The Billionaire Raj: A Journey through India's New Gilded Age

by James Crabtree

Demonetisation was a flawed weapon with which to battle corruption, not least because it caused such needless collateral economic damage. But it also smacked of an alarming kind of arbitrary populism, as Modi courted public opinion by whipping up anger against the wealthy.

‘Those who got rich by all the wrong means have gotten their comeuppance and people are delighted.’

Matters had barely improved by the twentieth century, as the clamour for Independence grew ever louder. ‘We seem to have weakened from within,’ Mahatma Gandhi raged in 1939, dismayed over financial misbehaviour within his own party. ‘I would go to the length of giving the whole Congress a decent burial rather than put up with the corruption that is rampant.’20

Optimistic Indian nationalists expected that freedom from British rule would bring clean governance. These hopes had largely died out by the time Indira Gandhi took power in the 1960s. So common was corruption under the Licence Raj that it even became a mainstay of newspaper horoscopes. ‘All round improvements but not without strings,’ the Hindustan Times warned Virgos in 1985, before adding: ‘If paying a bribe to anyone, see that the job is done.’

Advocates for economic liberalisation then predicted that the demise of the socialist state would bring an end to corruption. In some ways they were right. After 1991, no one any longer had to pay bribes to buy of a bag of cement or a scooter, or to get a new telephone connection. But rather than putting a stop to bribery entirely, the process of reform merely ended up creating new and far grander avenues for the unscrupulous.

Economic growth itself was not to blame for this: some countries, such as Poland, managed to introduce market reforms without an accompanying wave of cronyism. Rather, corruption turned out to be a political problem, in which liberalisation required changes to the way the state managed and regulated India’s economy. When this did not happen, it was all too easy for those with power and connections to build what was often described as a ‘nexus’, linking together tycoons, politicians and bureaucrats to their own ends. The word ‘corruption’ implied rottenness in something previously healthy, but in India corruption was in fact a dynamic and highly entrepreneurial process, marked out by crafty backroom deals and daring attempts at regulatory capture. Indeed, for a time during the 2000s, it looked as if the cronyism that India’s reform process had unleashed would simply be unstoppable.

The chief auditor’s role was traditionally as dull as it sounds: a post for cautious, elderly men, who churned out dry reports that almost nobody read. But Rai arrived in a city swirling with intrigue. New Delhi was being turned into a construction site as preparations raced ahead for the Commonwealth Games in 2010, an event designed to showcase India’s economic rise which soon turned into a corruption-ridden fiasco. At the time, Manmohan Singh’s government was also busily handing out telecoms and mining licences to large industrial houses in circumstances that reeked of favouritism. Dozens of bribery and graft scandals soon erupted in what became known as the ‘season of scams’. And just as India seemed to be losing its moral bearings, so Rai became an unlikely public hero, publishing sparsely written reports that exposed the true scale of his country’s corruption problems, while showing a mixture of quiet decency and thinly veiled

anger at the venality of its political class.

‘The mobile phone is to my mind the instrument that is most emblematic of India’s transformation over the last twenty years,’ Tharoor said. It was about to become the greatest symbol of its corruption. The ‘2G scam’ kicked off just a few

days after Rai took up his new position. Singh’s government planned to hand out valuable telecoms spectrum licences using a murky ‘first come, first served’ system, rather than an open auction. On 10 January 2008 the telecoms department summoned bidders to its office in New Delhi, at just a few hours’ notice.

By day’s end, more than one hundred licences had been handed to eight companies in a deal that would besmirch India’s reputation for years to come. Details began to dribble out bit by bit, revealing a story that seemed to have everything, from shell companies fronting for major industrial houses to leaked salacious calls between lobbyists and tycoons. Behind it all stood telecoms minister Andimuthu Raja, a colourful politician from the southern state of Tamil Nadu.

It was only when Rai published his 2010 report that the scale of the alleged telecoms scandal became clear, costing the state Rs 1.8 trillion ($26 billion) in lost revenues, the auditor claimed, at least when compared to what might have been raised had the licence been auctioned.27 A criminal investigation put Raja behind bars pending trial in 2011, while the Supreme Court cancelled all 122 licences one year later.28

Various telecoms executives were imprisoned ...

For the best part of a decade India handed out free coal-mining licences to industrial companies, on the proviso that the fuel was used only in nearby industrial projects, such as steel mills and power plants.

At first almost no one applied, because coal was available cheaply on international markets, or via Coal India, the state-owned mining giant. But as global prices rose in the 2000s, driven by breakneck Chinese growth, the value of domestic mining rights skyrocketed. More than two hundred licences were awarded between 2004 and 2009. Many were handed out to well-known industrialists. Others went to companies that, until then, had shown little interest in mining. ‘Let’s say I’m a newspaper magnate in a particular state with good connections with the minister of coal,’ Rai told me, explaining the process. ‘And I say: “I am contemplating setting up a power project, so why don’t you give me a mine?” And so they get given a mine, in exchange for who knows what.’ Taken together, his team calculated that the mining policy handed the various tycoons windfall gains in the region of $30 billion.32 India’s scams followed a pattern, although each had its own modus operandi. The Commonwealth Games was a cash-for-contracts affair, presided over by the head of the national

Olympic committee. Wrongdoing first came to light with stories of inflated costs, including the purchase of toilet rolls for the athl...

‘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.

‘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

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.

Around half of Indians survived on less than Rs 38 ($0.50) a day, according to one academic estimate, a group for whom even the smallest ‘harassment’ bribe could be crippling.

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.

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 on...

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.

target. In 1991, India attracted just $100 million in foreign direct investment. By 2017 that had ballooned to $60 billion.

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.

The middle classes fumed at sleazy politicians and shady tycoons, even though they themselves were typically expert bribe payers and tax avoiders.

‘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.’

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.

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 e...

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 paralysing 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.

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.

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 licences to operate.

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.

‘In police, tax collection, education, health, power, water supply – in nearly every routine service – there is rampant absenteeism, indifference, incompetence, and corruption,’ he

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.

In Jharkhand, a poorer eastern state with abundant mineral resources, one study suggested that investment projects needed 240 layers of governmen...

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.

The Indian civil service employed roughly three times as many as China as a proportion of its population.59

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.

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.

In a country with a bulging youth population even lowly civil service jobs were fiercely fought over. In 2015, an advert for a delivery boy in Uttar Pradesh, with a monthly salary of Rs 16,000 ($240), attracted over two million applicants.61

Wade uncovered a simpler and more ingenious system, in which each engineer would pay an unofficial fee to take their job in the first place, commensurate to the value of the cash that could be extracted from it. At that time an engineer would pay Rs 100,000 ($1,570) for a basic ‘operation and maintenance’ job. Having secured the post, the engineer could then earn nearly three times as much in bribes: ‘a most pleasing profit’, as Wade put it.

One study found that policemen in Mumbai would pay more to be transferred into jobs in high-crime areas, given these provided the best opportunities to take money from both criminals and victims alike.63

The more money that flowed through a position, the more that could be extracted from it. IAS officers faced an unpleasant choice of turning a blind eye to this corruption or sharing in its largesse. Honest candidates were unlikely to even apply for positions that required payments. Those who kicked up a fuss were quickly transferred to more mundane and less lucrative postings.

Beginning in 2011, the Supreme Court brought in a series of blanket iron ore bans, first in Karnataka and then in Goa.67 In the same vein as their later decisions to cancel telecoms and coal-mining licences, these were a kind of shock therapy from a judiciary that had grown impatient with corruption.

‘The nexus among politicians, officials, police and big business, a powerful labour mafia, disenfranchisement of local residents, [and] damage to the environment.’68 Yet the sector’s problems provided a wider lesson too, namely that corruption was not just the result of greed, but also the far more complex problem of state incapacity.