Perceived closeness to politicians could become a liability for some business groups once a new government assumes office at the Centre later this month.
Charges of crony capitalism have been part of India's political discourse but campaigning for the 2014 general elections have thrown up specific names. Gautam Adani and Mukesh Ambani are the most talked about tycoons in this Lok Sabha election.
Their companies could, therefore, be subjected to closer public scrutiny, said a senior executive in one of these, who did not wish to be named. Congress Vice-President Rahul Gandhi introduced Gautam Adani, chairman of the Ahmedabad-based Adani Group, into the political debate by talking about his closeness to Bharatiya Janata Party (BJP) prime ministerial candidate Narendra Modi. The shrill pitch forced Adani to give a series of media interviews.
Ambani's Reliance Industries Ltd, on its part, hired three editors to put forth its point of view after Aam Aadmi Party Convener Arvind Kejriwal accused the Congress of favouring the company. Kejriwal also challenged Modi to clarify his stand on the price to be charged for gas from Reliance Industries' find off the Andhra Pradesh coast.
Reliance Industries' proximity to policymakers has also been raised by the Comptroller and Auditor General of India. At one point, Mukesh Ambani's brother, Anil, had also alleged a cosy relationship between Reliance Industries and Murli Deora when the latter was a petroleum minister in the United Progressive Alliance government.
Though spokespersons for Reliance Industries and Adani Group did not answer a specific question on the business fallout of their perceived closeness to politicians, share prices of Adani Enterprises, Adani Ports & SEZ and Adani Power have increased around 56 per cent, 21 per cent and 22 per cent, respectively, since January 1. In contrast, Reliance Industries share has fallen from over Rs 2,200 at the beginning of the UPA's second term in 2009 to under Rs 950 now.
"The growing coziness between the government and business evokes suspicion," said Santosh Desai, managing director and chief executive officer of Futurebrands India, a brand management company. "When public goods are privatised, these become part of legitimate public discussion. When politicians campaign, the public interest gets involved."
Crony capitalism is not a local phenomenon. American oil majors have been patronised by Washington to get a foothold in West Asia. Deutsche Hollerith Mashcinen (Dehomag), the German subsidiary of IBM, used its Nazi connections to expand business in Europe when Hitler came to power in 1933. With the fall of Germany, senior Dehomag managers were arrested but IBM "always knew that Dehomag was doing business with the upper echelons of the Nazi Party", writes Edwin Black in IBM and The Holocaust.
For businesses, partisanship can hurt if bets go wrong. A case in point is Anil Ambani. His Rajya Sabha membership in 2004 came through the Samajwadi Party but things were never the same for the group once rival Bahujan Samaj Party came to power in Uttar Pradesh in 2007. "A clever businessman should not take sides," said Gurcharan Das, author and former chief executive, Procter & Gamble.
Das disagreed with Desai on the scope of crony capitalism in India. Liberalisation had reduced political discretion in sectors like automobiles and telecommunications, Das pointed out. "You win by competing in the market and not in a politician's room. Corruption exists in sectors like real estate, education and natural resources, where government discretion is still present. Taking away this power and giving it to market forces improves quality of products and enhances the brand value of companies," Das added.
Controversies could, however, harm companies in an era of investor activism. Reliance Industries has changed its media strategy after Kejriwal as Delhi chief minister sued Ambani and Petroleum Minister Veerappa Moily in February for allegedly inflating the price of gas. A company executive said, seeking anonymity, that RIL now wanted to reach out directly to stakeholders - investors and employees - through new media.
Explaining the company's recourse to YouTube and circulation of three dossiers - In the court of the people, KG Gas - The Flame of Truth and Why KG Gas Matters to You - a RIL spokesperson said the aim was to "communicate, communicate, communicate". The company has hired three editors, B V Venkat Rao, Gautam Chikermane and Umesh Upadhyay. "The three, with their record and complementarity, will serve just these constituencies in increasingly newer ways," the spokesperson said.
CAUGHT IN POLITICAL CROSSFIRE
Gautam Adani on interview spree
- Rahul Gandhi on April 14 labelled the Gujarat development model "a toffee model", where land was given at a concessional rate
- Adani denied favours in a series of interviews to print and electronic media
- B V (Venkat) Rao joined RIL as news and communications director on April 21. He moved from Sahara, where he was a group editor
- Gautam Chikermane used his Twitter handle to announce his entry in RIL as the new media director in April. He had been executive editor in Hindustan Times, The Financial Express and Outlook Money
- Umesh Upadhyay, former executive producer and news director of Zee News, Janmat and Home TV, came on board in March. He featured in RIL's Flame of Truth YouTube series as a media director
- Chikermane and Upadhyay featured in a video analysing the Annual RIL Results on April 20. This was interspersed with comments from RIL CFO Alok Agarwal