed Naxalite) and growing crime rates in urban India.

All these, in one form or another, are protests by those whose voices are being marginalised by the admiring clamour of India's free-market transformation. Even terrorism, as Chandrika Kumaratunga admitted, can often be an extreme reaction to legitimate grievances.

Corporations in India - whether Indian or foreign - might argue that it is the government's problem to balance social equity with the profit motivations of business. This is true, but it is vital for corporations to be constructively involved, too. Recent economic history suggests that corporations cannot isolate themselves from the political economy. Or they do so at their peril.

Seventy years ago, big business in Germany - indeed, in the US and Great Britain too - was quite approving of Hitler's unique brand of economic nationalism because they gained from the smothering of union rights and commandeering of property. Five years later, their country lay in ruins.

In an interview to Indian journalists in the mid-nineties, the charismatic Burmese activist Aung San Su Kyi pointed out that foreign investment was meaningless in the absence of basic civil rights. At the time, she sounded unduly idealistic. A few years later, she was proved right, as US investors started pulling out from a country that poor human development backwardness made a bad business proposition.

At home, we see evidence of this in the decline of the resource-rich east. If the tea industry in Assam is facing the constant nightmare of lawlessness and insurgency today, a good part of it has to do with the signal lack of investment by tea producers - many of them blue-chip monopolists in their heyday - in the state.

Typically, tea garden labour and management mostly came from outside the state, which meant that few Assamese benefited from the huge profits the industry generated, and little attempt was made assimilate them into the mainstream of Assam's economic life.

This was not only a private sector failing. Assam's huge oil reserves were exploited by nationalised companies on the same pattern. Both industries represented islands of external prosperity in a sea of rural backwardness. Through the sixties and seventies, there were stray signs of this exclusionary discontent, with the occasional murder here and strike there. The Naxalite movement, with its origins in north Bengal's Naxalbari, should have been a warning. Few heeded it.

One of the few businessmen to read the signs was Darbari Seth, then chairman of Tata Tea, which owned a large number of gardens in Assam. As unrest in Assam grew, he openly acknowledged that the tea industry had not invested in a state from which it derived such enormous profits.

In the end, panicky "CSR" projects to assuage local sentiments proved too little, too late. It is telling that Assam's growth slowed from 4 per cent in the sixties to 3 per cent in the seventies, and per capita state domestic product dropped a percentage point in the same decade.

Assam's failure is now evident in the crowds from the state in the cities. While they certainly add an engaging new dimension to city life, their presence is a constant reminder of lost opportunities thanks to corporate and government shortsightedness.

Now the same story is in danger of being repeated in Orissa and Jharkhand and in rural Andhra, with state governments competing to be pro-business. In the long run, it does corporations little good to look away as tribals protest, an expression of their fears about being excluded from the benefits of industrialisation. In a sense, this is crony capitalism by another name. In that context, fears about SEZs are not misplaced, either.

Now that India is, as the Americans put it, "in the zone", these may be inconvenient truths to highlight. But in the long run, resolving these issues could make or break India's future.