The Politician versus the Plutocrat

The curious relationship between the ruling class and the business class

On a visit to Kolkata while he was Prime Minister, Chandrashekhar decided to give his special protection group the slip. He left the Raj Bhavan one morning in a private car headed for the south Kolkata residence of a well-known industrialist for breakfast. A few hours later, he returned to the Governor’s house and soon left for the airport, where reporters accosted him with a barrage of queries on his jaunt, the news of which had leaked out by then.

“Did you visit an industrialist this morning for breakfast?” went the first question.

Chandrashekhar, surrounded by a posse of guards, policemen and officials, swaggered to a halt and looked at the reporter with resolute eyes. “Yes. I did,” he said with an unabashed air of indignation.

“Is it true that Dhirubhai Ambani (Reliance Group chairman) was there for breakfast?”

“Yes, he was there,” the Prime Minister answered without a blink.

“Did you go there to collect money for the elections (due soon)?”

“I did not go there to collect money,” he said, “But if I could collect some money, then why not?”

The reporters were unimpressed with his frankness. “Sir, will you accept money from businessmen?” one of them asked in a raised voice.

Chandrashekhar, the erstwhile Young Turk who often sneered at pretensions, retorted, “Money is always with such types. If money would have been with Surdas and Tulsidas (great saints of the medieval period), I would have taken it from them.”

And he walked away.

Chandrashekhar was certainly an exception among Indian politicians, most of whom zealously court businesses in secret but dislike even a slight mention of that association in public. Economists and sociologists have explained this fear among politicians as rank hypocrisy. After all, the notion of whatever is good for business is ipso facto bad for the poor is par for the course in low-income countries marked by huge inequality and low socio-economic indices. Right from the time of India’s freedom, the Congress party has been a recipient of corporate donations to run its affairs. But that did not stop Jawaharlal Nehru from ticking off regional leaders over their links with business groups and rich community leaders. In return, he often got flak over his expensive ways, apparently financed by the Congress party’s money chest that drew cash from corporate hands.

University of Virginia Professor John Echeverri-Gent has studied the sway of money in Indian politics for years. In a recent paper titled ‘The Economy, Business, and India’s 2014 Parliamentary Elections’, he argues that the Nehru-Gandhi clan had managed to retain its hold over the Congress primarily because of its sole access to campaign funds, especially during the polls. “Why has the Nehru-Gandhi family been so influential? Inflow of campaign finance allows the family to centralise control. They (the family) tend to have more access and control over this funding. Centralised campaign funding is a key feature of any dynastic political party,” he says. Such associations with wealthy businesses, Echeverri-Gent notes, have over the decades helped the central leadership of the Congress eliminate the role of affiliated mass organisations such as INTUC and even regional satraps, especially in the time of polls. “Because the family has access to these funds, it reduces the party’s incentive to build organisations or affiliates that connect with segments of civil society,” he says.

Some businessmen contacted by Open are of the view that politicians are fair-weather friends. “They used us when they needed us and dumped us when they didn’t,” says a Mumbai-based industrialist, referring to “those decades” when doing business in India was the “toughest job on earth” as he describes it. A former bureaucrat recalls that when faced with the oil crisis of 1973-1974, Prime Minister Indira Gandhi approached the House of Hindujas to parley with the Shah of Iran to help re- structure oil payments to the Middle Eastern country. Finally, the Hindujas managed to convince the Iranian dictator, a friend of theirs, to stagger payments over a longer period. The oil crisis of 1974 had forced India to spend 65 per cent of its foreign exchange earnings on the import of oil, compared with 11 per cent before; the crisis itself had been precipitated by an embargo by the region’s oil-producing countries in protest against US support for Israel in the Yom Kippur war of 1973. The Hindujas’ support eased India’s dollar crunch to some extent.

Indira Gandhi, despite her pro-poor rhetoric and nationalisation drive—all inspired by close aides like pro- socialist PN Haksar—had made meticulous overtures to the corporate world and helped businessmen when she realised that the traditional old tycoons of India were in favour of the ‘Syndicate’—the Congress faction that sought to expel Gandhi in 1969. Historians suggest that the Syndicate, led by the likes of the late K Kamaraj and Morarji Desai, were pro-business while Gandhi adopted a populist, socialist stance—she would soon go ahead with the nationalisation of banks. She also went on to create a parallel power bloc among businesses to combat the influence of the traditional rich who were largely supportive of the Syndicate. And that was a masterstroke: one of the business houses to which she swiftly disbursed licences and other permits (at a time when it took years to get business go-aheads) became the showpiece of Indian enterprise, steered by Dhirubhai Ambani, who back in those days was looking to diversify his textiles business by entering other fields of enterprise. The fortunes of the empire he built were on the rise. So were those of Indira Gandhi, who battered the Congress old guard, won the support of most high-level bodies of the party, and took firm charge of it.

Indira Gandhi’s flirtation with upcoming businesses was as intricate as her socialist posturing. When the country was buffeted by the oil crisis of the 1970s, her government passed on a huge chunk of the burden to consumers. Many scooter users had to use public transport to work as the Government began to curb consumption of petroleum products for non-essential uses. Her evocative slogan, ‘Garibi Hatao’ (eliminate poverty) did appeal to the country’s poor, but she also helped select businesses and permitted private partnership in certain segments, the most famous being the automobile sector.

Unlike her father, she wasn’t entirely scornful of corporates in public, though she projected a socialist image that helped her pull in votes. While businesses were demanding the liberalisation of India’s stiff regulations in the early 1970s, she brought in a pro- -reform face, LK Jha, as her chief economic adviser, generating a lot of goodwill among corporates. She also recruited the likes of pro-Left economists KN Raj and S Chakraborty to the economic advisory council in a tightrope- balancing act. Historians have suggested that she found maintaining a pro-socialist persona crucial to maintaining strong ties with India’s ally Soviet Union, which helped the country modernise its armed forces. In practice, she let pro-business economists such as PC Alexander, KN Jha and Arjun Sengupta take key decisions behind the scenes.

By 1980, when Indira Gandhi returned to power after the Janata interlude, she was destined to kick off the process of liberalising the Indian economy by freeing it of the shackles of centralised planning put in place by her father. But political expediency meant that she national- ised six more banks in addition to the 14 she had back in 1969. Even so, economic historians give her the credit for launching the bold task of ridding industry of cumbersome procedures and allowing private-sector partici- pation in various sectors. She had also held her ground in the face of opposition from Leftists and Right-wing parties in going to the IMF in 1981 for loans that—thanks to good monsoons—India was able to pay on time.

Still, being friendly with businesses was seen as dangerous for a politician. “Despite our efforts to help Nehru in his endeavour to construct what he called ‘temples of modern India’, dams, and later Indira Gandhi, by offering loans for public works, a businessman was seen as a persona non grata for politicians—in public I mean, not in private meetings,” says the Mumbai-based industrialist.

Many historians refer to the era of Rajiv Gandhi, who replaced his mother in 1984 after her assassin- ation and soon won an electoral mandate, as a stage when India’s economy slowly started moving from ‘state control’ to ‘autonomy’. The young Prime Minister, who surrounded himself with technocrats and whose party had its heftiest ever majority in the Lok Sabha, began to talk about things like “tapping market forces” to forge ahead with development projects. By then, expenditure on public-sector employment, military expenses and subsidies had begun to skyrocket. To finance expanding budget deficits, the Government had been borrowing money from overseas. Economists close to the Prime Minister knew that a balance-of-payments crisis was on the cards. Rajiv Gandhi was convinced that there were too many controls in India and too much prejudice against the private sector. In fact, the Congress poll manifesto of 1991 was reflective of his economic ideas—it called for an overhaul of the systems that drove growth in the country.

Rajiv Gandhi had a dream, of course, but was bogged down by political compulsions and corruption scandals. He had brought much of the turbulence upon himself through preposterous measures aimed at winning vote banks. Opposition from all quarters, especially from his own party colleagues, meant that reforms under his watch could not get beyond the drawing board. When PV Narasimha Rao and Manmohan Singh moved in 1991 to open up the economy, their liberalisation agenda was what had been drafted earlier by Rajiv Gandhi’s core team of advisors (with later revisions by Yashwant Sinha as Finance Minister in the Chandrashekhar Government that preceded Rao’s).

“It is true that by the end of Rajiv’s rule and later when Chandrashekhar came to power, the relationship with businesses improved a lot,” says a senior Congress leader who was close to Rajiv Gandhi.

But the period between Rajiv Gandhi’s 1989 General Election loss and Chandrashekhar’s ascent, a phase that saw VP Singh as Prime Minister (1989-1990), was seen as one in which some companies were subjected to a witchhunt, especially Reliance India Ltd (RIL), founded by the man responsible for India’s equity cult, Dhirubhai Ambani. Even earlier, as early as May 1985, VP Singh, who was then a minister in the Rajiv Gandhi Cabinet, suddenly placed curbs on the import of purified terephthalic acid (PTA), which was crucial for RIL to make polyester filament yarn. RIL somehow managed to get letters of credit from various financial institutions that let it import a year’s requirement of PTA. By then, Ambani had used his famous powers of persuasion and had befriended Rajiv Gandhi.

It was in 1990, as Prime Minister, that VP Singh went after Reliance again, this time by stonewalling efforts by the conglomerate to acquire managerial control of Larsen & Toubro. Dhirubhai Ambani, who had been named L&T’s chairman in April 1989, had to step down from the post to make way for DN Ghosh, former chairman of the State Bank of India. This interference in corporate affairs provoked widespread resentment among businessmen.

Contrary to perceptions, VP Singh was no socialist and had accepted favours from businessmen. In the run-up to the polls of 1989 and later, ahead of the formation of the National Front Government headed by Janata Dal and backed by the Left and BJP, Singh had fallen back on businessmen friends as a go-between among various parties that backed him.

Both the BJP and Leftist parties that had offered support to VP Singh’s government used to hold discussions at the Vasant Vihar residence of the late businessman Viren J Shah, who was appointed West Bengal Governor when the BJP came to power in 1999, much to the delight of the Left Front government in the state. The likes of Jyoti Basu used to meet BJP leaders such as AB Vajpayee and LK Advani to discuss the framework of the NF Government. Singh, for his part, insisted on distancing himself from the BJP despite showing no reluctance in taking the party’s support as Prime Minister. Besides, his huge dependence on industrialist Shah, who was also a BJP leader, did nothing to temper his aggressive anti-business posture in public.

The relationship between business and politics improved sharply when Chandrashekhar was Prime Minister and Sinha his Finance Minister—and later when Narasimha Rao was at the helm. It was Sinha who deserves praise for preparing the main blueprint of what would later become the reforms agenda under Rao. In 1991, when Rao decided to go ahead with reforms, bipartisanship—or cohesion among political classes over an issue—was the name of the game. A former Finance Ministry official says that there “was enough and more of back channels of communication” between the ruling side and the opposition back then. He adds that RV Pandit, a publisher who was friends with people in high places in politics and business, carried “messages from Prime Minister PV Narasimha Rao and then Finance Minister Manmohan Singh to BJP veterans AB Vajpayee and LK Advani and back”. Corporates were also used as “channels” between the government and the opposition, setting the stage for enhancing trust between politicians and businesses. According to insiders, all such camaraderie also helped offset deep mistrust of the liberalisation move within the Congress dispensation.

Later when the United Front Government was in power in 1996, it pursued reforms, but the focus was more on fiscal management and the lowering of tariffs. Reforms got another push after the BJP was elected to power in 1999. The Vajpayee-led Government went ahead with big- ticket reforms measures, including disinvestment and luring foreign direct investment. However, the decade since 2004, when the BJP was unseated by the Congress at the Centre, saw reforms drop into limbo. This hurt business-politics ties that had improved over the years.

According to a former bureaucrat, businesses are partly to blame for the bad name they have earned. For many decades after Independence, business houses had set aside meagre funds for community work and had stayed grossly opaque and greedy, lobbying with unscrupulous politicians to exploit natural resources or obtain exclusive licences. Politicians, for their part, entertained individual businessmen in private and rubbed shoulders with business groups in public. Politicians like the late BJP leader Pramod Mahajan had no qualms about admitting their links, though. When quizzed by party colleague KN Govindacharya at a party meeting about the source of funds, he snapped, “You never asked me to wash cash in Gangajal.”

The Mumbai-based industrialist maintains that most businessmen can take genuine grievances to the Government only through lobby groups such as CII and FICCI. “For many politicians, being seen with individual businessman is sinful. They are okay with being seen with representatives of business groups. I find this rather ridiculous,” he says.

While ‘global best practices’ are increasingly being emphasised in India, until a few decades ago, business houses would often act on their whims. Businessmen who spoke to Open argue that until liberalisation was kickstarted, unleashing ‘animal spirits’ (a term coined by John Maynard Keynes to describe emotions that charge an economy), profit margins were too low to set aside large sums for social work. Besides, corporate tax rates were steep.

Meanwhile, the last 10 years of Congress rule saw a sharp rise in cronyism, even in sectors such as coal that fell under the direct watch of the previous Prime Minister, who held additional charge of the coal ministry. Discrepancies in the allocation of 2G spectrum licences by allegedly undercharging favourite corporates had put the UPA Government in a spot over promoting crony capitalism and stifling competition. “All this led to a decline in goodwill for not just the politicians but also businessmen. The businessman was again villainised for pursuing politicians with gusto,” concedes a Congress leader. He also says that many entrepreneurs have not had a good time under the Congress rule. Companies like Adani were vilified and several probes were forced upon the Gujarat-based company by the coercive regime.

“Wealth once again became a dirty word in India during our rule that saw many scams,” the Congress leader adds. The rise in inequality over the decade also contributed to public frustration. The problems posed by widening income gaps came to the fore globally after the recent economic slowdown, with the role of capitalists again under fierce debate across the world. The renowned French economist Thomas Piketty has dwelt at length on such dangers, prompting even the likes of Microsoft founder Bill Gates to take note. Gates argues that reparatory measures must be taken to face down the perils of deepening inequality.In his book, Capital in the Twenty- First Century, Piketty argues that the rich are sure to get richer and the poor poorer since the rate of return on capital is always higher than the rate of economic growth, which implies that those who earn their income from capital (the wealthy) tend to outpace those who rely on the overall growth of the economy (salaried workers and others).

Worsening inequality remains a major concern in India. As pointed out by Georgetown University Professor Martin Ravallion, the country had made good progress on fighting poverty, the rates of which have been falling since the early 1990s. As he sees it, the war against inequality will now have to be led by better policies, “including policies to address the inequalities in human development”. Without doubt, to ensure equality of opportunity, the country’s leaders have to first focus on skilling its people to prepare them for employment options beyond farming and related jobs. Poor healthcare facilities and sanitation also make it difficult for people to make socio-economic advances. While there has been some progress in primary school participation, as Ravallion says, India’s problem of poor schooling persists. He reminds the country’s rulers that the United States made its rapid progress thanks primarily to high quality public education and healthcare for all.

The Modi government has made clear its commitment to skilling, and enlisting the private sector is critical to the success of this initiative. Finance Minister Arun Jaitley has also made the following amply clear on his Facebook page: ‘Unless the government gets revenue, it cannot build infrastructure and service the welfare schemes for the poor. By being pro-business and pro-poor, I am not contradicting [myself] but both have to exist at the same time.’

That perhaps sets the tone for a renewed effort in getting businesses on board to combat inequality by ensuring quality skilling and better health for India’s millions.

For her part, Rema Balasubramaniam, a Washington DC-based senior consultant at International Finance Corporation, an arm of the World Bank, feels that as countries grow economically and attain the status of a middle-income economy, politics and wealth would have a healthier relationship. Like Ravallion, she argues that good policies can make that happen. According to her, such markets demand accountability, services and results. It helps that electorates in middle-income countries tend to be a fast-moving literate group. According to the latest data of the World Bank, which came up with this classification, the world has 86 Middle- income countries (MICs) that account for just under half of the globe’s population. They cover a wide income range, with the richest MIC having a per capita income 10 times that of the lowest. The group has grown since the mid-1990s, with10 countries moving into the bracket from the low-income category. China is the most dramatic example of a country that has made that transition. That country is not a democracy, and its people have long been taught to hate the rich. Popular attitudes towards the wealthy have not shown much change despite gaige kaifang (economic reforms launched in 1980 by Deng Xiaoping). Rochester University Professor John Osburg, in his book, Anxious Wealth: Money, Morality, and Social Networks Among China’s New Elite, has highlighted the precarious lives that the rich lead in that country.

Indian attitudes appear less rigid. Maybe the world’s largest democracy is ready to forge ahead on a different path. Maybe India’s affluent classes can chip in to prevent Piketty’s forecast of a worst-case inequality scenario from coming true in this country. And then wealth would no longer be a dirty word.

About The Author

PR Ramesh and Ullekh NP