Scandal Threatens India's Economic Growth India's economy weathered the worldwide recession only to find the government mired in costly scandals driven by leaked wiretaps. Parliament is gridlocked, and business leaders fret that foreign investment will fall.
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Scandal Threatens India's Economic Growth

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Scandal Threatens India's Economic Growth

Scandal Threatens India's Economic Growth

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The relations between government officials and business leaders are also making headlines in India. By many measures, the country is doing extremely well. India weathered the global recession and has an economy that is growing at more than eight percent a year. World leaders, including President Obama, have proclaimed that India has arrived on the world stage.

Yet, its government is mired in a series corruption scandals linked to prominent business figures, as NPR's Corey Flintoff reports from New Delhi.

COREY FLINTOFF: The scandals have been brewing for years, but they erupted in the past two months with the leak of a series of wiretapped phone calls. India's income tax department had tapped the phone of a prominent lobbyist named Nira Radia, looking for evidence of alleged tax evasion and money laundering.

(Soundbite of phone ringing)

Ms. NIRA RADIA (Lobbyist): Raja?


Ms. RADIA: I need to talk to you on a landline.

FLINTOFF: What the tape seemed to reveal was a network of influence with Radia at the center, making deals among business tycoons, top politicians and journalists. Some of Radia's efforts involved getting the former telecommunications minister restored to his post, despite allegations of corruption against him.

(Soundbite of telephone call)

Unidentified Man: But can he be put somewhere other than telecom?

Ms. RADIA: Trust me, he'll behave himself.

FLINTOFF: That minister, Andimuthu Raja, later resigned amid charges that he had allocated lucrative cell phone licenses to well-connected companies at bargain-basement prices. The alleged under-pricing may have cost the Indian government as much as $40 billion in potential revenue. Both Raja and Radia deny any wrongdoing.

Saikat Datta is an assistant editor at Outlook, a weekly newsmagazine that's put some of the leaked tapes on its website. He says the tapes reveal that the country that prides itself on being the world's largest democracy is really ruled by a small coterie of powerful people.

Mr. SAIKAT DATTA (Assistant Editor, Outlook): First of all, it completely clears one myth which has been around for the last 63 years: that India's a democracy. It completely establishes for the first time that India is an oligarchy.

FLINTOFF: Datta says that ultimately the problem stems from the fact that, after independence in 1947, the Indian state never attempted land reform, leaving the country's wealth in the hands of the same people who'd always held it and still do.

Eswar Prasad is an economist at Cornell University who's been following the scandals. He says the growth in the scale and scope of corruption has a lot to do with India's move toward a free-market economy after many decades of government control.

Professor ESWAR PRASAD (Tolani Senior Professor of Trade Policy, Cornell University): And in the process of shifting from a government-led economy to a private sector-led economy, the opportunities for graft were enormous, because those who were politically well-connected could most benefit from the private-sector expansion.

FLINTOFF: Prasad likens India to Russia after the fall of the Soviet Union, when state-owned enterprises were sold cheap to well-connected businessmen who became billionaires. He notes that India will privatize more industries in the years to come, and warns that the losses could be huge if the country fails to adopt clear rules and transparent processes.

Journalist and historian Prem Shankar Jha says the convergence of money and political power in India stems from a problem that's also fiercely debated in the United States.

Mr. PREM SHANKAR JHA (Journalist): The problem arises from the lack of any system for financing elections.

FLINTOFF: Jha says that wealthy donors seeking influence don't have to support political parties. They found they could spend their money on people who already held public office.

Mr. JHA: And that is the cronyism which has now been exposed.

FLINTOFF: Jha says he's not necessarily optimistic that this exposure will lead to immediate reforms. He says he thinks the public will have to undergo more scandals and more shocks before enough outrage builds up to change the system.

Mr. JHA: What you see is a middle-class revolt. It's coming from the fact that the Indian middle class feels that it can be first rate. And everything that stands in the way, which makes them look bad, or which stands in the way of efficiency - and corruption does both - is something that is now being attacked. We don't want it.

FLINTOFF: But he adds that India is now growing a strong enough middle class to eventually turn outrage into power.

Corey Flintoff, NPR News, New Delhi.

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