“Oligarchy Is Going To Cost Us, Raising Capital Will Be Tough”

An old India hand as a hedge fund manager, and from past work at McKinsey, Jayant Sinha is the MD of Omidyar Network India, a philanthropic investment fund. In a recent article in the Financial Times, he (and Ashutosh Varshney of Brown University) said Indian business dynasties are “robber barons” and need to be reined in. In an interview with Arti Sharma, Sinha explains why he’s painting such a dire picture.

You have raised eyebrows with your statement that India is heading the way of Russia, with a few business dynasties dominating the growth story.

Russia is seen as an oligarchy and it trades at a discount and attracts less capital. That’s because policymaking there is not transparent, is often used to benefit some people and also because people are thrown into jail without any adequate justification and so on. India runs the risk of being viewed similarly. And because of that, we will find it difficult to raise capital (or it’ll be very expensive) because foreign investors will not be sure how their money is going to be treated in India. Similarly, if capital is allocated within India in a way that is benefiting certain people—and not in the national interest—then that is obviously going to increase inequities in the system. Oligarchy is going to cost us tremendously. If you look at political dynasties or business dynasties, the empirical evidence is that we’re definitely at risk, if we’re not there already.

Isn’t big business to blame for this crony capitalism?

It really is a systemic failure—we have not been able to come up with policies whereby you can do much better by competing honestly than by setting policies that favour you versus the others. That is why you end up seeing Indian business people operating in this fashion. They themselves are victims of the system in some ways. The goal of business is always to create a monopoly to make as much money as possible. It really is the government that has to come in with structural reforms and ensure a level playing field.

What kind of reforms are we talking about?

If you look at the Progressive Era that followed the Gilded Age in the US, they actually broke up all those great trusts and prevented the accumulation of wealth and power in the hands of a few. A very important structural reform—the estate tax—was also put in place. We need structural reforms like that in India. Anybody who has an estate of say, over Rs 25 crore, will pay an estate tax—so that it gets only the people who have accumulated very large amounts of assets. That’s a way of making sure that the next generation has a level playing field. This is because the power of compounding is such that if you had a million rupees in 1900 in Mumbai, you would have become one of the great business dynasties of Mumbai that we see around us (today).

The Niira Radia tapes have shown India Inc in a poor light...

For many of us who have invested in India for a long time, we have known that all this happens—so I was not the least bit surprised by what I heard and read about the Radia tapes. The only way to address that is through transparency, so that we discourage these kinds of behaviour. So, for instance, do we have a database or an inventory of all of our natural resources? Why aren’t we reconciling our accounting standards with IFRS (International Financial Reporting Standards)? Why isn’t it that Indian companies should have quarterly balance-sheet disclosure? Why isn’t it that we have a well-developed set of valuation policies for reserves of various kinds? There are many places in India where we have a lot of opacity. So forcing more transparency, whether it is in lobbying, in corporate ownership, in balance sheets becomes important.