India’s $7 Billion Election

How the vote got so expensive, and what it says about the country’s democracy.

A man poses with replica prints of the demonetized 500- and 1,000-rupee notes in Mumbai on Nov. 20, 2016.
A man poses with replica prints of the demonetized 500- and 1,000-rupee notes in Mumbai on Nov. 20, 2016. Indranil Mukherjee/AFP/Getty Images

India’s six-week-long national election that started April 11 may be the most expensive the world has ever seen. The New Delhi-based Centre for Media Studies recently pegged the cost to $7.2 billion, which beats the $6.5 billion that estimated for the U.S. presidential and congressional races in 2016. In an economy less than a seventh the size of America’s, it is fair to ask where all these billions are coming from.

The conventional wisdom is that the majority of it is illicit. Politicians, the argument goes, need cash for either legitimate marketing or for bribes. So they go to the only people they know with enough wealth: businesspeople, who have often hoarded undeclared assets. After the politicians come to power, they grant their cronies a piece of land here or a construction permit there, which whets the appetite for yet more cronyism.

The notorious overlap between politics and business—which has long been part of India’s political scene—expanded as the country’s economy boomed in the 2000s. That resulted in a spate of graft scandals starting in 2010, and it was one of the biggest issues in the 2014 general election. Corruption is again making headlines this election campaign, with both the ruling Bharatiya Janata Party (BJP) and the opposition Indian National Congress party trading barbs on who is more corrupt and who can do most to clean up Indian politics. In doing so, they are tapping into the public’s enduring fear that the world’s largest democracy might turn into an oligarchy.

James Crabtree explores these worries in his 2018 book, The Billionaire Raj: A Journey Through India’s New Gilded Age. A former Financial Times reporter based in India from 2011 to 2016, Crabtree gives himself three goals in the book. In the first section, he charts the rise of India’s oligarchs, or “Bollygarchs,” and, in turn, of inequality and entrenched power. Second, he reports on the collusion between the political and business worlds. Third, he argues that the first two problems worsen India’s boom and bust cycle.

Crabtree is at his best with his vignettes of the Bollygarchs. The most colorful is the story of Vijay Mallya, a beer baron who drove his airline into the ground, refused to pay his debts to state lenders, and then absconded to London. He grumbles to Crabtree that, due to his refugee status, he can’t travel to the Monaco Grand Prix. Instead, he has to watch the event from his mansion in the English countryside.

These profiles help the author emphasize that India is today about as unequal as Brazil, and almost as much as South Africa. In 2017, the top 1 percent owned 58 percent of the national wealth, up from 39 percent in 2010, according to Oxfam. The 1 percent commands more of the national income than at any point since 1922, the economists Lucas Chancel and Thomas Piketty have pointed out.

Since Indians notoriously evade income taxes, such figures should be taken with a grain of salt. Yet the direction of India’s wealth gap is clearer, as is the relationship between India’s newest billionaires and the government. Unlike the software tycoons of 15 years ago, today’s new elite are coming up in industries such as mining and property, where success depends on regulatory approvals.

That’s why Crabtree turns to campaign finance—both legal funding and the less respectable means through which politicians raise cash. Businesses used to openly donate to parties. But Indian political funding went underground in 1969, when Prime Minister Indira Gandhi banned business donations. The move allowed her to appear to combat cronyism while actually squeezing rivals. Yet once each side had tasted covert funding, neither businesses nor politicians wanted to go back above ground.

Now, even legitimate funding is opaque. In 2017, for example, Prime Minister Narendra Modi introduced electoral bonds, whose buyers could direct capital to any party while remaining practically anonymous. A nonprofit recently sued to temporarily ban these bonds, but India’s Supreme Court refused.

Finally, Crabtree writes that the Bollygarchy is now screwing with the Indian economy’s natural cycle. India’s breakneck growth in the 2000s convinced many firms to take on more debt, but when growth slowed in the next decade, they couldn’t service it. Their loans went bad, which tied up the banks’ capital and prevented them from offering more loans. In Crabtree’s telling, though, the Bollygarchs bamboozled their lenders, who, groveling before these titans of political and social savvy, kept extending credit. The Congress party, too, blames Modi-era cronyism for businessmen looting state lenders and then fleeing the country—a charge it repeats on the campaign trail.

But this line of thinking misses the bigger picture. Why would such so-called looting mostly occur at state-run banks? Among these lenders, as of March 2018, bad loans as a ratio of the total loans were three times as high as among their private-sector peers. Such a gap has persisted for decades because of the state-run banks’ politically mindful bosses and less disciplined lending. It predates the rise of the Bollygarchy and, if anything, may have turbocharged it.

The ultimate fault for India’s economic woes, then, lies with successive governments that neither privatized state-owned banks to make them less politicized, nor injected them with capital, nor pursued strong regulations to get them lending soundly again. Because state lenders account for 75 percent of all loans, New Delhi’s mismanagement of banks ripples throughout the economy. It contributes to today’s low corporate investment and high unemployment—problems that set the economic stage for this election.

Politicians, of course, would rather blame cronyism, vaguely defined. To them and to Crabtree, the current era of cronyism can encompass so much—corporate power, campaign finance, abused banks, lavish mansions, sports betting scandals—that it becomes less meaningful. The vaguer the definition, the more it plays into politicians’ hands. Ahead of the election, the ruling BJP launched a movement encouraging everyone to be a “watchman” who vigilantly checks for graft—a feel-good solution at best. Imprecise talk of cronyism also becomes fodder for discussions of inequality, a link that the Congress party especially likes to make.

The real problem in India is the misuse of public office for private gain. Curbing it will take building stronger courts and police—but also cutting red tape. In recent years, New Delhi has sold coal via transparent auction instead of by committee, which has reduced the incentive for collusion. By contrast, the big cronyism charge that currently dogs Modi—that he negotiated a deal to buy French fighter jets that favored a local firm—wouldn’t have existed if New Delhi didn’t mandate that foreign arms suppliers partner with domestic companies. (The government denies wrongdoing.) All in all, businesses would have less reason to bribe officials if there were less political interference in the economy. They’re likelier than the officials to break the campaign-finance impasse.

But don’t expect any party to champion these ideas this election. For now, they’re comfortable with the way their $7 billion election process keeps them in control.

Abheek Bhattacharya, a former Wall Street Journal editorial-page writer and Heard on the Street columnist, works at an investment fund in New York.

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