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Business & Finance

The Baba Trap

Baba-Ramdev

My dear colleague Sujit Nair, says that Baba Ramdev, the expert in the yoga of business and not in the business of yoga, has been offered a huge piece of land, of 400 acres, at a discount of 50% to the market price, by the Chief Minister of Maharashtra. Land acquisition for setting up industries is a huge challenge in India, but is certainly not so for cronies of the ruling party. This land was incidentally acquired by the government from the poor farmers at Latur, in 2013, paying a pittance to them, with the promise that BHEL will set up a manufacturing plant there, which will provide jobs and vocation to the locals, Latur incidentally has one of the highest rates of farmer suicide in the country. BHEL never did set up the plant and now strangely it has now been offered by the CM to Baba Ramdev and not to the Tatas, Birlas or the Mahindras etc., our home grown businessmen with credible track records. Interestingly, this same expert in the yoga of business, was earlier offered a 230 acre piece of prime land at Nagpur, again said to be at a discounted price, which has not been put to any use and yet now the Maharashtra government offers a much bigger chunk of land at a discount.

To us, such kind of land offers are yet another version of crony capitalism, which has been a curse on the Indian economy, inflicted by successive Congress governments and now by the BJP too. If the cronies of the ruling party were earlier favoured and showered with licences, loans, mining rights, government contracts and landing rights etc., they are now being favoured with land parcels at a discount, as we see in the case of Baba Ramdev. It is simply a case of old wine in new bottle.

In the most simple terms, crony capitalism is a situation where government decisions favour cronies, who become extremely wealthy in the process, without even setting up profitable enterprises. It is thus a situation where certain businesses thrive, not as a result of risk, but due to the unscrupulous nexus between the business class and the political class, which creates a privileged class in society. Thus state power is used to manage government grants, permits, tax breaks and the allocation of natural resources such as mines, lands, forests etc., which is what we see in this case of offer of land to Baba Ramdev, by the Maharashtra government.

Such privileged allocation of resources to the cronies of the ruling party does immense damage to a country and its economy. It results in an illegal and unequal distribution of resources and opportunities, it widens social and economic inequality by building a privileged class which amasses wealth the illegal way, it results in a waste of national resources as we see in the case of 230 acres of land allotted to Baba Ramdev at Nagpur and lying idle, it does not let the economy become competitive, productive and innovative and it erodes the faith and respect of the underprivileged, in the law of the land. The economy as well as the government in such a situation is opaque, not transparent and not accountable.

This situation is extremely dangerous for a developing economy, that soon falls into what is called the middle income trap. The country loses a competitive edge and cannot compete with developed economies, such that it reaches a certain per capita income level and is unable to rise beyond that. This has happened in the case of South Africa and Brazil, which have been middle income nations since decades and will not grow into rich nations, as their population ages. India will certainly be consigned to this middle income trap, if crony capitalism continues to prevail, and the path to profits is not a competitive enterprise, but a cozy relationship with a neta.

That gets us to yet another serious issue. The recent economic survey has lamented that most entities in India become dwarfs and do not grow beyond a point, thus hampering job creation and productivity, which consigns us to the middle income trap. Our enterprises thus remain dwarfs and do not become growing infants, that can become giant adults in due course. Let us call it the curse of being ‘baba’ i.e. small enterprises, which will forever remain small, particularly in an oppressive situation, where the system favours the cronies, who happen to be yoga babas now.

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