Capital bows before the state


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IN a democracy, the primary governing agent is the political party. Other pillars of the establishment either implement its decisions or offer checks and balances. Political parties, as veteran journalist Prem Shankar Jha wrote in an essay titled ‘Where Indian Democracy Went Wrong’, need funds to maintain cadre and campaign in elections. In India, given the large sums of money needed for both purposes – and in the absence of state funding – parties depend on funding networks of companies and casteclass networks. Some of these networks are so influential they dictate terms to elected governments. This much we know.

This essay is being written to ask if, over the last six years, under the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government, India is seeing a different mode of rent-extraction from the one that existed under the Congress-headed United Progressive Alliance (UPA). If so, implications for the relationship between the party, its funders and capital at large run deep.

Between 2012 and 2014, while writing for The Economic Times, I had reported on two of the bigger natural resources scams under the UPA. The first was the captive coalblock allocation scam. The outrage here wasn’t the putative loss flagged by the CAG. What made the captive coalblock scam egregious is that it handed close to half of India’s coal reserves to a handful of families and pushed the country towards an oligarchic future.1 Some of the companies that won coalblocks – like SKS Ispat, Jindal Steel and Power (JSPL), and Pushp Steel – had links to politicians and political parties.


The brother of Subodh Kant Sahay, former Union Minister and Congress leader, was executive chairman at SKS Ispat.2 JSPL, which won more coalblocks than any other business group in the country, was owned by industrialist Naveen Jindal, Congress MP at the time.3 As for Pushp Steel, operating out of a tiny little shop in a gali behind the Delhi Stock Exchange in Old Delhi, it pipped larger companies like Lafarge and Torrent Power to land the Brahmapuri coalblock. It had connections to both BJP and Congress politicians.4 And then, there were entirely unknown companies – like Nagpur based Grace Industries – which won themselves a coalblock.5

The second scam was Arunachal Pradesh’s abortive hydelpower boom. The state, with an hydelpower generating capacity estimated at 27,000 mw, signed MoUs for 50,000 mw. Here too, some of the companies that bagged MoUs had political links. The firm with the largest number of MoUs – Kolkata based Energy Development Company – had Amar Singh of the Samajwadi Party as its chairman.6 And then, there was a phalanx of lesser-known companies – like Hyderabad based EPC player SEW Energy and Kerala’s Nano Excel Power. Most companies had to pay for MoUs – as much as Rs 10-15 lakh/mw.7

In both scams, rent-collection resulted in wide-ranging crony capitalism. Companies with political links got what they wanted. And so did others. All that mattered was their willingness to pay.


Supporters of the BJP claim there is no corruption at the Centre under the party. That is a false assertion. Central government contracts continue to go to people close to the ruling party. At least one road contractor working on the Char Dham highway project had links to the VHP.8 Overseas deals – be it Rafale or the one where ONGC Videsh (and other Indian oil companies) overpaid for a stake in Rosneft’s Vankor oilfield, followed by Rosneft overpaying for Essar’s oil refinery at Hazira9 – continue to be murky. Money continues to flow from PSUs to political supporters.10

Favouritism continues as well. India’s ongoing bankruptcy proceedings are one instance. By 2016, speculative booms in sectors like thermal power had left banks with non-performing assets. To recover these loans, the NDA allowed banks to sell assets of loan-defaulting firms. It was an unexceptionable decision. In developed countries, troubled firms declare themselves bankrupt, new managements acquire them, and try to turn them around.


In practice, however, India is throwing up some troubling patterns. While a lot of companies have slipped into bankruptcy proceedings,11 the number of buyers is much smaller.12 Given this asymmetry, India is seeing a giant fire sale where a handful of buyers accrete scale at low prices, sectors move towards oligopoly,13 banks recover a fraction of their loans, and India Inc sees the largest change in ownership patterns since independence.

This churn isn’t just market forces at work. The NDA has allowed some firms to slip into liquidation proceedings while extricating others. Take thermal power plants. By 2018, as many as thirty were facing bankruptcy. One, run by a well-regarded business group in North India, fell short on working capital due to delays in government permissions and delivery of plant machinery. Its attempts to recast the loan – swap debt with equity; get a fresh investor to infuse capital into the project – were shot down by banks. The project was sold, fetching banks half the outstanding loan amount.

At the same time, the Union power ministry set up a special committee to ensure three power projects – of Tata, Adani and Essar – do not end up in bankruptcy courts.14 Essar’s deal with Rosneft, following on the heels of Rosneft’s deals with Indian oilcos, brokered with close involvement of Putin and Modi, similarly ensured the Ruias did not lose their refinery to bankruptcy proceedings.

So what, you say. Every time a new government comes in, companies close to it gain. Naveen Jindal, for instance, soared under the Congress.

Not quite.


When Narendra Modi was Chief Minister of Gujarat, a handful of businessmen in the state – especially Gautam Adani – grew at extraordinary rates. One factor was government largesse – including land allocations at discounted rates15 and preferential treatment by state owned companies like Gujarat State Petroleum Corporation and Gujarat Urja Vikas Nigam.16 There were also allegations the state was favouring Adani’s Mundra port over public sector Kandla.17


In 2013, a sociologist in Gujarat had described the dynamic between Adani and Modi as symbiotic. As CM, Modi wanted an independent source of funds so he wouldn’t have to rely on other party leaders – like Pramod Mahajan. As for Adani, he wanted to grow big in a state that already had Reliance.18 Buttressed by such support, the Adani Group grew rapidly. In 2001, its biggest asset was the port at Mundra. By 2013, despite a relatively small balance sheet, it had expanded into thermal power projects, an SEZ, invested in coal ships, aviation, edible oils import, agri-commodities, coal blocks in Australia and Indonesia, and more. In the same period, businesses competing with it slipped into losses. In Gandhidham, near the government owned port of Kandla, coal importers gradually shut down. Kandla itself, unable to compete with Mundra, fell behind.19

As for Modi, he became Prime Minister in 2014 after a high-octane election campaign where the BJP out-spent all rivals.

In the six years that have followed, this pattern has played out nationally. India has seen a handful of companies – each in a different sector – gain far more than their peers. This February, I asked a clutch of investment bankers in Mumbai to name the firms that gained the most under NDA. They named firms like Vedanta (mining), Spicejet (aviation), Reliance (telecom), Dilip Buildcon (construction) and Adani (utilities). In the same period, erstwhile market leaders in these sectors have stumbled and fallen. Jet Airways is gone. So are companies like GMR, GVK and Lanco. Airtel, before Amazon decided to invest, looked shaky as well.


What explains the difference is government policy. Government decisions, as detailed by Caravan, helped Reliance Jio take over India’s telecom market.20 With Jet Airways’ demise, Spicejet bagged most of its aviation routes and slots.21 Others, like Anil Ambani and Gautam Adani, accompanying the Prime Minister on several international trips, signed large contracts that emerged during talks there.22

Adani has also been favoured in government decisions like the one to privatize airports.23 On the whole, the group has continued its mystifyingly quicksilver expansion. Despite a relatively small balance sheet, it has picked up units from bankruptcy proceedings; forayed into new businesses like defence, data centres, power distribution, solar energy, city gas distribution and more; and simultaneously funded existing businesses and supported loss-making ones.24


This discontinuity calls Harvard academic Michael Walton’s ‘Rent-Sharing’ model to mind. Here, governments lather a few firms with a cascade of benefits – like land at low rates, easier access to state contracts, and bank credit. Supported by this largesse, these firms outcompete rivals and, ergo, make supernormal profits which are then shared with the political party. This is a different model of crony capitalism from what we saw under the Congress. In the coal and hydel scams, most companies paid their rents upfront – a one-time payment. Only in especially profitable projects do politicians seek equity. In rent-sharing, however, there is a more steady stream of payments.

The advantages for the political party are evident. The coal and hydel scams were easy to spot as even undeserving companies bagged coalblocks and MoUs.25 The rent-sharing model, in contrast, is easier to hide. By limiting extraction to a few firms, parties avoid the taint of corruption. It’s less beneficial for companies, though. The ones not in favour struggle to compete. As for the chosen ones, they have what amounts to a hole in their balance sheet.

As money flows out steadily, they face an accounting challenge similar to what Enron had faced – to hide the gap between actual and claimed revenues.


After ten years of writing on political corruption, natural resources and oligarchy, Walton’s ‘rent-sharing’ model seems to explain most of what I see in India. And yet, supporting evidence for that thesis is far from clinching. While India’s media has spotted multiple instances where the state favoured its chosen groups, its track record on tracing quid pro quos back to the BJP has been poorer. This is an old failing. In India, payments to political parties – through formal and informal channels – have long been hard to trace. In recent years, however, that opacity has deepened. We miss both licit (through electoral bonds) and illicit payments (through shell companies; deals concluded outside India; and deals tucked away in the workings of legitimate financial organizations and corporations).

In Flawed, narrating the rise and fall of Nirav Modi, journalist Pavan Lall touches on the last of these modes. Nirav Modi had borrowed heavily, expanded rapidly and then absconded. Was he, muses Lall, ‘a front for moving and converting cash for political representatives across party lines.’ Did he, the book asks, ‘rub a key player the wrong way and his funding hit the brakes.’

Compounding matters, newsrooms lack skill (when there is intent) to uncover such flows. Even under the UPA, most exposes on corruption – 2G, Commonwealth Games, the Coal Scam – were based on work done by government watchdogs. But now, as the BJP tightens its grip over them as well, those fonts of muckraking information are drying up.

And so, most payments we expound on are voluntary disclosures – like formal donations to political parties, collated by bodies like the Association for Democratic Reforms, or to new arrangements like PM Cares. Both of these, however, are a fraction of more opaque flows. We know that because both calculations of income from cash generating businesses controlled by political parties and their expenditure on election campaigns dwarf the income they report.26

What these difficulties show is that the battle for transparent reporting of political party finances is being lost. The costs run deep. This is because rent-sharing can levy larger costs on India than the old Congress model.


It creates, for one, a two-tiered structure within capital. At the lower level are firms not favoured by the state. Above them are firms it favours. The second set grow fast. The first lot struggle. Both, however, know government support is necessary for them to do well. And so, a subservient relationship develops between state and capital.

Much of this is new. In the past, business groups ignored by the ruling party funded its rivals. Adani, remember, rose by supporting Modi. What makes a repeat performance harder is the BJP’s tightening grip over political funding. In electoral bonds, it knows who is funding its rivals.27 It has also cracked down on more covert ways of moving money around like shell companies.28 This too reduces cash flows to rivals.

Much of this calls Russia to mind. After coming to power, Vladimir Putin took on the businessmen who built their empires during the post-USSR privatization. This, however, was no attempt to tackle the crony capitalism that characterized the wild sell-off of state assets that accompanied perestroika.29 Instead, those who agreed to support Putin survived. Those who resisted, like Mikhail Khodorovsky of Yukos Oil, were arrested, prosecuted for tax offenses, and then sent to prison. Yukos’ oil fields, refineries and pipelines went to Rosneft,30 headed by Putin ally Igor Sechin.31 ‘Under the Putin plan, the state would be strengthened not by breaking up the oligarchic system’, wrote academic Karen Dawisha, ‘but by transforming an oligarchy independent of and more powerful than the state into a corporatist structure in which oligarchs served at the pleasure of state officials.’32

This architecture, as she describes in her remarkable Putin’s Kleptocracy, laid the foundation for most assets to be controlled by Putin’s cronies.

One wonders where we are headed.


* M. Rajshekhar is the author of Despite the State. Westland Publications, forthcoming.



2. UyD4rr6i4y1n0qhhN/CBI-books-SKS-Ispat-and-Power-in-coal-block-allocation-case.html; M. Rajshekhar, ‘How One Winner Was Chosen From 18 Applicants’, The Economic Times, 2 August 2012.

3. industry/indl-goods/svs/metals-mining/rs-2-25-cr-deal-that-links-naveen-jindal-group-to-dasari- rao/articleshow/19485650.cms


5. industry/indl-goods/svs/metals-mining/coal-block-allocations-private-profiteering-from-a- public-asset/articleshow/15321437.cms

6. M. Rajshekhar, ‘A Hydel Boom Runs Dry’, The Economic Times, 30 April 2013.





11. By 2018, no less than 2,511 firms had slipped into bankruptcy proceedings (see: To put that number in perspective, India has 7,000 companies with a topline over Rs 250 crore. See: https://www. extends-25-corporate-tax-rate-to-firms- with-annual-turnover-of-up-to-rs-400-crore-2218939.html

12. This includes a few global funds (Pension; Sovereign; and Private Equity); some global corporations (VTB; Arcelor Mittal); and seven or eight Indian business groups (Among them: JSW, Adani, Tata, Vedanta, Piramal, and Birla). See:

13. ‘India can manufacture 130 MTPA of steel’, the chief financial officer of a Chhattisgarh-based steel company had told me in 2018. The big five – Steel Authority of India, Tata Steel, JSW, JSPL and Rashtriya Ispat – account for about 55%-60% of this chunk. That is changing now. Once Electrosteel Castings, Adhunik, Jayaswal Neco, Bhushan, Essar, Monnet and others change hands, the big companies might account for as much as 80%-85% of India’s steelmaking capacity.

14. On 20 June 2017, the Union Ministry of Power called a meeting of lenders, developers and state government officials to ‘discuss options for resolving the financial distress being faced by the three generators and also consequently resolve the potential insolvency threat faced by the lenders’. See:


16. See and https://scroll. in/article/915109/adani-power-project-was-on-the-brink-of-bankruptcy-but-the-bjp-government-in-gujarat-saved-it




20. government-helping-reliance-jio-monopolise-telecom

21. Personal communication from unnamed investment bankers;

22. Beneficiaries%E2%80%99-Modi%E2% 80%99s-Globetrotting-Adani-Ambani



25. Take Nano Excel Power. The company, a multi-level marketing company, touted its hydel project in Arunachal Pradesh as the ‘first nanotechnology-based hydroelectric power generation plant’ in the country. As The Times of India reported: ‘Investors were told that the plant would have an initial gene-rating capacity of 100 mw, which would be scaled up to 10,000 mw by 2015.’ See: returns-from-govt-sponsored-project/articleshow/10581428.cms


27. 5dcf7239e4b01f982f022b85?utm_hp_ref=in-paisapolitics


29. Sale Of The Century.

30. settle-with-rosneft-russias-state-oil-company.html


32. Karen Dawisha, Putin’s Kleptocracy: Who Owns Russia? Simon & Schuster, New York, NY, 2014.