Democratic governments strive to convince citizens that contracts have been given to the firms that can best deliver. In India and Nigeria, governments do not leave anyone in doubt that connections is the critical qualification. But Indian cronyism offers citizens a much better deal.
Anywhere in the world, the favourite ideology of rich business people is chumocracy, the practice of giving big jobs (and contracts) to one’s friends. But while democratic governments elsewhere go to great lengths to convince citizens that contracts have been given to the firms that can best deliver, in places in India and Nigeria, governments do not leave anyone in doubt that connections is the critical qualification.
The Nigerian government recently allowed a certain cement manufacturer whose business is largely a creation of government policy tools to move goods across Nigerian borders while they remained closed to other businesses. The Indian government also has a reputation for creating and twisting rules and regulations and to favour preferred billionaires, a practice that the Hindu nationalist Bharatiya Janata Party (BJP) has raised to new heights under Prime Minister Narendra Damodardas Modi.
This Big Read reviews the practice of chumocracy in India, focusing on the billionaires it has created. Naturally, the question arises- why has cronyism created billionaires and vast industries in India but poverty in Nigeria?
Gautum Adani – Aviation
In November 2018, the government moved to privatize six airports under the Airports Authority of India [AAI] in a bid to augment airport infrastructure all over the country. The AAI received 32 technical bids on the six airports—in Ahmedabad, Jaipur, Lucknow, Guwahati, Mangaluru and Thiruvananthapuram—from ten major corporations. In February 2019, it was revealed that the bids for each of the six airports were won by just one company, Adani Group, which was granted a 50-year contract to run all the airports. This win alone automatically made the Group the third-largest airport operator in the country just behind the GMR Group and the GVK Group. In just a single day, the Adani Group went from having no stake in the airport business at all to owning an aviation empire that serviced 30 million passengers per fiscal year.
This immediately raised eyebrows. First of all, the Adani Group had no experience whatsoever in the airport business to warrant such a sweep of the bidding. Also, the government seemed in haste to hand the Adani Group the contract, as it ignored the recommendations of the Department of Economic Affairs and the National Institution for Transforming India. It was also in violation of the 2008 Airports Economic Regulatory Authority of India Act which seeks to stop the private airport sector from “becoming a monopoly”.
This was not the first or last time the Indian government appeared to ignore state rules in the interests of the Adani Group owned by billionaire industrialist and India’s second-richest man, Gautum Adani, who has a highly publicized friendship with Prime Minister Narendra Modi. In 2020, the Indian Congress blamed the Modi government for flouting the Defence Procurement Procedure of 2016 [and disregarding the suggestions of the Indian Navy] to include the Adani Group in a sensitive submarine project even though the company did not meet the requirements for eligibility.
Three years into Modi’s reign as Prime Minister, Adani’s business was reported to have grown twelve-fold. Of course, the relationship between Modi and Adani is not a one-way street; indications point at a scratch-my-back-I-scratch-yours dynamic. During Modi’s 2014 election campaign, he was often seen jetting around the country in a plane owned by Adani himself. Adani is often seen accompanying Modi on state visits that should not, ordinarily, concern private citizens.
Under Modi, India’s cronyism has only grown as the wealth gap gets worse. In 2019, India added an average of three new billionaires every month despite witnessing a significant economic slowdown. In a country of 1.35 billion people, the richest 1% control 58% of the wealth. In 2016, The Economist ranked India ninth on its crony-capitalism index. Adani is not the only business tycoon thriving under Modi’s rule.
Mukesh Ambani – Telecommunications, E-Commerce
The richest man in all of India and fourth-richest man in the world, Mukesh Ambani, is the best example of someone from the developing world rising to become one of the wealthiest on the planet. But it is interesting that, prior to Modi’s ascent to the position of Prime Minister, Ambani was only ranked 40th among the richest in the world, seeing a net worth increase of 331% since then. His rise cannot be divorced from favoritism by the government.
In 2016, Reliance Jio, a telecommunications company owned by Ambani, moved to slash data charges to the lowest in the world. The aftermath of this was a crisis for the sector, with many businesses losing out on Revenue and EBITDA. According to the Cellular Operators Association of India [COAI], Jio had gone against the Telecom Regulatory Authority of India’s (TRAI) rules which deemed a business with 30% of market share as predatory [Jio had 34%].
Instead of carrying out punitive measures, the government reacted to this by amending its TRAI rules and changing the definition of what counts as a predatory business just so Jio would be in the clear.
Back in 2016, in a more blatant show of government partiality, an advert was run by the company on the front pages of the Hindu Times and the Times of India using a picture of the Prime Minster to promote the company. This was in violation of the Emblems and Names [Prevention of Improper Use] Act of 1950 which prohibits the publication of any advert that suggests the support of the Government of India for a private business, without the explicit permission of the government itself.
Reliance Jio suffered no punishment for this, which leads to only two possible conclusions: that the government chose to ignore the violation, or that there was in fact no violation and Jio had the backing of the Prime Minister to use his image to promote a private business. Neither scenario paints the picture of an impartial government.
In 2019, the Indian government revised a policy, banning e-commerce companies with foreign investments from selling more than 25% of their output in a single e-commerce platform. This move was widely seen as favorable to local players in the e-commerce sector, particularly Ambani’s Reliance Retail. This move set the Indian e-commerce sector for a profitable or more precisely rent-rich future, with estimates putting its value at $99 billion by 2024. Reliance Retail is expected to capture half of this value.
Ambani publicly backed Modi’s controversial demonetization policy, calling it “a big leap forward from a predominantly cash economy to a digitally enabled optimal cash economy”. The policy was a complete failure, wiping off 1% of the GDP and costing the country 1.5 million jobs.
While it was an economic disaster for most of the population, especially small business owners, the policy has been attacked as favouring the Prime Minister’s billionaire-friends. The Indian National Congress, the opposition party, gave a sharp rebuke of the move, with its then-President Rahul Gandhi noting that Modi “inflicted the wound of demonetization on the country to help his 15-20 crony capitalist friends”.
Baba Ramdev – Consumer Goods, Healthcare Ayurdeva
Yoga instructor, businessman and TV personality, Baba Ramdev became a billionaire during PM Modi’s reign and it is by no means accidental. Perhaps Modi’s biggest supporter during the 2014 elections, Ramdev was able to motivate his millions of supporters to turn out en masse to the voting booth for Modi. Following Modi’s victory at the polls, Ramdev was widely credited for it, with the then-President of the Bharatiya Janata Party, Amit Shah, praising the guru and spiritual leader-turned businessman for “contributing significantly to the formation of the Narendra Modi government at the centre”. In return, he has enjoyed a series of benefits from the Modi government that culminated in him upscaling to a $6.1 billion empire.
Ramdev’s Patanjali Ayurved became the fastest-growing FMCG company in the country within a year of Modi’s rule. Within four years, it ate into the market share of other FMCG companies that had been around for decades. And part of this is thanks to the government’s public support for the corporation. The Indian government serves Patanjali products during Parliament dinners. Its products are promoted in the government-owned Kendriya Bhandars, canteens, barracks and shops. Between 2014 and 2019, the company received 2,000 acres of land from the government at little cost and it enjoys security from government officials who man its factories at tax-payers’ expense.
Like India, Like Nigeria
The parallels between the Indian case and Nigeria cannot be overstated. In 2018, Aliko Dangote was named President Muhammadu Buhari’s re-election campaign adviser. When Modi was re-elected as Prime Minister in 2019, Ambani and Adani were seated front-row at the swearing-in. Indian comedians have a running joke that states that vote for Modi is an indirect vote for Ambani, seeing as the latter actually calls the shots. International publications have called the Nigerian government “the chief enabler of Dangote Cement”, suggesting a practice of crony capitalism.
But In India, Unlike Nigeria
While one would be hard pressed to point at the benefits of cronyism in Nigeria, India has indeed seen some silver-lining to this practice. According to the Modi’s administration, which does little to deny its aggressive culture of cronyism, these practices are aimed at actualizing the swadeshi dream i.e. goal of Hindu nationalism in the business sector. The key and very important difference is that there is a vision to promote rather than restrain business.
The move to sell the airlines to Adani Group was part of a move to secure a share of the aviation sector in the hands of a trusted private individual who would open up more opportunities for homegrown development.
The government’s move in 2019 to place restrictions on foreign companies playing in the e-commerce market [there by favoring Ambani] had the consequence of increasing the value for the Indian e-commerce players which are now forecast to add many more billions to their valuation by the middle of this decade. This opens up an avenue for domestic players to thrive in a global market dominated by foreign corporations.
Modi’s unhidden favoritism towards Patanjali has been addressed by his administration, stating that it is in service of economic nationalism to promote an Indian-owned product. This opportunity has allowed the Ramdev-owned company to move from selling herbal powder and jellies to expanding so widely it practically sells everything its market needs: mustard oil, kitchen supplies, soaps, detergents, cornflakes, biscuit, pasta, wipes, medicine, honey, shaving cream and many more. This has allowed it to compete with Hindustan Unilever [a British-Dutch company] in the battle for market share.
But ultimately, in Nigeria as well as India, cronyism, including policies that hold the hands of foreign companies, thus limiting their investment and operations, the economy and citizens lose. Cronies make more money but the economy loses from the efficiency and competition that is lost when foreign investment is constrained. The result is often higher prices for consumers.
Yet, an important difference between India’s cronyism and Nigeria’s cronyism is that India also promotes billionaires by withdrawing from infrastructure sectors and public services such as airports, seaports, roads, water, electricity, sanitation, railway etc. and allowing the private sector to invest in and manage them. About 47% of the Rs 8.56 lac crore (about $ 7,394,020 billion) required to replace aged assets and reduce capacity constraints is planned to come from the private investment.
In India, there is an explicit recognition amongst politicians as well as in the bureaucracy that because of the need for the government to meet social obligations and also the urgent need of the economy for expanded infrastructure services, private sector investment must be mobilised. This has allowed Indian firms upgrade their expertise to raise finance for, build and operate a range of infrastructure; there are scores of quoted infrastructure companies, some extending their operations to places like Saudi Arabia.
Nigeria has remained stuck at very low, least productive rungs of cronyism. The country has lacked a coherent public-private partnership programme for more than a decade. Government often roll back commitments to allow private sector investment in infrastructure. A reflection of the country’s poor-quality cronyism, the Federal Government’s attempt to concession the Lagos-Ibadan expressway to a private company which could successfully raise the finance to build it failed.
The Federal Government has taken on the construction of the Lagos-Ibadan Expressway, proceeding at a snail-like pace in the last 6 years. Under a vibrant PPP programme, the FGN ought to have 5 privately financed infrastructure projects of a similar scale (to the Lagos-Ibadan expressway) being built simultaneously and as many at the development stage.
The plan of the administration of former President Segun Obasanjo to have management and investment in airports in Nigeria transferred to the private sector has gone nowhere. The Lagos State Government in 2015 paid off private investors in the Lekki-Epe toll road and assumed ownership and management of the asset in a bid to avoid raising toll in an election year.
We are not aware of a similar high-profile PPP that the Lagos State Government is developing; the Lagos Public-Private Partnership Office was quietly made completely irrelevant under former Governor Akinwunmi Ambode, existing only in name and law. Taking over the Lekki-Epe Expressway for obvious party-political reasons is another eloquent evidence that Nigeria is not ready for PPPs.
In India, public policy has opened up vast sectors to private sector participation. Despite high-profile cases of favouritism, the more mundane reality is that companies who raise capital for public infrastructure projects sometimes suffer loses. Nigerian government has held on to roads, ports, bridges, hospitals etc. that it lacks the funds to finance and the capacity to manage. These assets in fact remain a source of corruption as politicians and bureaucrats responsible for their management award inflated contracts and devise myriad innovative schemes to skim off annual budgets. Public-Private Partnership projects on the other hand are much more transparent-questions can be asked over the returns investors are enjoying and the managers can be more easily held accountable for the quality of service. Indian cronyism offers a much better deal for the Indian tax payer by creating opportunities for private investment and management of infrastructure. In this sense, cronyism based on policy innovation may be the first stage of true capitalism.