India lobbyist scandal draws attention to inner workings of fast-growing economy

By Rama Lakshmi
Washington Post Foreign Service
Thursday, December 16, 2010; 4:59 PM

NEW DELHI - A new corruption scandal erupts almost every month in India. But even here, the secretly taped phone conversations of a powerful lobbyist have shocked most people.

The lobbyist was recorded talking to several people - politicians, bureaucrats and journalists - apparently trying to ensure that India's telecommunications minister, Andimuthu Raja, was reappointed after the May 2009 election.

The lobbyist, Neera Radia, who runs a public relations firm in New Delhi, was later taped telling the head of a prominent cellphone company that she was trying to get Raja to change government policies to favor the firm.

The conversations, which have dominated the media in recent weeks, led to a public outcry in a country where lobbying is mysterious work usually conducted far from the public eye. Unlike in the United States, lobbying is not recognized as a legitimate profession, and few lobbyists would ever identify themselves as such.

But the scandal also focused attention on a broader issue: how economic policies are made and business is conducted in the world's second-fastest-growing economy. Some analysts say the country's opaque systems raise troubling questions about the extent of crony capitalism and whether India's success is sustainable.

The tapes have taken on even more significance since Raja resigned last month after a government probe accused him of selling licenses to his favorite cellphone companies at bargain-basement prices, costing India $40 billion in lost revenue. Authorities have raided the homes of Radia and Raja and are investigating their bank accounts.

Raja has said that he is innocent and that he was following rules and procedures set by his predecessors.

On Thursday, the minister of corporate affairs, Salman Khurshid, said that the government will begin to debate whether to regulate lobbying and that there should be a transparent model for the practice.

Other recent scandals have also exposed the nexus between the state and big business.

Last week, investigators busted a loan scheme in which a state-run insurer gave millions of dollars to big real estate firms in return for bribes. In southern India, a government probe in October revealed that two powerful businessmen used their political connections to mine iron ore illegally.

"The impressive economic growth numbers hide an extremely dysfunctional and skewed economic model," said Rajeev Chandrasekhar, an independent member of Parliament. "On the one hand, we have governments with wide administrative discretion, little oversight and huge budget. On the other hand, entrepreneurs and companies act as proxies of politicians. This combination, if allowed to grow unfettered, represents a clear and present danger to the whole concept of Indian democracy and free markets."

The concerns come at a time when the developed world, especially the United States, is seeking increased business ties and more access to Indian markets. Foreign investors are pouring money into Indian capital markets.

CONTINUED     1        >

© 2010 The Washington Post Company