Business tycoons' link to politicians

"Would the 2014 election be fought between the Aam Aadmi Party and Mukesh Ambani, with Rahul (Gandhi) and (Narendra) Modi being agents of Mukesh Ambani?", Arvind Kejriwal asked on Twitter at the very start of the campaign.

Days later, Manish Tiwari, Congress spokesperson, added more grist saying that India is seeing its "Rockefeller moment" -- a reference to the business houses backing the Bharatiya Janata Party prime ministerial candidate Narendra Modi just as the Rockfellers in the US at one time did.

His party leader Rahul Gandhi named the (Gautam) Adani group among the "four to five" corporations that are underwriting his campaign. This is interesting because the government led by his party has been facing allegations of crony capitalism. What Gandhi's statement points to is a shift of corporate allegiance from the Congress to the BJP. But at a more fundamental level, what this signifies is the close interlocking of corporate interest and politics, and the increased play of money power in the political system.

Corporate funding of election is not something new. Businessmen had contributed handsomely to the freedom struggle and sought to influence policies within the Congress. But unlike, say, in the US, where election finance is a recurring issue of public discourse, India has generally kept away from such debates. It is for the first time in this election that the issue has taken centrestage and Indian democracy is discussing it explicitly. Let us recount the story so far.

Corporate titans, till very recently, were celebrated as creators of wealth and social role models. Not many dared to question their "successful ways" of doing business, regardless of who is in power. But a combined effect of the global slowdown and falling domestic growth and corporate profitability, a series of exposes and the intervention of an active judiciary unsettled their cosy proximity to the government. In what came to be known as the 2G scam, the national auditor found the government guilty of selling telecom spectrum to private companies without a competitive bidding.

Another report by the Comptroller and Auditor General on allocation of coal reserves without auctions said the national exchequer may have lost around $33 billion. Then a series of audio tapes featuring conversations of lobbyist Nira Radia surfaced, exposing the inner working of big business, politicians and media in policy-making. In one of the tapes, Mukesh Ambani, was heard boasting that the Congress was his "dukaan" (shop).

The latest episode in the saga was the indictment and prosecution of the Sahara Group and jailing of its head Subrata Roy, which provides further proof of how the Indian business has traversed the course in the post-Liberalisation years. All the revelations have led to legitimate questions about crony capitalism and governance. An assertive, urban educated middle class is stimulating the debate over the corporate-political nexus. It wants leaders who do not line their pockets and businessmen who compete without favours.

Crony capitalism is basically what economists call rent-seeking, akin to the kind prevalent in late 19th century America by which monopolies like JD Rockefeller's Standard Oil flourished. It is a way of money making through political connection and can vary from outright graft to lack of competition, poor regulation and transfer of public resources at bargain prices.

What abetted this in the emerging markets like India in the last two decades were the commodities boom which fuelled the value of oilfields and mines controlled by the state, and the zooming property prices. "Too many people have got too rich based on their proximity to the government," said Raghuram Rajan, before he became Reserve Bank governor last year, worrying that India could start looking like an oligarchy along the lines seen in Russia.

The corrupt business-politician nexus was born in 1968 when Indira Gandhi outlawed corporate donations to political parties, ostensibly to prevent large business groups from exercising undue influence on politics. She, however, did not make way for state funding. The ban made political parties turn increasingly towards illegal corporate donations, or black money for election campaigns. In return, businessmen used politicians to get benefits such as import duty relaxation, industrial licence and approval for specific projects.

M.V. Rajeev Gowda of IIM-Bangalore and E. Sridharan of the University of Pennsylvania Institute for the Advanced Study of India, Delhi, in a 2012 paper show that economic liberalization has not ended the government's discretionary power over resource allocation in several domains. And a flawed party funding and election expenditure laws drive parties and politicians to misuse the government's discretionary powers to raise funds for election campaigns and parties. As India's democracy over the years turned more competitive and elections have become more unpredictable, corruption increased.

Politicians now say how every election is the most expensive ever. The Economist magazine, which has built an index to gauge the extent of crony capitalism across countries and over time, estimates that up to $12 billion could have changed hands in the past decade in India.

The implications of this is enormous as business has a bearing on the distribution of power in society. Electoral politics has made corruption endemic and problematic. Though not always electorally decisive, big money makes elections undemocratic and more corruptible. There are a lot of areas of Indian society that needs more money - schools, health centres and infrastructures. The one area where it is not needed is in politics, electoral politics. It is time to decouple the two.