The Billionaire Raj: A chronicle of economic India

Meghnad Desai in The FT 

India is now one of the world’s economic hotspots. Stock images of starving children, miserable peasants and cheating shop owners have been augmented with those of high-tech development and booming cities. India is now the world’s fastest-growing economy. It is about to become the third-largest economy — at least in terms of purchasing power dollars if not yet real ones. Foreign investors are rushing in. In The Billionaire Raj, James Crabtree has written a compelling guide to what awaits them. 

To make India more accessible to the western investor, Crabtree draws an analogy between America’s Gilded Age at the end of the 19th century — that plutocratic moment of the Vanderbilts, Goulds, Rockefellers — and the newest of India’s billionaires. Did you know that India now has more billionaires than Russia? 

This sudden enrichment was the result of the long boom of globalisation from 1991-2008. India had initiated reforms to escape from four decades of conservative socialism, initiated by Jawaharlal Nehru, which did not trust private business and put the state in command. The Indian state is inefficient as it is, but disastrous in running business. Its airline Air India has racked up billions in losses; its banks are mired in non-performing loans. 

In 1991, Manmohan Singh, then finance minister, bit the bullet and began to liberalise the economy. Tariffs were cut, import licensing was removed, and the rupee was devalued twice within a week. He had little choice because India had run out of foreign exchange reserves and had to pawn its gold to secure a loan from the International Monetary Fund. 

The reforms took time to work but, from 1998 onwards, the economy secured high single-digit growth rates, triple the so-called “Hindu growth rate” of 3 per cent per year that prevailed during the first 30 years of independence. With a decade-long growth spurt from 1998 to 2008 came the vast fortunes generated in a crony-capitalist relationship between the ruling Congress party and its private sector clients and financiers. Crabtree, a former FT Mumbai correspondent, gives us a detailed treatment of the links between the politicians needing money to finance elections that were both costly and cheap. (The 2014 elections cost $5bn — or $6 per voter.) 

Crabtree gives entertaining portraits of some billionaires. The opening chapters cover Mukesh Ambani and his towering residential extravaganza Antilla, the most expensive house ever built in India, which now dominates the Mumbai skyline; the fugitive Vijay Mallya, a drinks tycoon who was once known as the King of Good Times; the reticent Gautam Adani, an infrastructure entrepreneur who owns ports, mines and refineries. Dhirubhai Ambani, the patriarch of the Reliance group, figured out how to negotiate government regulations and expand his business while keeping the ruling party on his side. Mallya went so far as to be voted into a seat in the Rajya Sabha, the upper house of parliament, after a reported donation of 550m rupees ($10m in those days). Adani prospered in Gujarat with the reported blessings of Narendra Modi while he was chief minister of the state in India’s north-west, where the politician enjoyed both a clean reputation and business-friendly credentials. 

Crabtree shows both how deep corruption reaches into electoral politics — but also how functional it is 

Beyond the personalities lies another part of the puzzle. Corruption has gone deep in the system. Elections cannot be financed with just legally declared donations. The donors want to escape attention of the tax man, as do the party leaders. It is a symbiotic relationship. Not even Prime Minister Modi, as he has been since 2014, is about to change it, though he has moved against crony capitalism. Armed with an electoral majority, he has set about breaking the political mould, ending the near 70-year hegemony of Congress. He has sundered the crony ties that the top echelon of government enjoyed with the “promoters” of infrastructure projects during the Congress years. Back then the nationalised banks had to lend money to a favoured few and it was understood that the money would not be repaid. No more. Insolvency procedures have been toughened. Debtors can no longer shield their assets from creditors. It was this that sent Mallya abroad. 

This book was written before these drastic changes. But whether he wins or loses the next elections, Modi has made revival of crony capitalism difficult. 

There are also other concerns. Crabtree worries over Modi’s dual persona as a development enthusiast as well as a Hindu nationalist. The fear is that this may increase intolerance towards minorities — Muslims and Christians — and disrupt peaceful economic progress. 

Crabtree’s vivid portrayal of the corruption of politics is very informative, and thought-provoking. He travels the country to show both how deep corruption reaches into electoral politics — but also how functional it is. When an economy is regulated, riddled with permits needed to do business, a few palms may need to be greased. A payment — or rent, as economists call it — may be required. But the rewards are considerable. The corruption market works. It may be immoral but it is not inefficient. 

It would be better if India became less corrupt. Crabtree thinks so. That would require a lot of courage and an ability to pursue radical reform. The leader who embarks upon it risks unpopularity — as Modi is now finding out. 

These are matters that cannot be settled in a single book. Crabtree has given us the most comprehensive and eminently readable tour of economic India, which, as he shows, cannot be understood without a knowledge of how political India works.