The Adani stock imbroglio has provoked accusations of crony capitalism by the Opposition. In a contest between the pot and the kettle about who is blacker, the ruling party has hit back, regurgitating controversies of crony capitalism when it was in the opposition. A thread running through these controversies is they were mostly PPP-like arrangements between the government and capitalists to build essential infrastructure—telecoms, airports, ports, highways, etc.
Adani companies have been awarded large projects to build much needed infrastructure for the country. PPP became an attractive strategy for infrastructure from the 1990s when the economy was opened to the private sector. Since the government was short of funds, and pressed to reduce taxes to attract business, the private sector would bring capital from foreign and domestic markets. It would also bring expertise in project design, execution, and operation which the government lacked. The expectation was that the ultimate beneficiaries of the partnerships between government (representing the public) and the private sector would be the common people of the country.
Like for consultants with a hammer for whom every problem is a nail, “PPP” became the favorite tool of policymakers. The country lacked adequate infrastructure in many sectors— airports, seaports, and highways; and in services directly serving common citizens such as water, electricity, education, and health. Any ministry or state that came to the Planning Commission for financial support in these areas would be urged to apply PPP and given manuals of PPP procedure.
PPP projects are awarded to bidders who ask for the least financial support from government (and invest more themselves) and who also project the lowest charges to users of the infrastructure. “Crony capitalism” creeps in when, later, they twist the government to modify the terms of the contract to make the project viable for themselves. This happened in the contract for the Delhi airport during the UPA regime; it is now feared that the contracts for airports awarded to Adani, because his bids were prima facie the most attractive, will be modified later.
Missing in the concept of PPP, when conceived as a partnership between government and the private sector is a fourth P—the People for whose needs the infrastructure is supposedly built. Since privatization of infrastructure requires that citizens pay for its use, the needs of common citizens must be understood, and their capacity to pay for services must be factored into calculations of returns on investments.
The Delhi-Gurgaon (and on to Jaipur) highway, cutting through urban areas, built by PPP, was a boon for motorists. Their travel time was reduced to a third. The project was a financial success. To make car travel smoother two wheelers were initially not permitted until the public protested. The modern, signal free, expressway cut through habitations separating people’s homes and places of work. Pedestrians and cyclists could not cross it, and when they did, rich car owners (the classes) complained about the indiscipline of Indian citizens (the masses). The classes paid the toll charges happily, initially, until they protested that the private concessionaire was making excessive profits. Though the government was warned that if the sanctity of legal contracts was not honored, private investments for infrastructure projects would not be forthcoming, it was compelled to change the contract.
Crony capitalism is built into a concept of PPP which excludes the fourth P—the People. In public services which are required by all citizens, whether they can pay or not, such as basic education and health, and water and electricity, the needs of citizens as well as their capacity to pay, must be factored into the design of the project. Even when investments are made in mines and factories in rural areas of which local communities may not be the immediate beneficiaries, they must be consulted because they will nevertheless be impacted.
The government has short-circuited the process of environmental impact analysis whereby local stakeholders used to be consulted on the ground where they can speak in their own voices. The process was messy and took too long, project promoters said. In the new process, evaluations will be made by experts because it will take less time and expedite investments, the government says. Once again, the People are left out. It would seem like crony capitalism to them.
Whenever there is a scandal in the corporate world, defenders of the free market say regulators have failed. In the Adani instance, they say SEBI has failed. Therefore, to restore confidence of foreign investors, Indian financial market regulators must be strengthened. Here too, the needs of citizens who are not involved in stock markets are out of their minds. Less than 10% of Indian citizens have interests in stock markets as direct investors or even investors in mutual funds. What matters to the remaining 90% is the quality of regulations that impact their lives directly, such as environmental, labor, public service, and price regulations. However, tightening of these regulations, to improve common citizens’ ease of living, seems to make it harder for business to make profits more easily, therefore they are diluted. Crony capitalism again?
The metrics for performance of all enterprises—public or private, in the capitalist world, is the values of their shares in stock markets; in other words, how much wealth they produce for their investors: not how much, and how well, they serve the needs of the 90%. The public sector is being withdrawn from infrastructure and public services with the trend of privatizing public enterprises. The private sector is expected to be the producer of public benefits. Crony capitalism seems baked into the design of the market system.
The domains of “public” and “private” have become separated in the market economy. The needs of the masses must be heard, not just the needs of the classes who have wealth to invest in markets. The management of the economy must become a PPPP enterprise—People, Public, Private Partnership. “People”, the missing P in PPP, must be included and must come first.
(This was published by The Tribune on 10th March 2023)
https://www.tribuneindia.com/news/comment/when-crony-capitalism-mars-ppp-mode-486484