Crony capitalism needs cronies.

While the economy grew by 4.7% in the December quarter, inflation continues to remain high and there is no sign of new investments the stock market is scaling new heights. The Sensex closed at a record 21,920 yesterday, up 406 points. As usual, tempted by the ever increasing index, retail investors are beginning to enter the market. Precisely at the wrong time. The financial sector, comprised of financing, insurance, real estate and business services sector grew 12.5% in the December quarter and contributed 49.4% to the growth of the economy. What are they financing when Industrial Production has been falling in the 3 months to December? New investment cannot happen unless growth accelerates and the economy cannot grow faster unless there is new investment, creating more jobs. Big companies are hamstrung by vast amounts of debt, 10 top conglomerates have a combined debt of Rs 6.31 trillion while gross Non Performing Assets in 40 listed banks grew by 37% since last year, from Rs 1.67 trillion to Rs 2.29 trillion. Companies cannot invest unless they have financing and banks cannot lend unless they recover their loans. In all this gloom one would be forgiven for thinking that our business fellows would be despondent. Not a bit of it. While globally CEO confidence is down in India it is up. 70% of Indian CEOs are very confident over the next 3 years and 27% somewhat confident. Only 3% are not confident at all. What is the reason for such a sunny outlook? It maybe because they think that things cannot get any worse and are optimistic that a new government after elections will get the economy growing again. Or it maybe because they know that whoever comes to power they will continue to make money by rent seeking, selling off our natural resources and from the huge property price bubble. We have seen an explosion of corruption during this Congress led government which has led to enormous anger against politicians and civil servants but every scam was constructed by business fellows. Some industries, such as IT and automobiles, have genuinely grown through increased sales but most of the others is because of their close association with politicians and civil servants. After all you cannot have crony capitalism without cronies. Thus on the one hand we have massive socialist handouts by the Congress and on the other we have the worst form of crony capitalism. Worst of all worlds. How lucky is that?