Does the Idea of Crony Capitalism Have Anything to do with Indian Polity and Economy?

For almost a year or more, there have been numerous articles in the newspapers and TV panel discussions about what is called “Crony Capitalism” being present everywhere in Indian polity.

The idea of Capitalism, as a principle of social organization, has always been anathema to Indian intellectuals and politicians since independence. The fundamental principles of capitalism like individual rights, property rights, and profit motive have never taken deep roots in Indian culture, at least not since independence.

According to Jawaharlal Nehru, whose ideas of socialism dominated Indian political and economic space uninterrupted for 17 years since independence, the idea of “profit” was a dirty word, the fundamental idea by which the capitalistic economy functions.  Her daughter Indira Gandhi, who was Prime Minister for almost 16 years (with an interruption of just less than three years) took India much farther down the road of Socialism than her father.

The Janata Party government that interrupted Indira Gandhi’s tenure as Prime Minister was in no way sympathetic to the idea of capitalism either; in fact, the right to property – another guiding capitalistic principle – was removed from the fundamental rights by the 44th amendment by Janata Party government.

In such circumstances, I have always been skeptic about using the term “capitalism” to India in any manner whatsoever, to any part of the Indian economy or polity.

If anyone still has any doubt about the applicability of capitalism to India, I would suggest that you read some of the constitution assembly proceedings to have an understanding about the attitude of Indian intellectuals toward Capitalism.

The Idea of Capitalism Among Constituent Assembly Members:

For the record and for the benefit of the readers to form an opinion, I would quote just some sample from the constituent assembly debates about what some of the members had to say about Capitalism:

Shri Brajeshwar Prasad (Bihar: General):  It is only after war, and nation states and capitalism have been liquidated, that we can achieve perfect democracy.

Seth Damodar Swarup (United Provinces: General):  While in America our Prime Minister said that socialism and capitalism cannot go hand in hand; it is surprising as to how it can be expected to maintain status quo, to maintain capitalism and also to remove the poverty and unemployment of the masses. Both these things are quite incompatible.

Prof. Shibban Lal Saksena (United Provinces: General): I also regard Article 31 about property as the charter of capitalism in this country. I am sure, the representatives of the people elected on the basis of adult suffrage will change this Article which makes all socialization of the means of production for the community impossible. The Directive Principles of State policy which have been so beautifully described in Part IV cannot be realized so long as Article 31 forms part of this Constitution.

Shri Lakshminarayan Sahu (Orissa: General):  We want to shape the world in a new fashion, and want to abolish capitalism at once.

Shri Alladi Krishnaswami Ayyar (Madras: General): Capitalism, as it is practiced in the West, came in the wake of the Industrial Revolution and is alien to the root idea of our civilization.

Mr. Frank Anthony ( C. P. and Berar: General):  I feel that if a policy of laissez-faire at this stage is conceded or accepted from the Center, then we are trifling with a force which in its potential for mischief, in its potential for disrupting this country is much greater than any disruptive tendency we have faced from religious communalism.

Therefore, to apply capitalism to Indian polity, even in a derogatory manner, by which that term is obviously being referred to in those articles and discussions, would be meaningless and empty as capitalism has never played any significant part in Indian polity since independence, either in theory or in practice.

India:  Socialism and Fascism in Theory and Practice:

India has always been a socialistic state since independence, at least as a goal, as an ideal, and the theory of socialism has always been sacrosanct for Indian intellectuals and politicians and journalists, almost without any exception.

However, in practice, India followed a policy of a mixture of socialism and fascism since independence.  What Rajaji famously called as the License-Permit-Quota Raj was the fascist element of India polity. But, no intellectuals would dare to acknowledge openly so, nor would they be able to deny it if they tried it. What would the Indian intellectuals do when they encounter a situation where they have to answer a question on this aspect of Indian polity?  They would obviously evade it.  I would suggest one very typical example of such an attitude by one socialist intellectual.

Jean Dreze, the Economist on Socialism and Nehruvian Policy:

This is from an interview with Jean Dreze, the economist, a naturalized Indian of Belgian origin, co-author with Amartya Sen of “Hunger and Public Action and India.” This interview was published in The Economic Times dated July 21, 2013, titled “Nehruvian Socialism a derogatory term, 4% growth till 1964 was a breakthrough: Jean Dreze.”

See how he responded to a particular question put to him by the interviewer on Socialism. This is a classic example of evasion by an intellectual of the left, obvious even to a layman with a very good common sense.  I have sometimes wondered how these intellectuals get away with this type of evasion!

Does India need a return of Nehruvian socialism?

“I don’t know what Nehruvian socialism means. It seems to be a derogatory expression that conflates socialism with the Licence Raj of yore. There is certainly no case for returning to the Licence Raj, but that monstrosity had little to do with socialism, and I am not sure that it would be fair to hold Nehru responsible for it either.

India under Nehru was far from socialist, though it certainly assigned an important role to the state in economic development, as many other countries did at that time. And the results were not so bad, at least initially. From Independence until 1964, when Nehru died, the Indian economy grew at around 4% per year, which was a real breakthrough compared with the prolonged stagnation of the first half of the twentieth century, not to speak of the famines that periodically devastated the country right until 1943. There were also some big policy mistakes in Nehru’s days, including the failure to make a rapid move towards universal elementary education.

But to attribute that to socialism would be a serious confusion. A clear assessment of the achievements and failures of public policy in that period cannot be achieved by reading them through the distorted lens of “Nehruvian socialism” and conflating that term with the Licence Raj.”

Jean Dreze was right that Licence Raj – that monstrosity – has nothing to do with socialism, but he did not want to admit that that has everything to do with fascism.  He was wrong in claiming that Nehru was not responsible for it.  Then who or what was responsible for it?  Did it fall from the heaven? Obviously not!  Then, who was responsible for it? He did not answer those questions either.  He just evaded it.  He was also right in that India was far from socialist, but he did not want to admit that along with socialism some fascist ideas began to take a stronghold in Indian polity through constitutional amendments.

There were many more questions that were being begged in that interview.  Discussing those questions would be beyond the scope of this article.  It is enough to know that intellectuals now are unable or afraid on many counts to discuss about the political and economic principles that were dominant in India for 45 years since independence because that would put them in an awkward position to have to defend the indefensible, which is obviously socialism.  The interviewer let Jean Dreze off the hook without asking those questions that Jean Dreze’s answers entailed, which is obvious to anyone who can apply simple common sense. The interview drifted to some other topic after that.

The Definition of Involved Concepts of Political Economy:

Now, to make my points clear on the concepts of socialism and fascism, let me define the involved terms of political economy here:

Capitalism: An economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.

Fascism:  A political philosophy, movement, or regime that exalts nation and often race above the individual and that stands for a centralized autocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition.

Socialism:  Any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods.

Statism: Concentration of economic controls and planning in the hands of a highly centralized government often extending to government ownership of industry.

Source:  Merriam-Webster Dictionary

These definitions are somewhat vague in certain aspects.  While capitalism and socialism are defined exclusively as economic systems, fascism is identified mainly as a political system.  To study and analyze the political economy of India, one must have a clear understanding of what political principles are subsumed under capitalism and socialism and fascism as “the political economy is the interplay between economics, law and politics, and how institutions develop in different social and economic systems, such as capitalism, socialism, and fascism. Political economy analyzes how public policy is created and implemented.”

Capitalism is usually associated with political ideas of freedom of speech and expression.  While socialism rejects the notion of private property altogether, fascism only nominally accepts that idea but tries to put restrictions on the right to use and dispose of private property according to the dictates of the government. Read the “Economics of Fascism” for a detailed treatment of this idea.

Socialism may support the idea of freedom of speech and expression in theory, but socialists, while in power, if they are unable to abolish completely the rights to private property, usually do not hesitate to adopt fascist policies such as restrictions on freedom of speech and expression and restrictions on the use and disposal of private property by the citizens.  This was what happened in USSR under Lenin.  Read the “New Economic Policy” on how Lenin did this.  Of course, Stalin abolished the “New Economic Policy” and collectivized everything.  Indian under Jawaharlal Nehru also adopted some fascist policies through the constitutional amendments as we shall see what happened in India since independence.  Fortunately for India, Nehru’s attempt at collectivizing Indian agriculture did not succeed.  Statism is a more generic term, which can be applied to both socialism and fascism.

Fascism Introduced into the Constitution Through Amendments:

Based on these definitions, the ideals of socialism were explicitly propounded by most members of the constituent assembly but the ideals of fascism were implicitly achieved through constitutional amendments later.  These two ideas have been dominant in India since independence.  As has been clear by the constituent assembly debates that I quoted above, there has been a widespread ‘feeling’ against some remnants of the ideals of capitalism like individual rights, freedom of speech and expression, and private property rights among the Indian intellectuals.  In spite of these, the constitution adopted in 1950 was not for a socialistic state but that of mixed economy.

But, through the First Amendment of the Constitution of India in 1951, many provisions in the Fundamental Rights were diluted and a schedule 9 was inserted into the constitution, where the laws coming under it were made beyond judicial scrutiny, an obviously fascist measure. Also, an article 31 A was added to the constitution to dilute private property rights. Therefore, if there were any principles of capitalism that were said to be enshrined in the original constitution, the Indian Government under Jawaharlal Nehru began to get them diluted starting with the First Amendment.  This meant that India, which was a country of mixed economy – a mixture of freedom and control – as per the original constitution, remained so for only a year and a half between adoption of the constitution on 26 January 1950, and the enactment of the First Amendment on 18 June 1951.

Thereafter, through numerous other subsequent amendments, first by Jawaharlal Nehru and later by her daughter Indira Gandhi, India became a country of socialism and fascism.  For example, through amendment 4, restrictions were put on property rights and related bills were included in Schedule 9.  Amendment 17 enabled the state to secure constitutional validity of acquisition of Estates (private property) and placed land acquisition laws in schedule 9 of the constitution.  In practice, the Industrial Policy Resolution of 1956, which established the License-Permit-Quota Raj, sealed the fate of India as a country of Socialism and Fascism.

After a very brief but precarious respite from these policies under Lal Bahadur Shastri, Nehru’s daughter Indira Gandhi faithfully followed the mission to establish a socialist state, and she even traveled farther down the road than her father toward that (economic) ideal culminating in the Nationalization of 14 private banks in 1968 and 6 more private banks in 1980.  Then through the Constitutional amendments 24 (which gave overriding powers to Parliament to destroy fundamental rights by simply amending the Constitution) and 25 (which destroyed the right to property) Indira Gandhi still moved farther in another direction (political) and reached and temporarily established a full blown fascist state for almost 2 years during the emergency in 1975-77.  Read a graphic account of how this happened in this excellent article, “The Emergency, forty years later,” dated January 24, 2015, in Livemint Magazine.

Fortunately for India, that short-lived fascist emergency state led to the defeat of Indira Gandhi in the 1977 elections and proved to be a watershed election for these policies.  The victory of Janata Party in that election, although good as far as the defeat of the fascist policies, Socialism began to get entrenched still more deeply in Indian polity.  Differing with Indira Gandhi only in a trivial manner, with the corollary idea of “my gang would do better than the other on the same socialist policies,” the Janta Party government also embraced the idea of socialism like Congress.  This government, although removed certain amendments made by the 42nd amendment to help establish fascist rule by Indira Gandhi, made the right to property as mere legal right rather than a constitutional right through the 44th amendment.  Thus, the socialist/fascist policies continued under Janta Party rule, albeit in a different manner.

Economic Reforms of 1991 and India Becoming a Country of Mixed Economy from Being a Socialist/Fascist state:

The economic reforms of 1991 undertaken by the then Prime Minister Narasimha Rao and his finance minister Dr. Manmohan Singh took India away – only slightly and precariously from the fascist part of Indian polity, the License-Permit-Quota Raj, but by no means anywhere to anything near to what is called Laissez-faire capitalism.

I will quote from an article by Rupa Subramanya, dated May 7, 2015, “Narendra Modi Is Bad for Big Business” to buttress my point.

“In the years of a tightly controlled, largely closed, and centrally planned economy (socialism and fascism), there was a cozy nexus between top government ministers, bureaucrats, and business leaders (crony fascism). The latter needed government largesse in the form of licenses and other clearances (because of the License-Permit-Quota Raj) to operate their businesses (crony fascism again). These business leaders, known informally as the “Bombay Club, actively lobbied against economic reforms (which would move India toward a free market economy), which would have challenged their market dominance.

After India’s economy opened up in 1991, these cozy ties didn’t just disappear (crony fascism continues again). Rather, in a poorly regulated and opaque environment in which politicians and bureaucrats continued to operate with considerable discretion rather than under fixed rules (the italics part refers to capitalism) — especially in the many sectors that remained heavily regulated by the government (crony fascism again) — proximity between business and political leaders, and sometimes also with the connivance of senior members of the media establishment acting as go-betweens, remained as important as ever (crony fascism again). Moreover, many of these business leaders or their heirs are still key players today.”

Comments within brackets are mine.

Ironically, Rupa Subramanya, like all other commentators and journalists, also uses the term “Crony Capitalism,” which according to the points that I had discussed in detail above should be “Crony Fascism.”

Those who understand the concepts of political economy would be wondering where he can find the ideas of Capitalism as even playing a very small part in the maze of socialism and fascism in India, both in theory as in the Constitution (with all its amendments) and the laws through which the government as the representative of the State controls every business and other aspects of the social life of its citizens in numerous ways.

As to the practices that are prevalent in Indian polity today, in my next article, I am going to consider some examples from articles where Crony Capitalism is supposed to be practiced – and establish beyond any iota of doubt – that what these intellectuals and journalists are talking about have nothing to do with capitalism in any manner whatsoever, but only with socialism and fascism.  I will analyze in detail how the concept of Crony Capitalism is discussed by the authors and what is the exact meaning of the processes which the authors call Crony Capitalism.  In order to do that, I will use the concepts of political economy that I defined above and apply them to these instances where the commentators think they obviously see “crony capitalism.”

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