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India ranks ninth in crony-capitalism index: The Economist

According to a new study by 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). The non-crony sector wealth amounts to 8.3 per cent of the GDP, as per the latest crony-capitalism index. India stood at the ninth place in 2014 too.

Other findings

  1. Germany is cleanest, where just a sliver of the country’s billionaires derives their wealth from crony sectors.
  2. Russia fares worst in the index where wealth from the country’s crony sectors amounts to 18 per cent of its GDP.
  3. Russia is followed by Malaysia, the Philippines and Singapore.
  4. Among the 22 economies in the index, crony wealth has fallen by USD 116 billion since 2014.
  5. Worldwide, the worth of billionaires in crony industries soared by 385 per cent between 2004 and 2014 to USD 2 trillion
  6. The combined fortunes of crony billionaires have dropped 16 per cent since 2014
  7. Among the 22 economies in the index, crony wealth has fallen by USD 116 billion since 2014.

Reason for fall in crony wealth

  1. The commodity crash.
  2. Backlash from the middle class resulting in
  • The changes in government, the world over and
  • Arab Spring resulting in the rise of demand for democracy

Crony capitalism

It refers to an economy where economy is dominated by the section of society that results from the close proximity between ruling party and business community. Here success is not determined by free competition but by proximity to political parties.

Crony capitalism is found both in capitalist economy as well as in socialist economy. Socialists believe that crony capitalism is the inevitable result of pure capitalism. The people in power, whether business or government, think to stay in power and the only way to do this is to create networks between government and business that support each other.
While 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.
In either case, crony capitalism refers to an economy where

  1. Success in the economy is based on proximity of entrepreneur with that of political leadership.
  2. Free market mechanism is not the core of success but corrupt practices take the centre stage that results from close proximity of business community and government officials.
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