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Crony Capitalism cannot solve problems created by Crony Capitalism

In a recent article on Huffington Post, BJP MP Dr. Subramanian Swamy warns Prime Minister of India, Narendra Modi about impending doom in Indian economy from November 2015 to February 2016. Here is the article with Dr. Swamy’s recommendations to prevent the doom in Indian Economy.

Firstly, The doom of Indian economy has already started because of India’s relentless trade deficits for past several years. The present policies of ‘Make in India’ of new government are not going to restore free markets in order to reduce India’s trade deficits and they would collapse Indian economy very similar to how “Make in Ireland” collapse Irish economy in 2008 and “Make in China” collapsed Chinese economy in 2015. This has been already published in my article – Make In India Could Collapse Indian Economy.

Now, Let us look at Dr. Swamy’s recommendations and how his ideas could in fact further crony capitalism in Indian economy.

1. While I do not doubt that income tax elimination would increase buying power of few Indians, auctioning 2G, 3G and 4G spectrums would only help the big money grab all the telecommunication network & and elected government to earn lot of money from auction of spectrums. It would further the monopoly Capitalism of Indian telecommunication network providers. It is estimated that only 4% of Indian tax payers pay their taxes honestly hence the revenue from auctioning of spectrums is bound to be higher than tax revenue in any case. Additionally, the spectrums allocated would not generate long term revenue for telecommunication service providers as well because the purchasing power of middle class in India would not increase significantly with these proposed ideas. But, Economic disparity would certainly increase further in India.

2. His next suggestion to lower prime lending rate from 8% to 5%, without fixing India’s burgeoning twin deficits as well as without raising the purchasing power of Indians, would do nothing but create a sovereign debt bubble in Indian economy when the consumer debt starts to soar due to low interest rates, in order to lure people into borrowing houses, cars, etc. The businesses in India would also not invest their own wealth but instead borrow more cheap money from Indian banks and eventual collapse of Indian banking sector hurting the common man of India much more than the wealthy titans of the country. Dr. Raghuram Rajan is already looking for Magic bullets for economic growth as mentioned in my published article – RBI Governor Dr. Raghuram Rajan could be wrong in his analysis.

My only analysis is that Crony capitalism, which results from wages trailing productivity cannot be solved by more crony capitalistic policies. Only free market economic reforms which would ensure that wages keep track with productivity can avoid a doom of Indian economy . Else, No matter how hard Prime Minister Narendra Modi tries,  the eventual collapse of Indian economy can only be delayed with more crony capitalism but the inevitable cannot be avoided.

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