The Billionaire Raj

by James Crabtree

  March of the Middlemen

  In his Man Booker Prize–winning novel The White Tiger, Aravind Adiga imagines corruption happening with thrilling directness, with a suitcase filled with money delivered to the heart of power. His book tells the story of Balram, an impoverished rural villager, who finds work as a driver for a wealthy family in New Delhi. Eventually Balram murders his employer and rises to become a small-time (and thoroughly corrupt) businessman himself. In one scene midway through the story, he drives his boss and a friend into Lutyens’s Delhi, the administrative district designed as a new Imperial capital in the early 1900s by British architect Edwin Lutyens. “I drove towards Raisina Hill, and then all the way up the hill, stopping each time a guard put his hand out and checked inside the car, and then stopping right in front of one of the big domed buildings around the President’s house,” Balram recounts.37 His employer disappears inside, and returns hours later feeling angry and guilt-ridden, having just handed over his suitcase in exchange for vague promises of help with a future investment project. As they drive away, the employer suddenly spots a statue of India’s famously virtuous national founder. “We’re driving past Gandhi having just given a bribe to a minister. It’s a fucking joke, isn’t it?” he says. “Things are complicated in India,” his friend replies.

  Real-life bribery rarely happened this dramatically, although it normally did involve a calculated risk, hence the presence of intermediaries who could provide a measure of trust between the parties. Rai told me it was widely known in New Delhi that associates of particular politicians could be approached to act as middlemen, able to broker deals or favors. Some were party functionaries or associates of veteran political leaders. Others were family members of senior politicians or trusted confidants drawn from their hometown or caste. Often they were simply political entrepreneurs, who sprang up to help businesses navigate red tape and make introductions to those in power. In the decades after liberalization India became “a society beholden to gatekeepers,” in the words of academic Sunil Khilnani. “The changes of recent decades have merely enhanced the stakes, potential, and necessity for corruption,” he wrote not long after the publication of Rai’s telecoms report in 2010.38 “At the top of the new caste order are those who can fix ‘access’ to the durbars of politicians, the file-bestrewn offices of bureaucrats, the Vitra-fitted boardrooms and salons of CEOs.”

  Rather than an entirely new phenomenon, these gatekeepers were descendants of an earlier class of fixers who hovered around the edges of the socialist state. “In old India, people would say, ‘I came to Delhi to buy this or that, but I met the wrong people,’ ” I was once told by Anuvab Pal, one of the country’s best stand-up comedians. As a teenager, Pal came to realize that bribery and intermediaries were needed to buy even basic consumer products. “Being a child of that economy, I still feel more comfortable buying something from a person who says, ‘I’ll get it done,’ even now when you have more transparent options online, and even though that person is almost certainly lying.” After 1991, brokers were no longer needed to buy televisions or fridge-freezers, but they grew ever more essential in business. For those officials or politicians taking the bribes, meanwhile, fixers helped to save face by removing the risk and embarrassment of demanding money in person. “Middlemen reduce transaction costs for citizens and officials alike,” as one study put it. “They know whom to approach, and how to do so, and which officials will ‘stay bought.’ ”39

  Middlemen proved invaluable in even mundane situations, as I discovered when my own time in India began to wind to a close, and my wife and I began to grapple with the problem of how to export our cats.40 We had arrived with two Maine Coons, a breed with thick furry coats quite unsuited for hot Indian summers. Bringing them into the country had been hard enough, but getting them out proved to be an administrative nightmare of form-filling and veterinary visits. On the advice of friends, I hired a pet export agent, in exchange for a sizable fee. Towards the end of the process I found myself driving out of Mumbai one morning, with the agent’s assistant and both cats, heading to a government office in the suburbs. We sat in a car park for an hour, awaiting an inspector from the agriculture department. Eventually he turned up, gave a perfunctory glance at both animals and handed over a crucial certificate, the need for which no one could quite explain. It was never clear how much of our fee the agent had passed on in “speed money.” And in the end this element of deniability was the point: I was happy to have the agent’s help getting the forms filled in correctly, but happier still not to know if any bribes had been paid.

  Although a hassle for the prosperous middle classes, gatekeepers were especially pernicious for the poor. Around half of Indians survived on less than Rs38 ($0.50) a day, according to one academic estimate, a group for whom even the smallest “harassment” bribe could be crippling.41 I once visited the southern city of Hyderabad, where I met Jayamma Dumpa in Nandanavanam, a slum with dirt paths and roofs of corrugated iron, whose name translated as “celestial garden.”42 Dressed in a faded red and green sari, Dumpa stood outside her one-room home and showed me how she cooked for her family of seven, fabricating a makeshift stove from a metal bucket. Mostly she used brushwood, although other potential fuels lay on the ground nearby, including an old punctured football. In theory the authorities were meant to provide cooking stoves for free, but getting them meant paying bribes to go-betweens, which Dumpa said she could not afford. Instead she spent hours each week buying wood at a local market and carrying it back on her head. One day she hoped to get her stove, but she wasn’t expecting it anytime soon. “It is meant to be free,” she told me. “But nothing here is free.”

  As India’s economy grew, agents appeared to help fix almost any task, from getting goods through customs to passing a driving test, as one ingenious academic study discovered.43 The researchers followed various test candidates in New Delhi, finding that nearly three quarters hired agents, and almost all of them passed. Those who tried to navigate the test process on their own were far more likely to fail, even if they were more skilled drivers. The agents passed some portion of their fee to the instructors in bribes, the study’s authors concluded, while testers often arbitrarily failed those who did not use agents, to teach them to hire one next time. Driving test complaints were unsurprisingly common on ipaidabribe.com, an anti-corruption project launched in 2011, and filled with anonymous reports of shakedowns. The site gave a real-time breakdown of the “going rate” for any particular activity, from Rs200 ($3) to issue a state identity card to Rs10,000 ($157) to forgo an electricity inspection. More complex processes, such as registering land, required payments many times larger. Sometimes a well-placed bribe could help to avoid a task altogether. One post in 2017 boasted of winning a driving license even without having to take the test. “There was no direct bribe paid by me,” the author wrote. “[But] the fact that I went through an RTO [Regional Transport Office] agent should mean that some palms were greased.”44

  Fixers proliferated in business above all, often facilitating corruption on a grand scale. Global companies were a particular target. In 1991, India attracted just $100 million in foreign direct investment. By 2017 that had ballooned to $60 billion.45 As capital flooded in, so a new class that were once described to me as bureaucratic “escort services” began to emerge, designed to help hapless foreigners navigate local rules and win the good graces of politicians. India is one of the world’s largest weapons importers, with fixers readily available to help seal lucrative arms deals. Middlemen are particularly important for those from countries like America and Britain, where anti-corruption laws forbid paying bribes abroad, but where agents could provide an element of deniability. Foreign businesses also often teamed up with domestic firms and allowed local partners to manage dealings with the local bureaucracy. When we met, Vinod Rai recounted a story from around the time he left his job as auditor in 2013. He had gone for lunch with the head of a foreign telecoms
group who had struck a joint venture with an Indian company and eventually become embroiled in the 2G scandal. “He was very frank,” Rai said of the foreign executive. “He said: ‘We were told this is the only way to do business in India.’ And if anything went wrong, he clearly thought he could take the plea that this was the fault of my Indian partner. So he turned a blind eye, and he got caught out.”

  The State We’re In

  Whichever way you looked at it, corruption in India was complicated. The middle classes fumed at sleazy politicians and shady tycoons, even though they themselves were typically expert bribe payers and tax avoiders. Bribery had become so socially entrenched that Kaushik Basu, the government’s chief economic adviser, called in 2011 for it to be made legal.46 His idea caused a furor, although its logic was clear, namely that people were more likely to admit to having made illegal payments if they faced no penalty, which in turn could help police identify those who had demanded money in the first place.

  Not everyone even agreed that corruption was a social ill. Sociologist Ashis Nandy, a grand old man of the left, caused a similar ruckus a few years later when he described bribery as “an equalising force” that could help the poor, particularly those from lower castes.47 A similar story was told by American author Katherine Boo in Behind the Beautiful Forevers, her depiction of life in a slum close to Mumbai’s airport. Boo painted a sympathetic portrait of Asha Waghekar, a destitute woman who gained a measure of power by becoming a local political fixer. “Among some in the Indian elite, this word, corruption, had purely negative connotations, it was seen as blocking India’s modern, global ambitions,” Boo wrote. “But for the poor…corruption was one of the genuine opportunities that remained.”48

  The link between corruption and growth turned out to be equally confusing. Intuitively it seemed the relationship should be negative. All of the world’s most corrupt countries were poor. Corruption also distorted economic activity, reducing trust in business and government while diverting capital away from productive uses and towards areas from which it could easily be stolen. India’s economic record seemed to reflect this account too, as the economy took a hit in the years after the season of scams hit its peak around 2013.

  Yet there was another side to this argument, one made most famously by Samuel Huntington, the American political scientist. Huntington claimed corruption was not simply an unfortunate side effect of economic development, but often a desirable one: “a welcome lubricant easing the path to modernisation.”49 Plenty of countries managed to combine high growth and high levels of graft, most obviously China. The same was true for the “tiger” economies of east Asia: “Clientelism and other forms of rent-seeking were widespread during Asia’s high growth period,” according to one academic study.50 In these cases, side payments on business deals encouraged bureaucrats and politicians to act in ways that in turn encouraged investment. This bringing together of cronyism and growth became a deliberate economic strategy, as author Joe Studwell explained in his 2013 book How Asia Works. In countries like South Korea and Malaysia, businesses were tacitly allowed to skim off the top, so long as they did so while investing in the kind of exporting industries and infrastructure developments their governments wanted. “Rents are the bait with which the successful developing state captures and controls its entrepreneurs,” as Studwell put it.51

  Huntington’s argument suggested a rather different problem, namely that India had allowed graft to flourish without using it strategically to promote development. Even so, India’s old system had still helped to grease the wheels of investment, a fact that became clear in the years after the season of scams. Modi’s anti-corruption efforts—in combination with heightened scrutiny from public auditors, judges, and the media—began to put a stop to the worst of that cronyism. But while the old corrupt system stopped working, no new and more honest system replaced it. The result was paralyzing inaction in New Delhi, as bureaucrats declined to make decisions for fear of being accused of malfeasance, and businesses stopped investing in new projects. Industrial investment plunged.

  Behind these corruption issues lay the longer-term problem of the weakness of India’s state. The country’s rapidly growing economy placed new demands on its government, as it tried to keep pace with a more dynamic business environment. Yet the machinery of the state was often woefully equipped for this task. Manish Sabharwal, the chairman of Bangalore-based outsourcing group TeamLease and a thoughtful observer of the interplay between business and government, once put it to me this way: “We have this state heritage where everything is forbidden unless it is expressly permitted, which dates right back to Raj,” he said. For decades India had defined its “reforms” in economic terms, while doing little to fix basic issues like public procurement. China managed to combine high growth and high corruption partly because its government machine was impressively efficient. By contrast, India’s was intrusive in some areas and incompetent in others. It suffered, in short, from what Sabharwal described as “bureaucratic cholesterol,” meaning an inefficient, corruption-riddled system that was clogged up from the inside.

  Each year the World Bank’s “ease of doing business” survey gave a stark reminder of how badly the state was performing. In 2016, the year in which Modi introduced demonetization, India came in a dismal 130th out of 190 countries.52 Many problems were enshrined in legislation. The much-feared Factories Act of 1948, for instance, included rules setting out when a factory owner had to whitewash staircases or varnish window frames.53 Fifty-seven permits were needed to open an industrial plant, according to one estimate, or ninety for a hotel.54 United Spirits, the liquor group formerly owned by Vijay Mallya, once claimed it needed a staggering 200,000 licenses to operate.55 There was then a fearsome array of enforcement officials—the chief inspector of factories, the vigilance inspector, the boiler and pressure vessel inspector—who could bring production stuttering to a halt.56 An administrative headache, this also provided ideal conditions for corruption, as inspectors threatened delay until the right palms had been greased.

  Harvard academic Lant Pritchett once described the Indian state as “flailing,” rather than failing. By this he meant that the state was competent in parts, mostly at its upper levels, but overwhelmed the further down you went. “In police, tax collection, education, health, power, water supply—in nearly every routine service—there is rampant absenteeism, indifference, incompetence, and corruption,” he wrote.57 Acquiring land was one notorious problem, where complex rules made it hard for businesses to buy plots directly from farmers, forcing them to rely on government-held “land banks” instead. Bureaucrats also controlled reclassification for industrial use, allowing them to vastly increase land values. All of this was an invitation to collusion, giving birth to what was often described as a “land mafia,” meaning a loose coalition of entrepreneurs and officials who plotted to buy up land, reclassify it and sell it on for huge profits. Many other state assets were carved up in this way, from the “water mafia,” who controlled the trucks delivering water to buildings in cities like Mumbai and Bangalore, to the “sand mafia,” who mined river beds illegally across the country to feed the insatiable demands of the construction sector.

  State inefficiency created corruption in other ways. In Jharkhand, a poorer eastern state with abundant mineral resources, one study suggested that investment projects needed 240 layers of government clearance before beginning operation.58 This serpentine exercise in box-ticking began in lowly clerical antechambers, then moved upwards through the offices of engineering inspectors and authorizing committees, before arriving finally at the desk of the chief minister himself. The problem was not just the process; big industrial schemes in other countries also have to go through many layers of government clearances. Rather it was that, in India, each step brought the possibility of costly delay. Businesses attempting to set up industrial projects would talk despairingly about their “file” getting stuck, meaning the physical
file of papers concerning any particular project, which was passed slowly from department to department. This risk of delay then created a strong incentive for a businessman to strike a deal towards the top of the decision-making chain, and preferably with a senior bureaucrat or politician, who could ensure their file was hurried along.

  While in this way India’s state could appear fearsome, it was more often an oddly feeble beast and one that appeared increasingly overwhelmed by the task of governing so complex a nation. The Indian civil service employed roughly three times as many as China as a proportion of its population.59 Meanwhile, the Indian Administrative Service (IAS), the elite cadre of officials that hold the most senior central and state government positions, numbered fewer than five thousand. Most of them worked outside New Delhi, holding positions with titles like “district collector,” a kind of local governor with sweeping powers to run regions the size of many small countries.

  For all the power it wielded, the structure of the IAS itself had changed little since the days of the old India Civil Service, the colonial system through which fewer than one thousand British officials managed the lives of hundreds of millions of Indians. Known affectionately as babus, IAS officers were often portrayed as out of touch, incompetent and prone to corruption. In the popular imagination they dressed in white uniforms, and spent their days being chauffeured around New Delhi in curvy old Hindustan Ambassador cars, with curtains on the rear windows and flashing blue lights on the roof. Even so, civil service jobs remained hugely prestigious and were available only through one of the world’s most competitive entry examinations, with some half a million applicants each year for about a thousand places.60 IAS officers were often intellectually formidable and viewed with great trepidation by business leaders, given the sweeping powers they wielded to change or enforce regulations. In private, however, many in the service bemoaned its relative decline, fretting that private sector competition had sucked away the best talent, and that too many of their number working outside New Delhi ended up throwing their lot in with powerful local politicians, helping to create more corruption themselves.