General Awareness

April 04, 2017 @ 01:15 PM

April 04, 2017 @ 01:15 PM

K. J. Somaiya Institute of Management Studies and Research, Mumbai

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Crony Capitalism may impact economic reforms

MBA Aspirants are expected to have sensitization for increasing relationship of business houses with government thus possible impact on economic reforms. Following general awareness article will help you in WAT/Essay/GD and PI also. 
Read:  Crony Capitalism may impact economic reforms
Crony capitalism essentially refers to an economy in which the success of a business is dependent on close relationships between businessmen and government officials. This is usually exhibited by favoritism when it comes to the distribution of permits, tax benefits, or government grants. 
Generally, crony capitalism happens when there is a lack of distinction between professional and personal spheres of life – for example, if a government official and a businessman are friends, there is a possibility that at some point in time, they will have conversations about politics and business and this will make the line between professional and personal lives blurry.
Crony capitalism gives rise to corruption and it definitely has an impact on economic reforms. To prevent inflation, the Indian government is trying to attract manufacturers into the country and encourage existing manufacturers to produce more goods. Inflation occurs when the demand surpasses the supply, resulting in an increase in the prices of goods.
Without crony capitalism, all producers and manufacturers will be given similar privileges when it comes to the production of goods. And this results in a free market. Here, the prices of goods will neither be too high nor too low. No manufacturer will increase the price of his goods, in fear of competitors snatching his customers. However, with crony capitalism, the probability of an organization being favored by the government is high and this can jeopardize the market. 
If an organization receives tax rebates or government grants, it will be able to sell its products at a lower rate than its competitors. In such a case, the competitors will go out of business. This may result in a monopoly, which will definitely burn the pockets of the public.
Similarly, for infrastructure development to take place in the country, it is important for the government to issue permits to capable and reliable organizations instead of selecting incapable people for the job. If the government favors one organization, the people in that organization will not be motivated to work because of the lack of competition. It is said that people become complacent because they know at the back of their minds that they will not lose their permits. This delays projects in a country. 
So far, we have been witnessing the perils of crony capitalism and it is time to put an end to this problem. Robert Vadra, an Indian businessman and husband of Priyanka Vadra, has been accused of taking an interest-free loan of 65 crores and huge bargains on land from Delhi Land and Finance in exchange for political favors. In addition, a number of reports have questioned the authenticity of balance sheets of companies owned by Robert Vadra, which claim that Corporation Bank had provided an overdraft of 7.94 crores for his businesses. All this money belongs to the public and crony capitalism has resulted in the misuse of public funds for the gain of an individual’s businesses. If the accusations end up being true, it simply strengthens the case against crony capitalism. 
It is best if politics and business don’t get entangled in each other’s webs; however, the reality is somewhat different. Politicians depend on businesses for money and businesses depend on politicians for growth. However, the parties should not take advantage of each others’ positions and they should try to be objective during their interactions; only then will we be able to boost the economic growth of the country.
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