11 May 2016

India ranks 9th in crony-capitalism index: The Economist

India ranks 9th in crony-capitalism index: The Economist
India is ranked at ninth position in crony-capitalism with crony sector wealth accounting for 3.4 per cent of the gross domestic product (GDP), according to a new study by The Economist.
In India, the non-crony sector wealth amounts to 8.3 per cent of the GDP, as per the latest crony-capitalism index.
In 2014 ranking also, India stood at the ninth place.
Using data from a list of the world’s billionaires and their worth published by Forbes, each individual is labelled as crony or not based on the source of their wealth.Germany is cleanest, where just a sliver of the country’s billionaires derives their wealth from crony sectors.
Russia fares worst in the index, wealth from the country’s crony sectors amounts to 18 per cent of its GDP, it said.
Russia tops the list followed by Malaysia, the Philippines and Singapore.
“Thanks to tumbling energy and commodity prices politically connected tycoons have been feeling the squeeze in recent years,” the study said.
Among the 22 economies in the index, crony wealth has fallen by USD 116 billion since 2014.
“But as things stand, if commodity prices rebound, crony capitalists wealth is sure to rise again,” it added.
The past 20 years have been a golden age for crony capitalists/tycoons active in industries where chumminess with government is part of the game.
Their combined fortunes have dropped 16 per cent since 2014, according to The Economist updated crony-capitalism index.
“One reason is the commodity crash. Another is a backlash from the middle class,” it said.
Worldwide, the worth of billionaires in crony industries soared by 385 per cent between 2004 and 2014 to USD 2 trillion, it added.
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‪#‎Cronycapitalism‬ is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism.
What is 'Crony Capitalism'
Crony capitalism is a description of capitalist society as being based on the close relationships between businessmen and the state. Instead of success being determined by a free market and the rule of law, the success of a business is dependent on the favoritism that is shown to it by the ruling government in the form of tax breaks, government grants and other incentives.
BREAKING DOWN 'Crony Capitalism'
Both socialists and capitalists have been at odds with each other over assigning blame to the opposite group for the rise of crony capitalism. Socialists believe that crony capitalism is the inevitable result of pure capitalism. This belief is supported by their claims that people in power, whether business or government, look to stay in power and the only way to do this is to create networks between government and business that support each other.
On the other hand, capitalists believe that crony capitalism arises from the need of socialist governments to control the state. This requires businesses to operate closely with the government to achieve the greatest success.

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