Here Raghuram Rajan’s warnings about oligarchy were as much about the threat of poorly functioning markets as they were about vested interests, given that India’s old, corrupt system of industrial investment has clearly broken down, but a new alternative is yet to emerge to replace it. When I spoke to Rajan at the Reserve Bank of India, he sketched out a rough way forward. “If one was a dictator, you would work on improving public services to break the nexus [between business and politicians] and reduce the level of corruption,” he told me. “And you would also work directly on trying to reduce the concentration of economic power by increasing competition.” This was the same basic point made in 2011 when Ashutosh Varshney and Jayant Sinha, a left-leaning academic and a center-right businessman respectively, cowrote their article about their country’s new Gilded Age. “It is time for India to rein in its robber barons,” they argued. The best part of a decade later, their call for firm action against entrenched corporate power remains largely unanswered.
These problems then focus attention on one final critical barrier India faces: government itself. The crony capitalism of America’s Gilded Age ended when rampant nineteenth-century clientelism was curbed by impartial, meritocratic twentieth-century public administration. The kind of concentrated power built up by tycoons like Cornelius Vanderbilt was undone through the introduction of new antitrust law and competition policy. Improvements in basic public services gradually broke the grip of political patronage, a process that developed over many decades after the Gilded Age itself, culminating only with the New Deal of the 1930s.
In India’s case, similar breakthroughs will require a focus on what is often called “state capacity.”15 Ending corruption is part of this battle, but it also involves the more complex objective of building a state machinery able to create and implement wise public policies, while remaining impartial between different social groups. That this can be done is clear from the case of China, which achieved huge social and economic progress while also being amazingly corrupt, largely because its machinery of state is so capable. “The most important political distinction among countries concerns not their form of government but their degree of government,” as Huntington wrote in the 1960s.16 The risk is that without sharp improvements in state capacity, rapid economic expansion can rip societies apart, resulting in upheaval and social division.
India’s state capacity problems are glaring, a point brought home to me by Shekhar Gupta during my trip to Uttar Pradesh in 2017. We spent many days driving around the east of the state, bouncing along potholed roads in one of India’s poorest corners. There were fewer signs of the dire problems of hunger and abject poverty that dogged the country a few decades earlier. Young people generally went to school and found some kind of basic job. They also had mobile phones and modern clothes and lived in brick homes, not mud-walled huts. Yet at the same time they lacked reliable water and electricity, while their streets had no sewerage or rubbish collection. They suffered ill health, because medical care was haphazard, and poor education, because the local schools were hopeless. “Indians are living behind their means” was Gupta’s way of putting it. “There was an old poverty where you did not have enough to eat. The new poverty is getting some development but not all, because municipal administration is weak.”
This sounds mundane, but developing nations can only sustain high growth by updating their government machinery. “Without major changes to its institutions, my big conclusion is that India’s rapid growth is unsustainable,” Dani Rodrik, the Harvard development economist, once told me. Bureaucrats in New Delhi need to get out of the business of owning airlines and coal mines, and into the business of regulating them. More generally, India’s state must become more skilled at creating and managing markets, while building the kind of infrastructure that can deliver basic public services. In the aftermath of liberalization, India has suffered from an enduring delusion that it might move rapidly from poverty to advanced-economy status, often by using technology to “leapfrog” towards a modern form of competitive capitalism. These hopes are understandable, but often they are also a distraction from the tedious business of building the kind of government institutions that make economic advancement most likely.
The need for a government with east Asian levels of competence is all the more urgent, given that India is now unlikely to mimic east Asian models of growth. Without exception, every Asian nation that has clambered from poverty up towards high-income status has done so in the same way: by developing an expertise in manufactured goods, and then exporting to world markets. India’s development has a back-to-front look to it, with its historically weak manufacturing but vibrant services, especially in areas like technology outsourcing. Modi’s attempts to rebalance this have made some headway, but replicating exactly the paths of countries like China and South Korea still seems unlikely. Instead, India must chart a hybrid economic model of its own. Whatever happens, it cannot rely on a handful of profitable service sectors alone, a model that would leave it looking more like an oil emirate than an east Asian tiger.
This all sounds daunting, but there are still many good reasons for optimism. India is the world’s largest remaining emerging market, a fact that should continue to attract investment from abroad. Although they do not function perfectly, its liberal institutions—from courts and regulators to the media and political parties—can provide a solid basis for future growth. Chaotic though it might look, its electoral democracy is a source of stability, especially when compared to its autocratic rival in communist China. Put another way, of the two Asian giants, it is much easier to imagine India retaining roughly the same political setup fifty years from now.
Then there is the untapped potential of India’s people. After my family and I left Mumbai’s airport in 2016, we settled down in Singapore, a country with a notably successful Indian diaspora population. It is a pattern familiar from dozens of other countries. Entrepreneur Manish Sabharwal once told me a story about his own move to study in the United States in the mid-1990s. After spending a first freezing winter in Philadelphia, he was surprised: “I realized that the Americans at my school weren’t actually smarter than the Indians, so I had to ask why were they richer than us?” he told me, sitting in a hotel in Bangalore. The more he traveled around the US, the more he found that diaspora Indians enjoyed great economic success, as they did elsewhere around the world. “My conclusion was simple, namely that if we could only make government work at home roughly as well as it did in all these other places, the talents of the Indian people would do the rest.”
This is what happened in the United States more than a century ago. The decades that followed America’s Gilded Age were known as the Progressive Era, a moment in which anti-corruption campaigns cleaned up politics and the middle classes exerted control over government. It was a period that left lasting and positive effects at home and abroad. In much the same way, India now stands at the threshold of the kind of superpower status it will eventually achieve. As democracy falters in the West, so its future in India has never been more critical. There is no reason why the excesses of the last decade should reemerge and turn India into a saffron-tinged version of Russia. Instead, with good judgment, India’s new Gilded Age can blossom into a Progressive Era of its own, in which the perils of inequality and crony capitalism are left decisively behind. India’s ambition to lead the second half of the Asian century—and the world’s hopes for a more democratic, liberal future—depend on getting this transition right.
NOTES
Prologue
1. Vinay Dalvi, “Aston Martin in Rs4.5 Car Pile-up on Mumbai’s Pedder Road,” Mid-day, December 9, 2013.
2. Mustafa Shaikh, “Car Was Not Driven by Chauffeur: Witness,” Mumbai Mirror, December 10, 2013.
3. Ibid.
4. “Aston Martin Crash: RIL Worker Identified as Driver,” Hindustan Times, December 26, 2013.
5. Naazneen Karmali, “The Curious I
ncident of Mukesh Ambani’s Aston Martin in the Night-Time,” Forbes, January 2, 2014.
6. “Mumbai Police Chases Whodunit in Aston Martin Car Crash,” Business Standard India, December 13, 2013.
Introduction
1. “Special Feature: Residence Antilia,” Sterling, July 2010.
2. Rajini Vaidyanathan, “Ambanis Give First View inside ‘World’s Priciest House’ in Mumbai,” BBC News, May 18, 2012.
3. Naazneen Karmali, “India’s 100 Richest 2017: Modi’s Economic Experiments Barely Affect Country’s Billionaires,” Forbes, October 4, 2017.
4. Gandhi and Walton, “Where Do India’s Billionaires Get Their Wealth?”
5. Naazneen Karmali, “For the First Time, India’s 100 Richest of 2014 Are All Billionaires,” Forbes, September 24, 2014.
6. Karmali, “India’s 100 Richest 2017.”
7. Global Wealth Report 2016.
8. Gandhi and Walton, “Where Do India’s Billionaires Get Their Wealth?”
9. Maddison, The World Economy.
10. Ibid.
11. Joshi, India’s Long Road, p. 37.
12. Ministry of Finance, Government of India, Economic Survey 2016/17, p. 41.
13. In July 2017, data from the Bombay Stock Exchange BSE500 index showed that foreign institutional investors own forty-two percent of shares which are freely traded, meaning shares which are not owned by the promoters/owners of the companies. Foreign investors own twenty-one percent of all shares, if those of the promoters/owners are included.
14. “Press Release: Remittances to Developing Countries Decline for Second Consecutive Year,” World Bank, April 21, 2017. India sent home $62.7 billion in 2016.
15. “What the World Thinks about Globalisation,” The Economist, November 18, 2016.
16. Dasgupta, Capital, p. 44.
17. Drèze and Sen, An Uncertain Glory, p. ix.
18. Raghuram Rajan, “Is There a Threat of Oligarchy in India,” University of Chicago, September 10, 2008.
19. Global Wealth Report 2016.
20. Chancel, L. and Piketty, T., “Indian income inequality, 1922–2014”; Global Wealth Databook 2016, p. 148.
21. S. Sukhtankar and M. Vaishnav, “Corruption in India: Bridging Research Evidence and Policy Options,” India Policy Forum 11, July 2015, pp. 193–261.
22. CMS Transparency, “Lure of Money in Lieu of Votes in Lok Sabha and Assembly Elections,” p. 7.
23. Rajesh Kumar Singh and Devidutta Tripathy, “India Moves Resolution of $150 Billion Bad Debt Problem into RBI’s Court,” Reuters, May 6, 2017.
24. Hofstadter, The Age of Reform, p. 11.
25. T. N. Ninan, “India’s Gilded Age,” Seminar, January 2013.
26. Twain and Warner, The Gilded Age.
27. Francis Fukuyama, “What Is Corruption?” Research Institute for Development, Growth and Economics, 2016.
28. Jayant Sinha and Ashutosh Varshney, “It Is Time for India to Rein In Its Robber Barons,” Financial Times, January 7, 2011.
29. Data compiled by Gapminder.org, which takes India’s 2013 GDP per capita data from a cross-country comparison based on 2005 dollars. The comparison was quoted in Dylan Matthews and Kavya Sukumar, “India Is as Rich as the US in 1881: A Mesmerizing Graphic Shows Where Every Country Falls,” Vox, October 8, 2015.
30. Tom Mitchell, “India May Be More Populous than China, Research Suggests,” Financial Times, May 25, 2017.
31. Hoornweg and Pope, “Socioeconomic Pathways and Regional Distribution of the World’s 101 Largest Cities.”
32. “India: Data,” World Bank, 2016. India’s GDP was $2.3 trillion in 2016. The UK’s was $2.6 trillion.
33. “The World in 2050: Will the Shift in Global Economic Power Continue?” PricewaterhouseCoopers, February 2015.
34. Rorty, “Unger, Castoriadis, and the Romance of a National Future,” p. 34.
35. Ibid.
36. Fitzgerald, The Great Gatsby, p. 136.
Chapter 1: Ambaniland
1. Rajarshi Roy, “An Ambani Changes His Family Address,” Times of India, May 16, 2002.
2. Sarah Rich, “Perkins + Will’s Antilla [sic] ‘Green’ Tower in Mumbai,” Inhabitat, October 25, 2007.
3. The exact cost of Antilia’s construction has never been disclosed. Estimates vary wildly. The $1 billion figure is commonly cited, for instance in Alan Farnham and Matt Woolsey, “No Housing Shortage Here: Antilia Is the World’s Most Expensive House,” Forbes Asia, May 19, 2008. A 2008 New York Times report cited a Reliance spokesman saying the building would cost “$50 million to $70 million” to build.
4. Joe Leahy, “Brothers in the News: Anil and Mukesh Ambani,” Financial Times, October 24, 2009.
5. Piramal, Business Maharajas, p. 19.
6. McDonald, Mahabharata in Polyester, p. 49.
7. Nasrin Sultana and Kalpana Pathak, “The Grand Spectacle That Is the RIL Annual General Meeting,” Livemint, July 22, 2017.
8. “Shourie’s 180-Degree Turn with Dhirubhai,” Financial Express, July 7, 2003.
9. McDonald, Mahabharata in Polyester, p. 342.
10. Naazneen Karmali, “India’s 40 Richest,” Forbes, December 15, 2005.
11. Luisa Kroll, ed., “The World’s Billionaires,” Forbes, March 5, 2008.
12. Ibid.
13. Diksha Sahni, “Mukesh Ambani’s Luxury Home under Scanner,” Wall Street Journal, August 3, 2011.
14. Sudhir Suryawanshi, “This Is No Light Bill,” Mumbai Mirror, November 24, 2010.
15. Vikas Bajaj, “Mukesh Ambani’s 27-Story House Is Not His Home,” New York Times, October 18, 2011.
16. James Reginato, “The Talk of Mumbai,” Vanity Fair, June 2012.
17. Abbas Hamdani, “An Islamic Background to the Voyages of Discovery,” in The Legacy of Muslim Spain, vol. 1, ed. Jayyusi, p. 274.
18. Damian Whitworth, “Ratan Tata: The Mumbai Tycoon Collecting British Brands,” The Times, May 21, 2011.
19. James Crabtree, “Slumdog Billionaires: The Rise of India’s Tycoons,” New Statesman, June 5, 2014.
20. Pei, China’s Crony Capitalism, pp. 7–8.
21. James Crabtree, “India’s New Politics,” Financial Times, April 25, 2014.
22. Misra, Rediscovering Gandhi, vol. 1, p. 61.
23. James Crabtree, “Mumbai’s Towering Ambitions Brought Low by Legal Disputes,” Financial Times, October 10, 2014.
24. Stiles, The First Tycoon, p. 23.
25. Steve Fraser, “The Misunderstood Robber Baron: On Cornelius Vanderbilt,” The Nation, November 11, 2009.
26. Michelle Young, “A Guide to the Gilded Age Mansions of 5th Avenue’s Millionaire Row,” 6sqft, July 30, 2014.
27. Vanderbilt, Fortune’s Children, ch. 3.
28. Neider, ed., Life As I Find It, p. 42.
29. Raghuram Rajan, “Finance and Opportunity in India,” Reserve Bank of India, August 11, 2014.
30. Crabtree, “India’s New Politics.”
31. Amy Kazmin and James Crabtree, “Ambani Gets Highest-Level Security Cover,” Financial Times, April 22, 2013.
32. “Hyper Growth Platforms of Value Creation,” chairman’s statement, forty-first annual general meeting, Reliance Industries Limited, June 12, 2015.
33. “Four Decades of Serving India,” chairman’s statement, fortieth annual general meeting post IPO, Reliance Industries Limited, July 21, 2017.
34. James Crabtree, “The Corporate Theatrics in India of Reliance’s Reclusive Tycoon,” Financial Times, June 15, 2015.
35. “Jio Not a Punt, Well Thought-Out Decision, Says Mukesh Ambani: Full Transcript,” NDTV, October 21, 2016.
36. “Operationalising Hyper Growth Platforms of New Value Creation for a Prosperous and Inclusive I
ndia,” chairman’s statement, 39th annual general meeting post IPO, Reliance Industries Limited, September 1, 2016.
37. “Auction Rigged, Cancel Broadband Spectrum Held by Reliance Jio, CAG Report Says,” Times of India, June 30, 2014.
38. “The Spectrum Auction Was Rigged,” Frontline, September 30, 2016.
39. “Union Compliance Communication,” Report No. 20, Comptroller and Auditor General of India, 2015, ch. 3.
40. See, for instance, “Report of the Comptroller and Auditor General of India for the year ended March 2015,” Comptroller and Auditor General of India, 2016, ch. 14, p. 103.
41. Anand Giridharadas, “Indian to the Core, and an Oligarch,” New York Times, June 15, 2008.
42. “Anil Ambani Sues Mukesh for Rs10,000 Crore,” Livemint, September 25, 2008.
43. Swaminathan Aiyar, “India No More Dominated By a Handful of Business Oligarchs,” Economic Times, June 5, 2011.
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