Business, Economics and Jobs

India: Growth and graft prompt comparisons to US "Gilded Age"

Brown University professor Ashutosh Varshney has argued that India's current climate of high growth and rampant graft mirrors America's "Gilded Age," when so-called Robber Barons built untold fortunes through sweetheart deals related to the construction of the transcontinental railroad and other government projects. But there are some salient differences, too, Varshney writes in Friday's Indian Express.

As GlobalPost reported in 2011, just as during America's Gilded Age, when bankers and industrialists like Andrew Carnegie, John D. Rockefeller and John Pierpont Morgan amassed their enormous fortunes, India's celebrated entrepreneurs have capitalized on the country's rapid economic growth to rocket up the charts of the world's rich list over the past decade.

But as Forbes feted the rise of the self-made Indian billionaire and free market champions credited the decision to liberate the economy from government quotas for manufacturing in 1991, some vital features of the enormous increase in India's wealth were overlooked.

Taking into account family associations, India's BusinessWorld magazine's list of 2011's 10 richest Indians looks a great deal like the list one might have drawn up in the 1980s — featuring Tata, Birla and Ambani — only the sums are vastly larger. Despite claims that Indian business flourishes in spite of the state, virtually every name on the roster has reaped dramatic gains through accessing or taking over government-owned resources.

Meanwhile, ever greater wealth has increased their influence in politics and control over regulatory policy — raising concerns that the world's largest democracy is quietly becoming the world's largest oligarchy.

But not everything is the same in India as it was in America's Gilded Age, Varshney points out.

Point one: India already has a railroad. What it lacks is factories, and what's needed to build them is land. So that's where the politically connected are making their dosh.

"The US did not have a great scarcity of land when the Gilded Age was in full bloom," writes Varshney. "Today, India has four times as many people as the US, but only a third as much land. Land in India, in other words, is very scarce. Therefore, India’s politicians and businessmen end up buying land wherever they can, and then get the government to convert its use from agricultural to commercial. Such transformation of land-use raises the value of land by 10 to 20 times."

Point two: India's highly regulated economy--even with the reforms initiated in 1991--is what creates the largest opportunities for graft.

"If an economy is growing at an average of 8 per cent per annum, some sectors are likely to grow at 15-18 per cent. And if government regulations and permissions are required in such sectors, a government-business nexus is very likely to emerge. Rapid growth makes overnight millionaires, even overnight billionaires, possible."