The Billionaire Raj Read online

  The point is that these decades of self-imposed quarantine were the exception. India is now a remarkably globalized nation once more. Rather than struggling to scrape together foreign exchange, it holds hundreds of billions of dollars in reserves. It is on some measures a more open economy than China, which began to liberalize roughly a decade earlier. India now trades more goods and services as a proportion of GDP than its larger Asian neighbor, and far more than America. The value of that trade has rocketed from just seventeen percent of GDP when its economic reforms began 1991, to around sixty percent today.11 It attracts as much foreign direct investment as China did at the peak of its growth in the mid-2000s.12 Nearly half of all the freely traded shares on Indian stock markets are owned by foreigners.13

  India’s leading companies have spread out around the world, too, buying up everything from African mines to British steelmakers. Its citizens remain instinctive internationalists, boasting the world’s largest diaspora population and sending home more than $60 billion in remittances each year.14 The fear that India would reject the arrival of foreign companies and global investment, viewing them as akin to a new form of colonialism, has been handily disproved. Indeed, globalization remains strikingly popular. More than four in five Indians currently view it positively, among the highest rates of any country, reflecting the sharp improvements in basic living conditions most of its people have experienced since reopening.15

  Rather than fearing the world, India has embraced it. Yet for all their benefits, these decades of whirlwind growth have proved to be economically disruptive, socially bruising and environmentally destructive, leaving in their wake what novelist Rana Dasgupta has described as a sense of national “trauma.”16 Those benefits have also undeniably been shared unevenly, with the greatest portion of India’s new prosperity flowing to its top one percent, or more specifically the top fraction of that one percent. For nearly a century prior to Independence, India was governed directly by the British under a system commonly known as the Raj, a term that takes its origin from the Sanskrit word rājya, meaning “kingdom” or “rule.” Then for the best part of the half-century after 1947 there followed the License Raj, with its perverse edicts and myriad restrictions. Now, in the quarter century after liberalization, and set against the backdrop of a world in flux, a new system has grown up in their place: the Billionaire Raj.

  The Billionaire Raj

  This book charts three critical elements in India’s recent history, beginning with the rise of the super-rich themselves and the associated problems they bring of inequality and entrenched corporate power. India has long been a stratified society, marked by divisions of caste, race, and religion. Prior to Independence the country was subjugated by imperial administrators, as well as myriad maharajas and the feudal monarchies they led. Yet in the decades after 1947 it at least grew economically more equal, with an elite that lived modestly by the standards of the industrialized West.

  This changed rapidly from the beginning of the 2000s, as wealth flowed first to an educated, globally connected elite. A newly prosperous class emerged in major cities, giving birth to “islands of California in a sea of sub-Saharan Africa,” in the words of economists Jean Drèze and Amartya Sen.17 The wealth accumulated at the very top was most eye-catching of all. In 2008, as the scale of India’s new billionaire fortunes became clear, economist Raghuram Rajan, the future head of India’s central bank, asked: “If Russia is an oligarchy, how long can we resist calling India one?”18

  A sense of perspective is needed about such claims. India remains a poor country. The average citizen earns less than $2,000 a year. To be counted among its richest one percent required assets of just $32,892, according to research from investment bank Credit Suisse in 2016.19 But that same one percent now owns more than half of national wealth, one of the highest rates in the world. The International Monetary Fund suggests that India, alongside China, now ranks as Asia’s most unequal major economy. Thomas Piketty, the French economist famous for his work on global inequality, has shown the share of Indian national income taken by the top one percent of income earners to be at its highest level since tax records began in 1922.20

  On these measures, India should now rightly be viewed alongside South Africa and Brazil as one of the world’s least equal countries. Yet a strange intellectual consensus has often downplayed this conclusion. In the decades since liberalization, many thinkers on the right of the political spectrum have argued that rapid rates of growth matter more than its eventual distribution. Those on the left, by contrast, have focused more on conditions at the bottom, worrying about India’s poor progress on indicators of social development, such as child mortality. For both groups the gap between rich and poor has been secondary. Yet there are good reasons to be worried about it. Recent IMF research has challenged the consensus that inequality does little economic harm, showing that unequal nations tend to grow more slowly and be more prone to financial instability. Countries riven by internal divisions are also less likely to build the kind of broad social consensus that makes it easier to introduce tough structural reforms, of the type that India itself now badly needs if it is to continue to develop economically. There is also every reason to believe that, without intervention, the gap between India’s rich and the rest will keep widening.

  The rise of the super-rich then ties into a second issue: crony capitalism, meaning collusion between political and business elites to capture valuable public resources for themselves. India’s old system of central planning and state controls created fertile ground for graft, forcing citizens and businesses alike to pay myriad bribes for basic state services. Yet these problems of retail corruption were trivial compared to those that emerged during the go-go years of the 2000s. Scarce assets worth billions in sectors like telecoms and mining were gifted to big tycoons, in a series of scandals known as the “season of scams.” Giant kickbacks helped businesses acquire land, bypass environmental rules, or win infrastructure contracts. Soaring commodity prices prompted a boom in the mining of minerals such as iron ore, leading to rampant corruption in extractive industries. Headlines filled up with scandals, from fraudulent public housing schemes to dodgy road-building projects.

  Those who pushed India’s reforms in 1991 expected that a more free-market economy would lead in turn to better and more honest government. This proved optimistic, to put it mildly. Instead rapid growth and globalization placed huge strains on the country’s rusty state machinery. Even if they themselves were honest, overburdened bureaucrats, judges, and regulators failed to set boundaries within which the market could develop. But often they were indeed corrupt, and many extravagantly so. Crony capitalism infiltrated almost every area of national life. There were furors over mining rights and land allocation and public food distribution schemes. Cash-for-access scandals hit the media. Allegations of cronyism even besmirched cricket, the beloved national sport. “Hundreds of billions of dollars” were siphoned away in mega-scams, according to one estimate.21 India’s old system of retail corruption went wholesale.

  Many politicians became astoundingly rich in this process, and would rightly have taken a place on the Forbes list had their holdings not been hidden in shell companies and foreign banks. More generally, rapid economic growth increased the value of holding political power, in terms of what could be extracted from it. Political parties spent more to win elections, requiring them to raise more money, both to fight campaigns and to fund the patronage that kept them in office. Much of the monies that parties raked in was donated illegally by favored tycoons, in exchange for unknown future favors. Politics in the world’s largest democracy no longer comes cheaply. One estimate suggested that India’s last election, in 2014, cost close to $5 billion.22 The contest was won handily by the Hindu nationalist Bharatiya Janata Party of current prime minister Narendra Modi, in large part because Modi managed to tap public anger about corruption, promising both economic renewal and an end to
graft.

  The third focus of this book—the boom and bust cycle of India’s industrial economy—came as a consequence of the first two. Over the last two decades China has conducted the largest infrastructure building spree in history, almost all of which was built and funded by state-backed companies. By contrast, India’s investment boom was dominated by the private sector. The Bollygarchs borrowed huge sums from local banks and invested it all—with gleeful abandon—in one of the largest deployments of private capital since America built its railroad network more than a century and a half earlier. But then India’s good times came gradually to an end, beginning in the aftermath of the global financial crisis. The tycoons’ earlier hubris was rudely exposed, leaving their businesses overstretched and struggling to repay debts. In 2017, ten years after the financial crisis began, India’s banks were left holding at least $150 billion worth of bad assets.23

  This cycle of boom and bust followed a pattern familiar from other emerging economies, as when tycoons in Malaysia and Thailand gorged on cheap credit and splurged on speculative investments in the run-in to the 1997 Asian financial crisis. But India’s wider story was still global. In America and Britain, two decades of hyper-globalization ultimately overwhelmed the financial system, taking down once-mighty banks and insurers in New York and London. In India, the same surging global forces swamped the industrial system instead, battering the conglomerates that had long formed the backbone of the industrial economy. And just as the reputations of financiers in London and New York were ruined, so the image of the swashbuckling tycoons of Mumbai and New Delhi took a hit from which they have still not entirely recovered.

  My interest in these topics—the super-rich, cronyism, and the travails of the industrial economy—was born partly of circumstance. Working as a foreign correspondent, I saw all three up close. Traveling around India, I became fascinated above all by the empire builders: those who grew powerful in politics and business during the mid-2000s boom and were then forced to grapple with their aftermath, especially as the tide began turning after Modi’s election victory in 2014. These were people who dealt with India as they found it, not as they would have liked it to be. They displayed ambitions on a scale that no longer seemed possible in the sanitized capitalism of the West. Even the vocabulary used to describe them was dredged up as if from a different era: baron, boss; magnate, mogul; titan, tycoon.

  If this all sounds familiar, that is because it is. India is far from the first country to enjoy a period of rampant cronyism and wild growth, and to emerge changed fundamentally in its aftermath. In Britain the onset of the Industrial Revolution kicked off such a moment in the mid-nineteenth century, commemorated in the novels of Charles Dickens and Anthony Trollope. But the more obvious parallel is with America, and the era that ran from the end of the Civil War in 1865 to the turn of the twentieth century: the Gilded Age, or the era of “the great corporation, the crass plutocrat [and] the calculating political boss,” as one historian put it.24

  Mid-nineteenth-century America viewed itself as a rural, egalitarian idyll: a nation of yeoman farmers governed by gentleman politicians. It was a vision that would have been shared by Mohandas Gandhi, the monastic civil rights leader whose philosophy of nonviolence helped India win its independence, and who believed firmly in the spiritual superiority of village life. Yet just two generations later the United States stood transformed, after a whipsawing period of booms and busts in which its economy grew faster than at any point before or since.25 Industrial centers like Chicago and Pittsburgh absorbed millions who left their land, and millions more immigrating from Europe. What had been a nation of isolated farmers turned into a giant continental economy and the world’s leading industrial power.

  Just as in India, this growth gave birth to a new generation of plutocrats, from oil magnate John Rockefeller and banker John Pierpont Morgan to railroad tycoons Jay Gould and Cornelius Vanderbilt. These men sat atop a new “millionaire class” known for its extravagant houses and vulgar displays of wealth. Then they acquired another name: the “robber barons,” for the speed at which they built their fortunes and the lack of conscience they displayed while doing so. From the cliff-top mansions of Newport, Rhode Island, to the splendor of New York’s newly minted millionaires’ row on Fifth Avenue, it was the wealth these tycoons accumulated that defined their era. The phrase “Gilded Age” came from a novel by Mark Twain, describing a period that glittered on the surface, as if painted in gold, but was decaying underneath.26 That decay was to be found in politics above all, as the expansion of the franchise in the early 1800s gave birth to the rampant corruption of the “spoils” system.27 Powerful urban political machines traded bribery and patronage for jobs and votes. Most famous of all was New York’s Tammany Hall, which controlled US financial capital for much of the nineteenth century.

  I first came across the notion that India might be going through a similar stage of development via an article published in the Financial Times, just before I moved to the country. Written when controversy about corruption was at its height, authors Jayant Sinha, a venture capitalist, and Ashutosh Varshney, an academic, argued for firm action to limit the power of their country’s new tycoon class. “In its rot and heady dynamism, India is beginning to resemble America’s Gilded Age,” the duo argued.28 Their headline read: “It is time for India to rein in its robber barons.”

  Many in India bristled at this comparison, as if insulted by the idea that their country, with its unique heritage and complexities, might be following a path others had taken before. Nineteenth-century America, the critics protested, was a sparsely inhabited young nation, with a vibrant private sector and a minimal state. India, by contrast, is an ancient civilization, heavily populated and cursed with over-mighty government. Still I found the comparison illuminating, and it stuck with me as I came to know more about the country’s own robber baron tycoons and Tammany Hall–style politicians. India’s economic situation was strikingly similar too. In 2013 its GDP per capita, adjusted for the cost of living, was $5,200. The US hit that same level at the height of the Gilded Age in 1881.29

  Whatever happens, India is set to grow in economic might and political power for the remainder of the twenty-first century, as America did during the nineteenth. By some accounts it has already overtaken China as the world’s most populous nation; by others the baton will pass during the next decade or two.30 By mid-century more than 400 million Indians will have moved from villages to cities, in one of the largest-ever human migrations, while New Delhi and Mumbai are projected to become the world’s two largest cities, with fifty million residents apiece.31 Today, India’s $2.3 trillion economy is slightly smaller than Britain’s.32 Barring something unforeseen, it will surpass America in size by mid-century, and then, perhaps, China too.33

  Ultimately what follows is an optimistic story. In a country changing this quickly, it is always possible to imagine reinvention. The American philosopher Richard Rorty once alluded to what he called the “romance of a national future,” or the sense of hope that infuses powers on the rise. “We rich, fat, tired North Americans must hark back to the time when our own democracy was newer and leaner,” he wrote, “when Pittsburgh was as new, promising and problematic as São Paulo is now.”34 Irving Howe, the socialist essayist, talked in the same way of “the American newness” of the nineteenth century, a time when “people start to feel socially invigorated and come to think they can act to determine their fate.”35

  The coming century will be told as a contest between a trio of continental giants: America, China, and India. Of the three, it is India whose journey is at the earliest stage, and thus whose potential to change remains greatest. This process of change is often far from virtuous. “They were careless people,” F. Scott Fitzgerald wrote of his characters in The Great Gatsby, his classic novel of post–Gilded Age excess. “They smashed up things and creatures and then retreated back into their money or their vast car
elessness or whatever it was that kept them together, and let other people clean up the mess.”36 But in discovering similar characters in India I have tried to steer clear of moralizing, telling instead a story of a nation at a critical moment of national remaking, in which a brighter future is partially visible but far from secure.

  The decades that followed America’s Gilded Age were known as the Progressive Era. This era had a lasting and positive effect, both at home and abroad. Anti-corruption campaigns cleaned up politics. Monopolies were broken up. The middle classes exerted control over government. Prosperity was shared more broadly. Today, India stands at the crossroads of what sort of superpower it will become. As democracy falters in the West, so its future in India has never been more critical. Will India’s Gilded Age blossom into a Progressive Era of its own, in which the perils of inequality and crony capitalism are left decisively behind? Or will the excesses of the last decade gradually reemerge, presaging a future scarred by graft and deformed by inequality; a saffron-tinged version of Russia? India’s ambition to lead the second half of the Asian century—and the world’s hopes for a more democratic, liberal future—depends on getting this right.