Being Super Rich is not a crime

All super rich Indians may not be corrupt, or crazy.

  • Corruption: Good and Bad
  • Fault lines
  • Boom-bust
  • Inequality

Rise in equality is not only an Indian phenomenon. In USA, the growth in income of bottom 50% was almost zero in last 30 years. Whereas, incomes of top 1percent has grown to 300 %.

Besides India, China and Indonesia draw similar picture. Top 5% increased their personal consumption by $400 per year; $30 for bottom 20%.

Why it happens like that? Globalisation and opening of markets.

Majority of Indian billionaries made their fortunes from 1990s, by tapping global markets, and rising market values of their stocks (including own companies). This perhaps, is the result of India’s capital market liberalization.

India is vulnerable to boom and bust cycles – Banks lending recklessly to large projects. Not many long-term lending institutions, except ICICI (for namesake); IDBI and IDFC, have become retail commercial banks, who in turn provided long-term lending to large projects. They were not ready, and were ill suited (for risk management). India needs to create new long-term lenders.

Next 20 years, Bond financing for large projects seems the solution (assuming bond markets are more vigilant then bankers). Big companies will have to pay high coupon rates for big projects. This volatility will subside over a period, but at a cost.

Everything blue is not gloomy.On economic front, India resembles Americas in late 19th centuary, when robber barons, inequality, cronyism ran rampart. Well, the rise of middle class and revitalization of institutions ushered in a more progressive era.

India could follow the same script, if it is able to repair the  three fault lines – inequality, crony capitalism and corruption, and vulnerable to boom and bust cycles. Tycoons went on borrowing spree, and banks showered loans even on projects with zero equity.

There are two types of corruptions – efficient and inefficient.

Efficient corruption was practiced in some East Asian countries – side payments for business deals encouraged beaurocrats and politicians to act in ways that encouraged investments. This form of corruption act as lubricant easing the path to modernization; largely the form of corruption practiced n some southern Indian states, which have provgressed relatively well.

The picture is different in northern parts of India – politicians tended to plunder the state, skimming off even welfare programs.

There could be myriad reasons for lack of investments in this part of the country – law an order issues, problems with land acquisition, bad infrastructure, a poorly educated workforce and inefficient beaurocrasies.

Yet, a great deal of wealth is created with minimal cronyism and corruption. For example, Mr. Ambani inheriting influenced-paddling infrastructure created by his father, has achieved more through entrepreneurial vision and boldness than cronyism.

Suresh Shah, Pathfinders Enterprise

Based on the book written by Mr. James Crabtree

 

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