When crony capitalism mars PPP mode

Arun Maira

Former Member, Planning Commission

THe Adani stocks imbroglio has provoked accusations of crony capitalism by the Opposition. In a contest between the pot and the kettle about who is blacker, the ruling party has hit back, regurgitating controversies of crony capitalism when it was in the Opposition. A thread running through these controversies is that these were mostly PPP-like arrangements between the government and capitalists to build essential infrastructure — telecommunications, airports, ports, highways, etc.

Adani companies have been awarded large projects to build much-needed infrastructure for the country. PPP (public-private partnership) became an attractive strategy for raising infrastructure in the 1990s when the economy was opened to the private sector. Since the government was short of funds, and pressed to reduce taxes to attract business, the private sector would bring capital from foreign and domestic markets. It would also bring expertise in project design, execution and operation, which the government lacked. The expectation was that the ultimate beneficiaries of the partnerships between the government (representing the public) and the private sector would be the people of the country.

Just as for consultants with a hammer for whom every problem is a nail, ‘PPP’ became the favourite tool of policymakers. The country lacked adequate infrastructure in many sectors — airports, seaports and highways; and in services directly serving common citizens such as water, electricity, education and healthcare. Any ministry or state that came to the Planning Commission for financial support in these areas would be urged to apply the PPP mode and given manuals of the PPP procedure.

PPP projects are awarded to bidders who ask for the least financial support from the government (and invest more themselves) and who also project the lowest charges for users of the infrastructure. ‘Crony capitalism’ creeps in when, later, they get the government to modify the terms of the contract to make the project viable for themselves. This happened in the contract for the Delhi airport during the UPA regime; it is now feared that the contracts for airports awarded to Adani, because his bids were prima facie the most attractive, will be modified later.

Missing in the concept of PPP, when conceived as a partnership between the government and the private sector is the fourth P — the people for whose needs the infrastructure is supposedly built. Since privatisation of infrastructure requires that citizens pay for its use, their needs must be understood and their capacity to pay for services must be factored into calculations of returns on investments.

The Delhi-Gurgaon (and on to Jaipur) expressway, cutting through urban areas and built by PPP, was a boon for motorists. Their travel time was reduced to a third. The project was a financial success. To make car travel smoother, two-wheelers were initially not permitted until the public protested. The modern, signal-free expressway cut through habitations separating people’s homes and places of work. Pedestrians and cyclists could not cross it, and when they did, rich car owners (the classes) complained about the indiscipline of Indian citizens (the masses). The classes paid the toll charges happily, initially, until they protested that the private concessionaire was making excessive profits. As the government was warned that if the sanctity of legal contracts was not honoured, private investments for infrastructure projects would not be forthcoming, it was compelled to change the contract.

Crony capitalism is built into the concept of PPP which excludes the people. In public services which are required by all citizens, whether they can pay or not, such as basic education and healthcare, water and electricity, the needs of citizens as well as their capacity to pay must be factored into the design of the project. Even when investments are made in mines and factories in rural areas of which local communities may not be the immediate beneficiaries, they must be consulted because they will nevertheless be impacted.

The government has short-circuited the process of environmental impact analysis whereby local stakeholders used to be consulted on the ground where they can speak in their own voices. The process was messy and took too long, project promoters said. In the new process, evaluations will be made by experts because it will take less time and expedite investments, the government says. Once again, the people are left out. It would seem like crony capitalism to them.

Whenever there is a scandal in the corporate world, defenders of the free market say regulators have failed. In the Adani case, they say SEBI has failed. Therefore, to restore confidence of foreign investors, Indian financial market regulators must be strengthened. Here, too, the needs of citizens who are not involved in stock markets are not on their minds. Less than 10 per cent of Indian citizens have interest in stock markets as direct investors or even investors in mutual funds. What matters to the remaining 90 per cent is the quality of regulations that impact their lives directly, such as environmental, labour, public service and price norms. However, tightening of these regulations to improve the citizens’ ease of living seems to make it harder for business to make profits more easily, therefore they are diluted. Crony capitalism again?

The metrics for the performance of all enterprises — public or private — in the capitalist world are the values of their shares in stock markets; in other words, how much wealth they produce for their investors: not how much, and how well, they serve the needs of the 90 per cent. The public sector is being withdrawn from infrastructure and public services with the trend of privatising public enterprises. The private sector is expected to be the producer of public benefits. Crony capitalism seems baked into the design of the market system.

The domains of ‘public’ and ‘private’ have become separated in the market economy. The needs of the masses must be heeded, not just the needs of the classes who have wealth to invest in markets. The management of the economy must become a PPPP enterprise — People, Public, Private Partnership. ‘People’, the missing ‘P’ in PPP, must be included and come first.

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