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Crony capitalism UPSC NOTE

 Why in news

  • A day after Prime Minister Narendra Modi alleged that Congress leader Rahul Gandhi had stopped “abusing” industrialists Mukesh Ambani and Gautam Adani and hinted at a deal, the Congress stepped up its counter-attack on the BJP and Mr. Modi over the issue of crony capitalism

Crony capitalism

  • Crony capitalism, sometimes also called simply cronyism, is a pejorative term used in political discourse to describe a situation in which businesses profit from a close relationship with state power, either through an anti-competitive regulatory environment, direct government largesse, and/or corruption. 

  • Examples given for crony capitalism include obtainment of permits, government grants, tax breaks, or other undue influence from businesses over the state's deployment of public goods, for example, mining concessions for primary commodities or contracts for public works.

  • In other words, it is used to describe a situation where businesses thrive not as a result of free enterprise, but rather collusion between a business class and the political class

  • The term crony capitalism was initially applied to states involved in the 1997 Asian financial crisis such as Indonesia, South Korea and Thailand. 

  • In these cases, the term was used to point out how family members of the ruling leaders become extremely wealthy with no non-political justification

Issues Associated with Crony Capitalism:

  • Unfair Advantage in Marketplace: Crony capitalism can lead to corruption as businesses use their political connections to gain an unfair advantage in the marketplace, often by bribing government officials.

  • This can undermine the rule of law and erode public trust in government institutions.

  • Distorted Market Competition: When some businesses are given an unfair advantage through their political connections, it distorts market competition and makes it difficult for smaller businesses and entrepreneurs to succeed.

  • This can lead to a concentration of wealth and power in the hands of a few individuals or corporations.

  • Reduced Innovation: The dominant position of large businesses often erodes competition and discourages them to further innovate or improvise their products/services.

  • This can stifle innovation in the overall economy and lead to a decline in competitiveness.

  • Public Distrust of Government and the Economy: Widespread crony capitalism can lead to a loss of public trust in government institutions and the economic system.

  • This can make it difficult for policymakers to implement reforms and for businesses to operate effectively.

How can India Address the Issues Related to Crony Capitalism?

  • Improving Transparency and Accountability: India can improve transparency and accountability in its political and economic systems by implementing measures such as open data initiatives, increasing the independence of regulatory agencies, and improving the transparency of government contracts and subsidies.

  • Encouraging Competition: India can encourage competition by reducing barriers to entry for smaller businesses and entrepreneurs, such as reducing red tape and streamlining regulations.

  • This can make it easier for new entrants to compete with established businesses and reduce the concentration of wealth and power in the hands of a few individuals or corporations.

  • Towards Corporate Ethical Responsibility: India can promote responsible business practices by implementing measures to ensure that businesses act ethically and sustainably, in lines of corporate social responsibility and sustainability initiatives.

  • This can increase public trust in the economic system and encourage businesses to act in the best interests of society as a whole.

  • Encouraging Responsible Political Behaviour: India can encourage responsible political behaviour by increasing the transparency of political donations and lobbying activities.

  • This can reduce the potential for corruption and ensure that elected officials are held accountable for their actions.



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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Crony capitalism UPSC NOTE
Crony capitalism UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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