Raghuram Rajan, Reserve Bank’s chief, has warned the nation against crony capitalism which he said creates oligarchies and arrests growth.

 

"One of the greatest dangers to the growth of developing countries is the middle income trap, where crony capitalism creates oligarchies that slow down growth. If the debate during the elections is any pointer, this is a very real concern of the public in India today," said the fiery RBI Governor while delivering the Lalit Doshi memorial lecture in Mumbai on Monday.

 

The last parliamentary election was brimming with allegations of the nexus between politicians and large business enterprises.

While eulogizing the virtues of Indian democracy, Rajan hit hard on politicians who perpetuate crony capitalism.

 

 "An important issue in the recent election was whether we had substituted the crony socialism of the past with crony capitalism, where the rich and the influential are alleged to have received land, natural resources and spectrum in return for payoffs to venal politicians. By killing transparency and competition, crony capitalism is harmful to free enterprise, opportunity, and economic growth. And by substituting special interests for the public interest, it is harmful to democratic expression. If there is some truth to these perceptions of crony capitalism, a natural question is why people tolerate it. Why do they vote for the venal politician who perpetuates it?", he rued.

 

Exhorting people with clean records to join politics, he said, "One widely held hypothesis is that our country suffers from want of a 'few good men' in politics. This view is unfair to the many upstanding people in politics. But even assuming it is true, every so often we see the emergence of a group, usually upper middle class professionals, who want to clean up politics. But when these 'good' people stand for election, they tend to lose their deposits. Does the electorate really not want squeaky clean government?

 

"Apart from the conceit that high morals lie only with the upper middle class, the error in this hypothesis may be in believing that problems stem from individual ethics rather than the system we have. In a speech I made before the Bombay Chamber of Commerce in 2008, I argued that the tolerance for the venal politician is because he is the crutch that helps the poor and underprivileged navigate a system that gives them so little access. This may be why he survives."

 

The governor's caveat against crony capitalism and oligarchies is an echo of his statements that came in the wake of the Lehman Brothers collapse in 2008. In a lecture delivered at the Bombay Chamber, Rajan had highlighted that India had the highest number of billionaires per trillion dollars of GDP after Russia.

Rajan considers "three factors — land, natural resources, and government contracts or licenses — as the major sources of the affluence of our billionaires. And all of these factors sprout from the government."