The Billionaire Raj

by James Crabtree

  India’s position was precarious throughout the first half of 1991, but never more so than one morning in July, as a convoy of goods vehicles idled on the side of a highway in Mumbai, and Singh’s rescue plan threatened to unravel. Cars streamed past, their drivers unaware that the trucks were laden with a clandestine cargo: gold bars, picked up that morning from the vaults of the Reserve Bank of India (RBI). The trucks had then moved north through the city, their destination—the cargo area of Mumbai’s international airport—known only to a handful of anxious politicians and bureaucrats. Secrecy was essential. So there could hardly have been a worse moment for one truck to blow a tire. Yaga Venugopal Reddy, at the time a senior official in the finance ministry in New Delhi, and subsequently head of the RBI, later recalled the drama. “Guards had to be positioned all around,” he told me later, sitting one afternoon in his home in the southern city of Hyderabad, waving his hands as if to show armed personnel moving along the side of the curb. “When people took positions on the road in Mumbai, you can imagine the attention it caused.”32

  These secrecy fears were well founded. Earlier in July an enterprising journalist named Shankkar Aiyar caught a previous convoy unloading its cargo. Acting on a tip-off, he raced to Mumbai airport one Sunday afternoon and watched pallets being loaded onto an aircraft with the words “Heavy Lift Cargo” written on the side. The plane was due to fly first to Dubai, he discovered, and then onward to Stansted Airport in London. “Secret sale of gold by RBI,” screamed his front-page headline in the Indian Express the next day, describing a “highly hushed up operation” to send the metal abroad.33 An outcry duly followed. “It was a shock for people, it brought home the severity of the crisis,” Aiyar told me later. “It made India seem like a family that was forced to pawn its jewels. This was felt directly and emotionally, because in India, your gold is your savings. If you sell your gold, it means you are in serious trouble.”

  Still, on its own terms, this supposedly secret operation was a success. Roughly fifty metric tons of gold were dispatched abroad that month in four consignments, winning crucial breathing room. Singh stood up in parliament on July 24, and delivered a budget packed with reforms. Import tariffs and limits on foreign investment were cut. Hundreds of fiddly licenses were junked. Industries long closed to private competition, from iron and steel to telecoms, were suddenly opened up. Restrictions on goods such as molasses were decontrolled too, allowing spirits makers like Mallya to increase production. Just as a physical wall had fallen in Europe, so the economic walls that kept India enclosed were being torn down. From the dispatch box Singh justified his reforms by quoting Victor Hugo’s famous words: no power on earth can stop an idea whose time has come. “Let the whole world hear it loud and clear,” he said as he concluded his speech, his thin, reedy voice rising briefly. “India is now wide awake.”34

  Bad Times

  On March 1, 2016, Vijay Mallya, the man who often traveled without luggage, left New Delhi airport carrying half a dozen bags.35 It was more than a decade after the launch of Kingfisher Airlines and four years since its collapse. In between Mallya borrowed heavily to build what was briefly his country’s most popular airline. Early on he said he would break even in twelve months. But in seven years of operation Kingfisher never turned a profit. Instead stories filtered out about planes unable to take off because the company had not paid its fuel bills; or passengers going without meals because caterers’ charges had not been met. Wages were handed out erratically, even as executives enjoyed big bonuses. Checks bounced and plane orders were canceled. A jump in oil prices in 2012 proved damaging. Towards the end of that year the business fell apart, as regulators grounded its fleet and revoked its licenses. For the King of Good Times, time finally ran out.

  Mallya’s rise and fall is in many ways an allegory for modern India’s own progress. A child of liberalization, the tycoon sensed new ambitions rising in his country. “We have broken the shackles of conservative socialism,” he once said. “Indians are no longer going to remain subdued and live in a simple fashion…Young Indians want to be like me.”36 But he rose to prominence in a particular moment in Indian history, namely the economic boom of the mid-2000s. In the consumer economy, millions of Indians bought cars, built houses, and took flights for the first time. What was called the global commodity “super-cycle”—driven in particular by rising demand in China for minerals like coal, bauxite, and iron ore—kicked off a dash for natural resources across India too. Stock markets roared ahead, creating a bulging new billionaire class. It is hard to pick an exact date, but at some point between the time of Manmohan Singh’s election victory in 2004 and Mallya’s fiftieth birthday party the following year, something in India changed, and a new gilded age began.

  The effect of this roaring growth was seen most clearly in the corporate sector. Investments by foreign companies jumped, while domestic businesses began expanding rapidly abroad. In 2006, steel billionaire Lakshmi Mittal, at the time the world’s third richest man, announced an unprecedented $34 billion plan to buy Arcelor of Luxembourg, creating one of the world’s biggest steelmakers.37 Tata, the biggest Indian company of all, began snapping up British household names like Jaguar Land Rover and Tetley Tea. Newly flushed with confidence, big-name Indian industrialists began turning out at Davos, the annual Swiss alpine forum favored by the global elite. In 2006 the nearby mountainsides were blanketed with adverts paid for by India’s government, promoting what they called the world’s “fastest-growing free market democracy.” Mukesh Ambani was named the event’s cochair and an array of fellow tycoons, including Mallya, turned up to cheer him on.

  India’s apparently miraculous rebirth prompted an intellectual reevaluation. American economist Larry Summers, at the time a senior adviser to US President Barack Obama, gave a speech in 2010 floating the idea of a “Mumbai consensus” to replace the “Washington consensus,” the set of ideas that had long dominated Western thinking about international development. Until the mid-2000s fast-growing east Asian “tiger” economies like Taiwan and South Korea had been the stars of globalization. These were often labeled as “developmental states,” meaning those whose governments used industrial protection and public investment to build up export industries, before gradually opening them up to global competition. Instead, Summers argued that India could now become a new “democratic developmental state,” pushed not by the brute force of manufacturing, but by technology and youthful demographics, as well as “growing levels of consumption and a widening middle class.”38 Behind this lay a more radical thought. Perhaps it would be democratic India, rather than autocratic China, that became the model other emerging economies looked to follow?

  India lapped all this up. Its long decades of humiliation and isolation seemed to be receding. At least at first, Singh’s government appeared able to combine major economic reforms with rising investment in ambitious social programs. Poverty rates fell while urbanization accelerated. Briefly, it looked as if India might be able surpass China’s growth rate while improving the lot of its poorest citizens at the same time. “It was a strange experience for us. Never since Independence did we have the problem of plenty,” Y. V. Reddy, the former central bank head, told me. Foreign money gushed in, pushing up the value of the rupee. “Domestically, we had euphoria,” Reddy added. “That is the time when my fellow economists began to mention double-digit growth. I used the word ‘overheating.’ ”

  As Reddy feared, it was not to last. India rode out the 2008 global financial crisis more easily than most, but its aftershocks still dented domestic growth. The commodity boom ebbed. An array of corruption scandals emerged, many linked directly to the excesses of the boom years. A public outcry over cronyism began, in turn sparking a period of political stasis in New Delhi. Disenchantment with Singh’s Congress government grew. Growth sagged. The rupee came under pressure. Analysts who had recently lauded India’s untapped potential focused again on its flaws. Talk of a new �
��Mumbai consensus” quickly disappeared.

  Of all of the flaws that came to light during that period, one stuck to Vijay Mallya above all: bad debts. Public sector banks lent freely during the 2000s boom to industrialists and airline owners alike. Most then generously restructured those same loans when economic conditions turned sour. Mallya was far from the largest borrower, but he was among the highest profile. “Mallya is a child of bank nationalization,” as the head of one large business house put it to me. “He didn’t get loans from almost any private sector banks, and there is no way he could have got all that money without the state sector.” For a few years he weaved this way and that, trying to raise funds and keep his creditors at bay. He sold United Spirits, his liquor business, for nearly $2 billion, only to become locked in a bitter feud with its new owners. More than anything it was debt that caused his downfall, as a consortium of more than a dozen banks began to try to recover more than $1 billion in loans and interest.

  When we met in London, Mallya blamed his various misfortunes on an array of outside forces and unfortunate circumstances, from oil at $140 a barrel to the Indian government’s unwillingness to cut taxes on airline fuel or airport duty. Investment rules meant Kingfisher Airlines was also barred from finding a foreign airline to rescue it. Captured by special interests, politicians and bureaucrats favored Air India, he claimed, pumping the failing state carrier full of subsidies. “They allowed Kingfisher to die and spent 30,000 crores [$3.6 billion] of public money bailing out Air India,” Mallya told me. Most of all he denied fleeing the country, a charge which clearly still rankled. His plan had been to return to India just a few days after leaving for London in early March 2016, and he claimed to have said as much to various senior politicians he had met with in India’s parliament during the days prior to his departure. “I told [them] personally, face to face, that I’m going to London tomorrow, I’ve a meeting in Geneva on Friday and I’ll be back on Sunday,” he said, looking suddenly downcast. “And now the narrative is: ‘He fled India. He ran away.’ ”

  Ultimately Mallya blamed politics for his predicament, and in particular the election of Narendra Modi and his early attempts to rid India of its spate of corruption scandals. “Three years ago, four years ago, in comes Modi. And he realizes very quickly that the Indian banking system, particularly the government-owned banks, have a huge bad debt problem,” Mallya said. “They go on the warpath and say public sector banks will recover money from borrowers, come hell or high water.” This sealed his fate in India’s system, where public banks are controlled by political masters in New Delhi, attracting attention from tax authorities and the police too. He made various offers to repay, he said, but these were rebuffed. “These guys will just show up and make life miserable. Enter your house. Search it in a rather uncouth way,” he said. “They say, fine, either you pay us so much or we’ll take you with us.”

  Despite these extenuating circumstances, it was hard not to conclude that much of the blame for Kingfisher’s downfall lay with Mallya himself. Partly this was down to poor judgment. In the liquor business, Mallya’s exuberant style of self-promotion made good sense. But the same trick was less appropriate in an aviation industry with the thinnest of margins, where success meant a fanatical focus on cost. Mallya, by contrast, bought up rivals at rich valuations and spent lavishly on new planes.

  When we met, Mallya denied that he had cajoled or misled anyone into lending to him. The heads of India’s state banks were sober, serious public servants, he argued. “I couldn’t have gone there like a cowboy, wielding a gun, put it in some chairman’s head and said, ‘Give me money!’ ” But it was equally true that he was the beneficiary of generous loan restructurings which were hard to justify in retrospect given the state of his business—part of a pattern of what was known as “ever-greening,” in which Indian bankers often provided new money to borrowers who were unable to repay existing loans, in order to cover up problems at the banks themselves. Then there were allegations of creative accounting, which Mallya also strongly denied. Diageo, the company that had bought United Spirits, sued the tycoon in 2017, claiming that he had used money from his profitable liquor operations to prop up other parts of his empire.39 Earlier that year, accusations that he had diverted funds prompted a six-month stock trading ban from India’s securities regulator.40

  Mallya had a point when he complained that cabals of politicians and bureaucrats would continue to funnel cash into state-backed Air India, despite its dismal financial reputation. But he was also a beneficiary of a similar system of bureaucratic favors, especially in Kingfisher’s early days. “Mr. Mallya has turned a potential enemy, India’s powerful aviation bureaucracy, into an ally,” as The Economist put it in 2005. “Envious competitors wonder aloud how he achieved such a remarkable thing.” The same was true in liquor, an industry whose incumbents enjoyed extensive state protection. “Fixing provincial politicians; negotiating a series of local taxes and state-level entry and exit levies; getting permission for new breweries; lobbying to get politicians to deny permission to rivals; influencing policy to keep taxes on imports high—this is part of the architecture of the industry,” journalist Ashok Malik wrote around the time of Kingfisher’s collapse.41

  Fittingly, perhaps, it was a party that proved Mallya’s final undoing. A decade after his triumphant fiftieth, he again gathered friends at Kingfisher Villa in Goa to toast his sixtieth birthday in December 2015. The affair was not quite so lavish, lasting just a couple of days. But the Spanish singer Enrique Iglesias was still flown in as entertainment, ensuring write-ups in gossip columns and an angry reaction from critics. “If you flaunt your yacht [and] massive birthday bashes, even while owing the system a lot of money, it seems to suggest that you don’t care,” RBI governor Raghuram Rajan told an interviewer a few weeks later, standing against a snowy backdrop at Davos. “If you are in trouble, you should show that you care by cutting down your expenses.”

  Rajan’s attack marked a shift. For years, the authorities made only token efforts to pin Mallya down. Even after Modi’s election in 2014, India’s toothless bankruptcy laws and timid banking culture ensured that only halfhearted attempts were made to seize assets, as would have happened in many other countries. But after Mallya left the country, and especially after Rajan’s attack, the political mood changed. The authorities decided to make an example of him, forcing him to resign as an MP and rescinding his passport. It was only then that the police filed charges of fraud, charges which he denies. Mallya’s personal plane was put up for auction, along with much of his car collection, while Kingfisher Villa in Goa was seized by creditors.

  One misty early October morning, about six months after Mallya had left the country, I walked up the road behind his beachside mansion, to see what remained of his pleasure empire. The sun was barely up and shopkeepers along the road were only just opening their stalls. I found a long, thin rectangle of a property, running back a kilometer or more from the sands of Candolim Beach. There was a closed-up liquor store next door, with a Kingfisher advertising billboard propped up against its grill. Two black cows wandered slowly down the road. The initials “VM” were still there on the gates, although the cheery yellow paint of old was now peeling off the pillars. A trio of elderly guards in scruffy blue uniforms rested on red plastic chairs just inside the entrance, where celebrities and tycoons had one once arrived.

  Inside, the main swimming pool was half filled with greenish water and watched over by three more guards. The garages, once packed with cars, now stood empty barring a solitary, classic red Ferrari, its elegant rear end poking out from beneath a white sheet. Out on the beach, at the far end of the property, four tall wooden poles stood in the sand, with their tattered Kingfisher flags flapping in the sea breeze. And at each entrance, from the modest back gate leading down to the beach to the imposing front entrance on the main road, there were the same peeling white posters, announcing “This property is in t
he possession of SBICAP Trustee Company LTD,” an arm of State Bank of India, the public sector bank to whom Mallya owed more money than any other.

  Mallya’s successes marked the high point for a certain kind of Indian capitalism, in which businesses thrived on debt and their owners proved untouchable. His departure for London signaled the beginning of the end of that same system. Ultimately it was not just the scale of his business dealings that did him in, but the unrepentant manner of his failure. Many tycoons borrowed much more, using cheap loans from public sector banks to build vast industrial empires. Some even ended up with larger piles of unpaid debts, too. But as the boom years petered out, most of them kept a low profile, while the King of Good Times refused to go quietly. His behavior proved shameful precisely because his ventures—in their ambition and indiscipline, in their capacity to innovate but also their willingness to cut corners—seemed so closely to resemble India itself. But if Mallya’s methods of debt-fueled growth and canny political connections came to define the hubris of India’s boom years, there were plenty of others who played the same game.

  CHAPTER 3

  RISE OF THE

  BOLLYGARCHS

  Port in a Storm

  We sped along an immaculate dual highway from the airstrip, passing oil storage tanks and yards stacked with oblong boxes. The landscape was eerie and flat, with barely a bump out towards the horizon. Half a dozen gigantic blue and yellow container cranes loomed into view as the port drew closer. Inside the gates, one of them picked up a large metal box from the deck of a waiting container ship and swung it down delicately towards the harborside, as if its contents weighed nothing at all. The vessel, the Mol Solution—built in Japan, registered in Panama, its hull a towering wall of steel painted in cheery sky blue—took 66,000 metric tons fully laden. A mechanical claw reached inside a second vessel a little further down the quayside, its belly filled with coal. Moving gradually back towards land, the claw opened suddenly in midair and disgorged itself with a roar into a waiting truck. The tarmac all around was black with dust.