Critics of India’s growth model have long argued that it’s based on a collusive business-government relationship, which guarantees undeserved but huge profits for corporations, besides producing terrible social imbalances.

On May Day, Prime Minister Manmohan Singh himself admitted this by striking an unusually reflective note. Speaking at an institute in Delhi, he said he’s “puzzled” by persistent regional imbalances and that most Indian businessmen operate in “oligopolistic markets and in sectors where the government [gives] them special privileges”.

Singh asked: “Are we encouraging crony capitalism? Is this a necessary but transient phase in the development of modern capitalism? Are we doing enough to protect consumers and small businesses” from its consequences?

Singh’s self-critical observation is welcome. He’s right to say, “we cannot depend only on a few large industrial houses and capitalists for driving our industrialisation…” His warning about “oligopolistic markets” is timely.

Yet, Singh seemed to be trying to pre-empt serious criticism of the government’s elitist policies, which would eventually lead to their correction. His description of “cronyism” as a “necessary” phase in India’s capitalist development gives it the ring of inevitability.

Cronyism has proved abiding in India—whether during the much-maligned “licence-permit raj” of the 1970s, or its partial dismantling in the 1980s, or under full-throttle liberalisation and privatisation launched by Singh himself in 1991.

Cronyism’s forms have changed. Three decades ago, it meant granting out-of-turn industrial licences. In the early 1990s, cronyism consisted in temporarily amending regulations to benefit certain chosen industrial houses and rewriting privatisation’s ground-rules. This happened in basic telephony, when licensing fees were blithely written off.

Today, cronyism means establishing Special Economic Zones, promoting hypermarkets, and allowing companies to borrow $22 billion abroad at low interest.

Singh’s criticism of cronyism was further diluted by his remarks that industrial growth will pose “challenges like displacement of people, environmental damage and alienation of the working class.” And yet, “one cannot throw the baby out with the bathwater.”

The “baby” is rapid industrialisation—a magic formula to make India “a major industrial power.” But this disregards industrialisation’s social costs altogether.

Singh has favoured Big Business in countless cases. Recently, he intervened on behalf of the Korean company POSCO, which wants to build a giant steel plant in Orissa—India’s largest-ever foreign investment project ($ 12 billion or Rs 52,000 crores).

Singh has given POSCO 3,000 acres of forest land. He is pushing the state-owned Kudremukh Iron Ore Co to transfer its mining lease to POSCO. This is cronyism with a vengeance.

Singh’s discourse about cronyism, then, is a half-apology, mixed with a little regret—a mere shrug of the shoulders.

No less important, the “cronyism” confession comes from a person who, with due respect, is himself a crony. Singh wouldn’t have been appointed Finance Minister in 1991 without prior approval by the international financial institutions (IFIs) like the World Bank and IMF.

Former Prime Minister P.V. Narasimha Rao, an intelligent but deeply cynical man, decided to obey the IFIs. After the collapse of Soviet Union, he felt, Non-Alignment had no future; India must play the only game left—neoliberalism.

Singh, a long-standing friend of the IFIs, zealously played the game—not least by appointing other cronies like Montek Singh Ahluwalia and P. Chidambaram to key positions in 1991-95, and then again under the United Progressive Alliance in 2004.

Putting top bureaucrats dedicated to neoliberalism into key ministries was integral to the process. They included N.K. Singh, Vijay Kelkar, Rakesh Mohan, R. Vasudevan, R.V. Shahi, Anwarul Huda, Arvind Virmani, Ashok Desai, S. Narayan, Tejinder Khanna, Y. Venugopal Reddy, to mention only some.

Equally important were the “Revolving Doors”: former IFI employees/consultants would join as secretaries of ministries. Indian bureaucrats would also join the IFIs upon retirement or on deputation.

At one time, 21 out of 27 economic bureaucrats passed through such “Revolving Doors”!

This economic change was reflected in foreign policy too. India moved close to the United States. The process, begun by Rao, acquired momentum under the National Democratic Alliance.

It’s now peaking under the UPA with the India-US nuclear agreement, and India’s willingness to cut a deal in the World Trade Organisation behind the backs of other developing countries.

A glaring instance of today’s cronyism is the appropriation of vast powers by Planning Commission deputy chairman Ahluwalia, a hardened World Bank-IMF crony. The Commission has never been more powerful than it is today—ironically, under anti-planning policies.

Ahluwalia decides everything—whether the Northeast will develop or not, how many districts will Rural Employment Guarantee cover (without adequate funding), and whether primary schools will run.

Since 1991, the Indian state has mollycoddled business through massive tax breaks. Indian companies pay just 17 percent tax on their profits, less than one-half the rate in the West. No wonder, cars and airconditioners cost less in absolute rupees than 10 years ago—inflation notwithstanding.

Crony capitalism’s success is starkly evident in the growth of India’s high net-worth individuals (HNI), whose disposable income exceeds $ 1 million. Their number grew from 61,000 to 83,000 between 2003 and 2005.

More shamefully, India has, according to Forbes magazine, the world’s fourth highest number of billionaires. The wealth of these 36 individuals equals one-fourth of India’s GDP! India has 3 of the world’s top 20 billionaires, compared to the US’s 5.

At the other pole, there is steady accumulation of destitution, aggravated by dispossession and displacement. The neoliberal years have seen the slowest reduction in poverty. India’s global human development rank is a miserable 126.

Indian growth is increasingly mal-distributed. Capitalism always builds on the best—the most developed regions. SEZs will further aggravate disparities.

So it’s completely hypocritical for Singh to say he’s “puzzled” by growing disparities. They follow directly from his own policies.

If he wants this to change, the UPA must tax the rich more, reintroduce the death duty, and launch an incomes policy which sets upper limits on salaries and bonuses. It must also promote public investment in backward areas. Only then can cronyism be cured.