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Veteran Indian social activist Anna Hazare drinks coconut water and honey to end his fast at Ramlila grounds in New Delhi Aug. 28, 2011. (Adnan Abidi/Reuters/Adnan Abidi/Reuters)
Veteran Indian social activist Anna Hazare drinks coconut water and honey to end his fast at Ramlila grounds in New Delhi Aug. 28, 2011. (Adnan Abidi/Reuters/Adnan Abidi/Reuters)

India struggles through its own era of robber barons Add to ...

The only important question in the West right now is how to restart stalled economic growth. So it is easy to be dazzled by India, where a 7-per-cent rise in gross domestic product is the nightmare scenario, and optimists are shooting for 9 per cent.

But Indians are starting to worry about how that growth is being achieved, and who is benefiting. The headline complaint is corruption. That is nothing new here, of course. But the country now has a middle class self-confident enough to feel humiliated by paying quotidian bribes and resentful of the rise of baksheesh billionaires. Social activist Anna Hazare’s hunger strike against corruption became a national political event because it tapped into this anger of the urban bourgeoisie.

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“India has been overwhelmed by corruption scams,” said Kiran Bedi, the first female officer in India’s elite police service and one of Mr. Hazare’s top lieutenants. “While it has been apparent that India is shining, India has also been declining in many ways in that there has been rampant exposure of corruption.”

“Corruption is endemic,” agrees Rajiv Lall, chief executive officer of Infrastructure Development Finance Co., a partly state-owned financial institution. “I don’t think anybody here is pretending that there’s no corruption in the country. And corruption can take on a new dimension, especially in this time of great transformation.”

Graft is just part of the story. One of the reasons to celebrate India’s astonishing economic rise is that the subcontinent desperately needed to get richer. In 1991, when Manmohan Singh, then the finance minister and now the prime minister, began the liberalization program that underpins the country’s transformation, India’s 854 million citizens had an average annual per capita income of only $1,300.

The problem, said Arun Maira, a former industrialist who is a member of the country’s influential planning commission, is that India’s economic rise has had the least impact on the people who need it most.

“Most people are not feeling included in the growth,” he said. “This has become a very loud voice which is saying ‘Come on guys, the economy is growing very fast now. You’re celebrating this 8, 9, 10 per cent growth, but what about us?’ ”

But even many of the critics of India’s lopsided development think it is inevitable, one of the growing pains of the country’s swift economic rise.

Mr. Maira points to a commonly used measure of income inequality, the Gini coefficient, saying “it always rises whenever growth takes off.”

“When you open more opportunity, like more free markets and the opportunity for people to do their own thing, those who already have some capital, or they have some education, or they have access to people in power ... they will first [build]their own wealth,” he said.

As he notes, one of the most powerful advantages of the wealthiest 1 per cent is “access to people in power.” Corrupt business deals are the most extreme use – and abuse – of those relationships. But there is a more subtle reason the game is most effectively played by those who are already winning it. S. Gopalaskrishnan, co-chairman of technology company Infosys, said “the tendency is that people who have access to power and access to governments ... tend to get a better deal. The policies, the roots, are framed because they are people who give inputs to those policies.”

This is the Indian version of what Willem Buiter, the former London School of Economics professor who is now chief economist at Citigroup, calls “cognitive capture,” and which he blames in part for the regulatory and legislative lapses that helped create the 2008 financial crisis.

Just as that financial crisis and the recent populist protests have shaken some of the certainties created by cognitive capture in the West, the success of the Anna Hazare movement has focused the Indian elite on the shortcomings of its own model.

Ashutosh Varshney, a professor of international studies at Brown University, likens India’s thriving and dirty capitalism to the United States’ Gilded Age. That comparison suggests India watchers should be on the lookout for a Hindu version of the Roosevelts – a Teddy to break the grip of the robber barons and an FDR to offer the 99 per cent a New Deal.

There is, however, one important difference. India’s robber barons have emerged in the age of globalization and at a time when the U.S. is experiencing its own second Gilded Age. The wealthiest 1 per cent is a global class, and cognitive capture is an international phenomenon. The world may need its own global Roosevelts, too.

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