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

by James Crabtree

Uttar Pradesh – or ‘UP’ for short – went to the polls every five years, in what was always the world’s largest local election. Home to some 220 million people, the state stretched from the borders of New Delhi in the west to the holy capital of Varanasi nearly 800 kilometres to the east, lying at the centre of what was sometimes referred to as the ‘cow belt’.1 Criss-crossed by the sacred Ganges and dotted with innumerable spiritual sites, this was India’s heartland; a region that acted as the bosom of its identity both as an independent nation and under the British and Mughal empires beforehand.

But unofficially everyone knew the bill for India’s perpetual jamboree of elections now ran into billions of dollars: $5 billion for the 2014 poll alone, according to one academic estimate.3 This

‘What is the village but a sink of localism, a den of ignorance, narrow-mindedness and communalism?’ –

Once known as the United Provinces, the state he ran had previously been the jewel of colonial India, blessed by lush farmland and dotted with cosmopolitan cities. But after Independence, India’s old regional balance gradually began to reverse. Once undeveloped parts of the south and west grew quickly, while UP and other northern heartland states slid gradually backwards, hobbled by feudalism, administrative incompetence and grinding poverty. Later, a new phrase hung over the place: ‘Goonda Raj’, taking the Hindi word for thug as shorthand for lawlessness and graft.

Here was the state that had produced eight of India’s fifteen prime ministers, and stood centre stage during all three of Varshney’s ‘master narratives’: first a Congress bastion and bedrock of secular nationalism; then the backdrop for the BJP’s Hindu reawakening in the 1990s; and finally the cradle of a new lower-caste politics too, as both Yadav’s father and Mayawati, a charismatic Dalit leader, took power as chief minister.

Modern academic models suggest that democracies rarely succeed in poor countries.

never manage to sustain democratic government.7 At the time of its independence India was nowhere close. It was also deeply hierarchical, almost entirely rural, and with four fifths of its population unable to read.

‘The old certitudes of Indian politics had crumbled,’ as academic Sunil Khilnani put it in his book The Idea of India in the late 1990s, referring to the declining power of secular nationalism in Indian politics. ‘Yet one powerful continuity stretched across this half-century of spectacular and often turbulent events: the presence of a democratic state.’ Liberals like Khilnani often regretted this decline in India’s secular identity, and its eclipse by powerful religious, caste-based and linguistic political movements. Others blamed the complexities of democratic rule for India’s slow economic progress, and in particular its inability to build Chinese-style infrastructure. Yet India’s democracy also proved successful, binding together a subcontinent that was far more linguistically and ethnically diverse than China, and which could easily have ended up divided into as many nations as Europe.

All the money that gushed into Indian politics has not corrupted the polls themselves. Despite extensive evidence of voter bribery, the country’s elections tend to be both free and fair, with little evidence of ballot-tampering. Armed with its ‘model code of conduct’, the Election Commission of India acts as a fierce policeman.

Victor worked as a local school teacher, but dressed in jeans and a lime green polo shirt, set off with sharp rimless spectacles, he looked as if he could have been an accountant or IT consultant. Akhilesh Yadav seemed like a decent man, he told me, but his party, a powerful presence in the local area, was full of dacoits (bandits). Their rule had delivered little for his town, but the local council was led by a Samajwadi politician elected a few years before, who had enjoyed a rapid transformation in her own fortunes. Victor simply called her begum, a word that means ‘powerful woman’. ‘It all goes in their pocket,’ he said of the politician and her family. ‘They had nothing, no proper house to live in, no proper vehicle to ride on. Now they have all sorts of facilities.’

There was a particular scam, one person told me, that involved stealing money from a new initiative – designed to fund new indoor toilets for those in the village who did not have one – in which conspiring politicians and builders used fake pictures of latrines to claim a generous government subsidy.

bearing an approximation of the Calvin Klein logo. Few of his neighbours were so fortunate, he said. Employment was scarce, forcing men to labour in farming or construction.

a new home, a modest consumer lifestyle or the chance to educate your children, so they could leave and find work somewhere else.

mysteriously in the months prior to the election. But once the polls were over he predicted the supply would worsen, returning to just six or eight hours a day during the scorching summer in a few months’ time. ‘Before elections we have good power, but after the parties win we will get nothing.’

Over the next few years Quraishi kept a list of the artful ways parties tried to buy votes. ‘They were all very crafty,’ he said. ‘Some would hand out money, others held fake weddings to entertain villagers with food and liquor, or handed out mobile phones, or SUVs, or saris, or jobs, or almost anything you can think of.’ His autobiography included a compendium of forty or so methods, from cash funnelled through village headmen, to gifts of solar lamps, narcotics, cows or manure.

Many of the problems that plagued the early days of India’s democracy, from logistical snarl-ups to violence at the polls, had been fixed, he argued. But the rising tide of illegal funding showed no signs of receding. ‘We haven’t been able to control this problem of money power,’ he said at the end of our conversation. ‘Every party, every individual is violating these rules. It is just a question of who gets caught.’

He nosed around, sounding out party officials about becoming a candidate for various seats in the Lok Sabha, the lower house of parliament. The knock-backs began to mount up. ‘As soon as they discovered I didn’t have much money to bring to the table, they suddenly weren’t interested, if you understand what I mean?’ he told me. He tried seat after seat, failing in each. ‘The people they consider to be viable candidates are people who they consider to have huge amounts of black money, OK?’ He went on: ‘You don’t hear people saying “This guy is a complete crook, we don’t want to be seen with him”. They say “This is the right guy, he has made a lot of money. He has the capacity.” ’

One involved the alleged sale of ‘tickets’, meaning the right to represent her party in parliament. Although this is something Mayawati has denied, a leaked US diplomatic cable released by WikiLeaks suggested that the going rate for a BSP ticket during the 2009 national elections came to ‘roughly 250,000 dollars’.22 The same cable, poetically entitled ‘Mayawati: Portrait of a Lady’, made further allegations concerning the excesses of her various spells as UP’s chief minister. ‘When she needed new sandals, her private jet flew empty to Mumbai to retrieve her preferred brand,’ the author claimed. Such stories had often attracted the attentions of India’s police, who unsuccessfully investigated various corruption allegations against her over the years, all of which she firmly denied.

Rather than turn against them, voters often took violence and extortion as perverse signs of strength; a signal that a criminal politician could offer protection or extract resources from the state. ‘Many voters vote for politicians because, rather than in spite, of their criminal reputations,’ Milan Vaishnav wrote in When Crime Pays. Such was the attraction of a criminal background that candidates facing criminal charges were three times more likely to win a seat than those with a clean record.

‘The crooked politician needs the businessman to provide the funds that allow him to supply patronage to the poor and fight elections. The corrupt businessman needs the crooked politician to get public resources and contracts cheaply. And the politician needs the votes of the poor and the under-privileged. Every constituency is tied to the other in a cycle of dependence.’33

Under her rule Tamil Nadu grew safer, richer and better educated.17 In 2016, a survey judged it one of the country’s two best-governed states,18 despite being led for the best part of two decades by a leader who mixed prodigious corruption, autocratic whims and a fondness for politically expedient handouts. ‘Jayalalithaa has become, for better or worse, the template that all India’s successful chief ministers seek to follow,’ as commentator Mihir Sharma put it just after her death.19

‘In the south, you can say that politicians learned to steal, but to do it while expanding the cake at the same time,’ as Devesh Kapur, a professor of political science at the University of Pennsylvania, once put it to me. ‘In north India they just went about taking as much of the cake for themselves as they could, and soon there wasn’t any cake left for anyone else.’

Tamil Nadu’s electorate did not seem to mind if their leaders were on the take, so long as they were not looting extravagantly and they delivered progress in other ways.

Even as his rule crumbled the Nizam’s eccentricities were legion: the fleet of Rolls-Royces he employed to collect rubbish from Hyderabad’s streets; the eunuchs that guarded his mighty jewellery collection; and above all the intricate complexities of his love life, with its dozens of concubines and countless illegitimate children. ‘The last Nizam had a total of 14,718 employees when he died,’ according to one account. ‘In his main palace alone, there were about 3,000 Arab bodyguards, 28 people paid to fetch drinking water, 38 to dust chandeliers, [and] several specifically to grind walnuts.’32 His rule ended in 1948, when his state was forcibly folded into a newly independent India.

‘The difference between Bangalore and Hyderabad is that the guys in Bangalore who are making money are separate from the guys who run the city,’ he told me. ‘In Hyderabad the businessmen and the politicians are intertwined. It is people who are from there, the entrepreneurs and their families, who have ties with people who are in politics.’ It

But gradually at first and then all at once, things began to go wrong. Rajagopal rattled off the list: the global financial crisis in 2008; a subsequent slowdown in India’s growth; the ‘season of scams’; and finally the new ‘administrative paralysis’ that took hold in New Delhi, as a wave of anti-corruption investigations shocked the political and business class. ‘A lot of economic activity came to a standstill,’ he said. ‘The demand–supply gap vanished. All of us as entrepreneurs, we took pains to set up all of these projects, looking at this growth potential, which never happened.’

‘But I always thought India would shed its socialism, and if there were new temples in India, they would be its stock markets.’

In 2002, he wrote an article arguing that India was ‘at the threshold of a secular and structural bull market’, as reforms introduced by the then BJP government began to bear fruit. ‘I am shouting at the top of my voice in 2003,’ he recalled. ‘Buy, buy, buy! Sell your bloody wife’s jewellery, and buy!’ It proved prescient. India’s financial markets went on a glorious five-year run, hitting a series of all-time highs. Some of his better investments, including Titan, jumped in value many times over. India flourished too: the list of dollar billionaires grew ever more crowded, Jhunjhunwala now among them.

More to the point, the closer you looked at the balance sheets of these big companies, the clearer it became that they were not just struggling to repay what they owed, but that they were probably never going to be able to repay.

In public, the tycoons blamed a wider economic downturn.

In private, they raged at the government, claiming that political inaction was sabotaging otherwise viable investments. The phrase ‘policy paralysis’ began to be bandied about in New Delhi, to describe the way accusations of cronyism had led government decision-making to judder to a halt.

The tycoons deployed a clever deception, telling Bank A they were putting equity into a particular project, when the money had in fact been raised as debt from Bank B, as part of the financing of an entirely different project, and then quietly transferred over. Both Banks A and B were kept in the dark, while the tycoon had to put in no money of their own.

Gupta discovered that the banks looked only at the health of the individual companies who wanted to borrow, rather than the total debt levels of the wider conglomerate.

Indian promoters were known as masters of extracting cash from projects, even those that ended up losing money. The most common ruse was ‘gold-plating’. Here a business approached a bank with a proposal to build a project, say a steel mill, costing $2 billion. Of this a portion – $1.5 billion, for instance – would be funded through bank loans, while the remaining $500 million would come as equity put in by the owners. The trick was that the entrepreneur knew the steel mill could actually be built for $1 billion. The difference between the amount raised from the banks and the true cost – in this case $500 million – could be pocketed as profit and used to fund investments elsewhere.

Further deception would be managed via understandings with suppliers, involving a technique called ‘over-invoicing’. Here project bills – from the builders who constructed a steel mill, for example – would be inflated, with the difference shared between the supplier and the company. Bankers would be kept in the dark. Similar methods could also be used to over-value imports, like coal or iron ore, or to rig the terms of public–private partnership contracts.10

The tycoons had grown out of control. ‘The atmosphere was one in which the prime minister talked about unleashing the animal spirits,’ as Jairam Ramesh put it to me. ‘But the animals became man eaters.’

For all their vaunted aggression, the tycoons stumbled because they did not adapt to a significant change in India’s political economy. Many had come of age before liberalisation, a time when capital was scarce but political problems were easy to negotiate. These two foundational assumptions then changed. First, capital became cheaper, as globalisation extended its reach during the 2000s and long-starved tycoons helped themselves to as much funding as they could find. But then, against a backdrop of corruption scandals, the promoters found their old political tricks no longer worked. Saddled with debt, their powers to work the system suddenly vanished.

Then, a few months before he took over, India was hit by a serious financial crisis, as US Federal Reserve chair Ben Bernanke hinted that he would begin to throttle back America’s quantitative easing effort, the multi-trillion-dollar cash-printing machine that had helped to stave off the worst of the global crisis. Investors around the world panicked, pulling capital out of emerging markets and from India in particular, with its historically weak public finances and ominous current account deficit. India was suddenly plunged into its worst financial crisis since 1991: the rupee crashed, financial markets went haywire, and the government flailed, trying to come up with a coherent response.

Nayak’s report, published in mid-2014, painted a grim picture of uncompetitive, capital-starved institutions, led by cautious bureaucrats and hobbled by political interference.16 India’s bad-loan problems were likely to get worse, Nayak argued, requiring yet more emergency capital to be pumped in by the government to keep them afloat. Yet without drastic changes to the way the banks were run, even this recapitalisation would simply mean throwing more good money after bad.

From time to time a scandal would erupt in which police caught a financier accepting cash. The chairman of Syndicate Bank, an undistinguished mid-sized lender, was arrested in 2014, on charges of accepting a bribe in exchange for giving a loan to a struggling steel tycoon, before being released on bail.18 (The case remained pending at the time of writing.) These public cases were rare, but the wider system was thought to be riddled with similar smaller examples, from managers accepting fancy watches to executives finding clever ways to restructure old loans or offer new ones in exchange for cash.

One problem was information, given that lenders were unable or unwilling to dig into the overall condition of the conglomerates themselves, or to find out whether their owners were shifting debts around between companies. India also had no functioning bankruptcy rules, which made it all but impossible to kick out owners at a failing company and sell off its assets. Capital was expensive in India largely because it was so hard to get it back if things went wrong.

But in India the deals worked the other way round. ‘The essential game was that if you were an industrialist, and you got into trouble, then you don’t have to pay back unless you want to,’ Rajan told me. ‘And the only reason you want to pay up on one loan, is if you want to get more loans in return.’

Syndicate, the lender whose chairman was arrested in 2014, had a ramshackle outlet just next to my office in southern Mumbai, with an ATM I used to use from time to time. The bank’s orange logo featured an Alsatian dog and the slogan ‘faithful and friendly’. Inside it was all shabby furniture, piles of yellowing paper and slow-moving clerks. The single cash machine normally did not work. Barely half of Indians had bank accounts, but those that did mostly used branches like this, attracted by their safe and sober reputations.

Arundhati Bhattacharya at State Bank of India, the largest lender, earned roughly $45,000 a year.20

Vijay Mallya’s Kingfisher was one obvious example. When things began to go wrong, the banks restructured the tycoon’s loans and gave him more time to fix his finances, while also swapping debt for equity at generous rates.22 When it became clear that Mallya was not going to be able to repay, they were stuck. They had no legal means to take control of Kingfisher, or even to force Mallya to repay what he could. The power imbalance between lender and debtor was too great.