Under Modi’s Watch Crony Capitalist Sector’s Share In India’s GDP Goes Up From 5% To 8% – Analysis

India is number 10 in a crony capitalism list of 43 countries with GDP over $250 billion, says The Economist

According to The Economist, the crony-capitalist sector’s share in India’s GDP has gone up from 5% to 8% under the government led by Prime Minister Narendra Modi.

“India’s leader, Narendra Modi, has favorites among the country’s corporate captains. Over the past decade, wealth from crony-capitalist sectors has risen from 5% to nearly 8% of its GDP,” The Economist dated May 2 says. 

“Gautam Adani, the owner of the conglomerate of the same name, was briefly the world’s third-richest person in September. But in January his company was accused of fraud and stock market manipulation by Hindenburg Research, an American short-seller. It denies all accusations. His wealth has fallen from $90bn to $47bn,” the report says.

Global Scene

It quotes Forbes to say that in 1998, there were 209 billionaires with a total worth of US$1 trillion, equivalent to 3% of global GDP. This year Forbes details 2,640 billionaires worth US$ 12 trillion or 12% of GDP. Adjusting for rising prices—$1bn in 1998 is now equivalent to $3.3 billion—there are 877 billionaires (at 1998 prices) with a collective worth of $9 trillion.

Crony capitalists’ wealth has risen from $315 billion or 1% of global GDP 25 years ago to $3 trillion or nearly 3% of global GDP now. Some 65% of the increase has come from America, China, India and Russia.

Overall 40% of crony-capitalist wealth derives from autocratic countries and amounts to 9% of their GDP. 

Russia Tops

Russia is the most crony-capitalist country. Billionaire wealth from crony sectors amounts to 19% of GDP. But due to Ukrainian war, crony wealth declined from $456 billion in 2021 to $ 387 billion in 2023. 

“Only one-fifth of Russian billionaires’ wealth is derived from non-crony sectors, which shows just how distorted the economy is,” The Economist says.

In March last year, the G7, the EU and Australia launched the Russian Elites, Proxies and Oligarchs (REPO) Task Force to “isolate and exert unprecedented pressure on sanctioned Russian individuals”. A year later it announced that it had blocked or frozen $58 billion of assets. 

However, REPO admits that “in some cases oligarchs have found it easy to evade sanctions by using shell companies, passing assets to family members or investing in property. Wealth is increasingly stored in manicured lawns and marble columns.”

US is No Exception 

Crony capitalism is thriving in the US too, The Economist points out.

“Overall crony-sector wealth amounts to around 2% of GDP in America, whereas non-crony-sector wealth is 15%. But tech exhibits some crony characteristics. America’s 20 biggest tech companies raked in half of all the industry’s sales in 2017, making it the country’s most concentrated sector. Tech firms are among the biggest lobbyists in Washington, with eight firms collectively spending $100m last year. Reclassify tech as a crony industry in our index and America’s crony wealth increases to 6% of GDP”.

But it has declined due to the crash in tech stocks.  

“Many of America’s 735 billionaires have been hit by the crash in tech stocks last year; three-fifths of global tech-billionaire wealth originates there. The country’s NASDAQ composite, a tech-tilted index, lost about a third of its value between November 2021 and December 2022. We reckon American tech billionaires saw their riches decline by 18%.”

China Curbs 

In 1998 there were just eight billionaires in China (including Hong Kong and Macau), with a total worth of $50bn. But now its 562 billionaires command $2 trillion But since Xi Jinping launched a crackdown on private capital, crony wealth has fallen sharply, from a peak of 4.4% of GDP in 2018 to 2.5% now, The Economist says.

A recent working paper published by the Stone Centre on Socio-Economic Inequality, part of the City University of New York, finds that between 83% and 91% of corrupt senior officials were in the top 1% of the urban income distribution because of their illegal incomes. Without that money, just 6% would be in that bracket.”

“Since Mr Xi came to power in 2012 over 1.5m people have been punished in an ongoing anti-corruption drive. High-profile tycoons also face more scrutiny. When Jack Ma, a co-founder of the tech giant Alibaba, disappeared in late 2020 after criticising the authorities, he was worth nearly $50 billion. He recently re-emerged worth half of what he had been. Bao Fan, a billionaire banker, was whisked away in February to help with an investigation. He has not been seen since.”

Ill-gotten Chinese wealth is parked in Singapore primarily, The Economist says. 

“In 2019 the country had just 33 Chinese family offices—firms which manage a family’s assets. There were perhaps 750 by the end of 2022.”

Controlling Kleptocracy

America’s agency for international development, issued an 84-page “de-kleptification” guide last year. After studying 13 countries including Brazil, Malaysia and Ukraine, it recommends breaking up corrupt monopolies and digitising ownership registries, among other important measures, The Economist says.

“America is also trying to whip up international fervour for a crackdown. In March it hosted its second “summit for democracy”. At the summit Janet Yellen, America’s Treasury Secretary, pointed out that “kleptocrats launder kickbacks through anonymous purchases of foreign real estate”. 

So starting next year America will require firms formed or operating in the country to reveal their real, or “beneficial”, owners. 

Thirty six countries have signed up to America’s declaration to make concealing identity more difficult. 

But transparency is not a “silver bullet,” The Economist cautions. 

“Last year a new law in Britain required foreign businesses that own property assets to register themselves and disclose their true owners. A report in February by an anti-corruption watchdog found that the owners of 52,000 of the 92,000 properties subject to the new rule remained undisclosed. Shady owners skirt rules and registries often lack the resources to police them.”

There are other loopholes too, The Economist points out.   

“America gives “golden” visas, which sell citizenship for a chunk of cash. Five Caribbean tax havens sell passports which provide visa-free travel to around 150 countries for $100,000-150,000 each. Britain’s tier-one visa scheme, launched in 2008, gave permanent residency within five years to foreigners who could prove they had £1m ($1.25m) to invest in British bonds or shares. It closed a week before the war in Ukraine started because of fears about Russian money (talk about closing the stable door once the thoroughbred has bolted). Of the 13,777 visas issued, a fifth went to Russians (including ten to oligarchs now under sanctions), a third to Chinese.”