Debating India

Big business and elections

Saturday 31 July 1999, by MAHALINGAM*Sudha, MURALIDHARAN*Sukumar

A decade and more of economic liberalisation has unshackled Indian business from the compulsions of the licence-quota regime, but big business still courts political patronage with election-time funding in order to influence the economic agenda and the pace of its implementation and to bend the regulatory mechanism to optimal advantage.

in New Delhi

WHILE the conflict in Kargil raged, it seemed that any form of dialogue, leave alone one that approached a pretence of civility, would be impossible between India and Pakistan. The two countries’ top diplomats met, only to part on a note of glacial hosti lity. Shortly afterwards, a parallel track of dialogue was opened up, featuring not the professional diplomatic corps, but a man who in India was better known as a lobbyist for the Reliance industrial group. His interlocutor from the Pakistan side was a former diplomat, once a popular High Commissioner in Delhi.

Official Delhi maintained an attitude of indifference towards the parallel dialogue. But it was obvious that powerful interests on both sides were driving it. Contacts continued even after the identity of the negotiators was leaked out from quarters that were less than keen on the success of the secret negotiations.

As the guns began to fall silent in Kargil, Reliance Petroleum, the crown jewel in Dhirubhai Ambani’s industrial empire, announced the start-up of its refinery in Jamnagar, Gujarat. Built at a cost of Rs.14,250 crores, the refinery will process a crude o il throughput of 540,000 barrels a day, putting it in the league of the world’s largest. Dependent for the most part on imports of crude oil, the Reliance refinery will engender a rapid rise in freight traffic towards the Gujarat coast, originating in We st Asia and traversing the Pakistan coastline. Corporate planners for Reliance cannot be unaware that land-based pipelines running through Pakistan could, at some stage, provide a better and more efficient way of feeding the group’s refinery in Jamnagar.

Clearly, the Reliance group has more than the usual stake in peace in the subcontinent, an interest so strong that one of its personnel - a man skilled in the arts of political persuasion - took off, or was persuaded by somebody to go, on a negotiating m ission to Pakistan. Even for an industrial group that pioneered many of the policy innovations of the 1980s - an illustrative listing would include anti-dumping duties, automatic re-endorsement of capacities and conversion of interest-bearing debt into e quity at a high premium - the foray into neighbourhood diplomacy is a bold, even audacious, move. It is a measure, in fact, of the widening horizons and global ambitions of the Reliance group.

IN the Indian business landscape, Reliance stands alone. Dhirubhai Ambani embraced the cult of equity ownership when other industrial barons were preoccupied with more conservative strategies of perpetuating their control. This ensured the recruitment of a substantial body of shareholders to his cause - an agglomeration of corporate and civic voters with substantial political clout. The Reliance patriarch also made the kind of strategic investments in the political domain that provided the hospitable en vironment for him to redeem his more extravagant pledges to shareholders.

Ambani’s style of working the delicate nexus between business and politics was visionary for its times. When other industrial groups were searching for alibis for non-performance in the pervasive apparatus of governmental controls, Reliance was showing h ow the regulatory mechanism could be bent to optimal advantage. Today, in an environment of liberalisation and deregulation, it remains a powerful force for tutored change, its awesome presence in the capital markets and the industrial landscape ensuring that all talk of a level playing field will remain just that.

Having come off second-best in an encounter with an upstart, the older industrial groups are today beginning to set great store by transparency. The Tatas and the Aditya Birla group have set the lead by establishing Trusts to fund elections in a transpar ent and accountable manner. Yet, the expectation that the rest of business and industry will do so seems unduly optimistic. This must seem curious, since Indian business has today been largely unshackled from the compulsions of the licence-quota regime a nd hence is relatively free of the need to court political patronage.

In ascriptive terms, the role of government in the economy has traversed an entire continuum over just the last decade. Once looked upon as the benevolent provider of all necessities of life, government today finds itself in considerably reduced circumst ances. Indeed, today that government is considered best that confines itself to the minimalist role of facilitating the energies of private enterprise. But in the perception of big business, this does not yet approach the vanishing point of the governmen t. In the approaching elections, big business is not quite investing in no government. Rather, it seeks a government that is durable and stable in its resolve that it will stick to the bare essentials.

IT is a paradox of this whole situation that the decade of growing political instability has run coterminously with a fairly settled course of economic policy. The resolve to retrench and retreat from the economic domain has, in other words, been common to all governments over the last decade, irrespective of its political stripe. By all the indices that could be used to judge the stability of the economic policy environment, the decade of the 1990s shows a fairly consistent record. There have been no b ack-and-forth adjustments of tax rates, whether direct or indirect - these have generally drifted downwards and moved towards a framework of greater simplicity. International currency parities again have moved against the rupee, the decade having witness ed a complete decimation of its value against the U.S. dollar. In the new liberal orthodoxy, however, this is an unmitigated blessing. And, finally, the regulatory framework for trade and industry has tended towards a dismantling of controls and greater leniency of rules.

Business lobbies have quibbled about the pace of economic reform, without quite being able to achieve any sort of unanimity. But clearly, the evidence of the last decade seems to indicate that political instability has not really dampened economic activi ty. If the sentiment of the business community were to be assessed in terms of the indefinable animal spirits that drive the markets, the months since the fall of the Atal Behari Vajpayee Government have witnessed a virtual effusion, with the stock marke ts scaling new peaks.

The public have cause to be wary of unnatural forces in the markets - recent conjunctures of massive speculative price rises have normally been associated with feverish political fund-raising. Illustrative examples would be the sugar scandal of 1989 and the stock market bubble of 1992. Sugar was revisited by the politically induced speculative fever in 1994, and the most recent outbreak of the disease was in the onions and vegetables market in 1998. Irrational exuberance in the stock markets was again a n attendant phenomenon of the preludes to the last two parliamentary general elections. There is reason for the concerned public to study the boom in the stock markets today for the agents that are driving it and the forces that are immediately benefitin g from it.

TWO extreme situations may be distinguished in terms of the nexus between business and politics. Business lobbies could make collective decisions and channel their contributions on an agreed basis towards political parties in the interest of ensuring a c ertain framework of policies of common benefit. There could, at the other extreme, be unaccounted and surreptitious funding, sourced for the most part from tax evasion or speculative activity conducted under political patronage.

The former option is impractical simply because the power to mobilise funds and the willingness to contribute to a political cause are unequally shared among business houses. Reliance clearly stands at the apex in these matters, although there is a conti nuum of capabilities stretching downwards from this peak.

Despite their collective interest in the perpetuation of the process of liberalisation, the recession of the last two years has engendered clear distinctions within Indian big business. It may have seemed at one time that business and industry - being co mmon, though not uniform, beneficiaries of liberalisation - could have funded the political process collectively through registered associations and trusts, in return for a collective quid pro quo. This would have represented a salutary departure from the older practice of businessmen funding political parties in their individual capacities in order to extract personalised benefits for their enterprises.

Yet the era of liberalisation is reminder that the more things change, the more they remain the same. Chambers of commerce and industry look the other way as their members pass on unaccounted contributions to their political favourites. The Associated Ch ambers of Commerce (Assocham) - an influential grouping of older foreign-controlled firms that have since gone largely native - has formally disavowed any intention of instructing its membership on how to fund the political process. Says Assocham preside nt K.P. Singh: "That is not our business. We cannot tell our members how to do these things. It is for individual members to decide for themselves. As far as transparency goes, the Companies Act is there to take care of it." These remarks, ironically eno ugh, were offered at a presentation made by Assocham to the media on the economic agenda that it wants political parties to incorporate into their election manifestoes - among which transparency in government functioning features prominently.

Despite the provisions of the Companies Act, concedes K.P. Singh, corporate entities may not wish to make their contributions to political parties transparent primarily out of fear. The Act requires a donor company to make the identity of its recipients public. But if the chosen political party fails to make it to the corridors of power, there is every risk of the company that chose to patronise it being victimised. Few are likely to have the confidence of Rahul Bajaj - third in a line of succession of politically active and influential businessmen - to declare which party he channelled his donations to in the 1998 elections.

Tarun Das, Director-General of the Confederation of Indian Industry (CII), unburdens himself of sentiments that are broadly congruent: "When an individual businessman donates in cash to politicians, he expects some quid pro quo for his enterprise. Nobody makes political contributions in the interest of policies that will benefit the entire nation." CII, says Das, does not conceive of a situation where it would try and persuade its membership to pay political donations by cheque. Although the BJP has written to all industrialists insisting that payments be made by cheque, few are likely to comply.

Das believes that there will be a greater chance of fostering transparency if the Income Tax Act is amended to make political contributions exempt from tax. Asks he: "When all other expenses, including advertising, marketing and even entertainment, can b e shown as tax-deductible business expenses, why not election funding?" The sub-text of this question, of course, is a notion of political donations as a facilitator of business efficiency, through selective application of governmental powers.

Deepak Moula, Managing Director of Modi-Xerox Corporation and a key member of the Assocham team that drafted its recent document on the economic agenda for the political parties, says that transparency will come about only when market forces, rather than the quirks of political decision-making, decide the fortunes and performance of a company. After a decade of liberalisation, this must seem like a rather chastening retrospective judgment on its benefits. Das believes that industry cannot take upon itse lf the task of auditing political funds or disciplining the perceived profligacy of political parties. Many politicians who approach industrialists for donations, he says, will simply not countenance the imposition of any conditions. And since each elect ion brings with it new forces and new faces, such efforts become infeasible after a while.

Meanwhile, CII has appointed a Deputy Director-General specifically to brief politicians on economic issues in which its members have an interest, even as it holds seminars and meetings with prominent parties on what it would like to see in their electio n manifestoes. It is also in the process of extracting a commitment from political parties on time-bound implementation of undertakings given in election manifestoes.

This influence obviously originates in the money that will change hands between now and the day of polling - funds that it is reasonable to suppose will originate in tax evasion or officially sanctioned speculation in the market. This is a presumption th at industry does not care to dispel. And neither does it seek to contest the view that all political donations made are finally recovered from the mass of the citizenry, whether as a penal price or as unpaid taxes. Finally, the issue of transparency on p olitical donations, it appears, touches upon the very core of representative politics. And the push towards this objective is likely to be one among many new initiatives that will be called for if politics is to be salvaged from the morass into which it has descended.

Money has often proved the most effective solvent for ideology. Big business in India today has set itself the goal of stability and this is an end that it sees as best served by the BJP or the Congress(I). The ultimate ideal would of course be of a coa lition that combines the two forces, an Indian version of the "historic compromise" that seemingly enshrines national interest above partisan political dissonances.

Obviously, for reasons derived from the character of the constituencies that these two parties serve, this manner of a compact appears a remote prospect. Both parties have a fringe that is attentive exclusively to the demands of big business, which could conceivably propel such a compact, although the larger needs of the party would dictate otherwise.

For reasons connected with the historic role of the Congress(I) and its relative autonomy of big business, the BJP today appears to be the favoured party of India’s industrial interests. Although it has managed to an extent to purge itself of these eleme nts in recent years, the Congress(I) is still seen as a legatee to the public sector conceits of the 1950s, when private enterprise was regarded with barely concealed disdain. In a later, ideologically less pristine time, the Congress showed a greater in clination to engage with the concerns of big business, although always from a position of strength. Business was forced to defer to the arrogance that came to the Congress(I) from holding all the strings in the licence-permit-quota raj.

As far as the BJP is concerned, there is no such legacy of mistrust. The party’s core constituencies of small traders and urban professionals have never been seen by big business as a threatening presence. And a basic harmony of interests between these s ections and industry has never been an elusive prospect. It is another matter, however, that parties that enjoy the conspicuous favour of big business have traditionally been easy targets for electioneering that draws on themes of economic populism. But a decade of liberalisation seems to have exhausted the fund of populist rhetoric and drained the credibility of the few parties that still espouse it. That may yet prove the BJP’s greatest asset in the general elections to come.

See online : Frontline

P.S.

Volume 16 - Issue 16, Jul. 31 - Aug. 13, 1999

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