Crony Capitalism

• 11 Feb 2023

For Prelims: Crony Capitalism, Parliamentary Committee, Chief Justice of India (CJI), Gross Domestic Product (GDP), Anti-corruption laws, Corporate Social Responsibility,

For Mains: Issues Associated with Crony Capitalism, Ways to Address Crony Capitalism.

Why in News?

Parliament witnessed sharp exchanges over the Adani-Hindenburg issue and the opposition is accusing it of crony capitalism and raising demands for a probe by a Joint Parliamentary Committee or a Chief Justice of India (CJI)-designated committee.

What is Crony Capitalism?

• About:
  • Crony capitalism is a term used to describe a capitalist economic system in which individuals or businesses with close ties to political leaders and government officials use their political connections to gain an unfair advantage in the marketplace.
  • In the Crony Capitalism Index 2021 published by The Economist; India was ranked at 7^th position where crony sector wealth accounted for 8% of Gross Domestic Product (GDP) of the country.
• Issues Associated with Crony Capitalism:
  • Unfair Advantage in Marketplace: Crony capitalism can lead to corruption as businesses use their political connections to gain an unfair advantage in the marketplace, often by bribing government officials.
    • This can undermine the rule of law and erode public trust in government institutions.
  • Distorted Market Competition: When some businesses are given an unfair advantage through their political connections, it distorts market competition and makes it difficult for smaller businesses and entrepreneurs to succeed.
    • This can lead to a concentration of wealth and power in the hands of a few individuals or corporations.
  • Reduced Innovation: The dominant position of large businesses often erodes competition and discourages them to further innovate or improvise their products/services.
    • This can stifle innovation in the overall economy and lead to a decline in competitiveness.
  • Public Distrust of Government and the Economy: Widespread crony capitalism can lead to a loss of public trust in government institutions and the economic system.
    • This can make it difficult for policymakers to implement reforms and for businesses to operate effectively.

How can India Address the Issues Related to Crony Capitalism?

• Improving Transparency and Accountability: India can improve transparency and accountability in its political and economic systems by implementing measures such as open data initiatives, increasing the independence of regulatory agencies, and improving the transparency of government contracts and subsidies.
• Encouraging Competition: India can encourage competition by reducing barriers to entry for smaller businesses and entrepreneurs, such as reducing red tape and streamlining regulations.
  • This can make it easier for new entrants to compete with established businesses and reduce the concentration of wealth and power in the hands of a few individuals or corporations.
• Towards Corporate Ethical Responsibility: India can promote responsible business practices by implementing measures to ensure that businesses act ethically and sustainably, in lines of corporate social responsibility and sustainability initiatives.
  • This can increase public trust in the economic system and encourage businesses to act in the best interests of society as a whole.
• Encouraging Responsible Political Behaviour: India can encourage responsible political behaviour by increasing the transparency of political donations and lobbying activities.
  • This can reduce the potential for corruption and ensure that elected officials are held accountable for their actions.

Source: BS