If we let the nexus between the politician and the businessman get too strong, we could shut down competition

 
The Bhopal-born Raghuram Rajan was the youngest person to be appointed as the International Monetary Fund's chief economist in 2003. Shankar Raghuraman met up with Rajan to discuss everything from wealth to privatisation by stealth ...  
You refer in your book to the fact that India has the second largest number of billionaires per trillion dollars of GDP as a "dubious distinction". Why? It was second largest to Russia before the crisis, but I would suspect it is probably now the largest. I don't think there is a problem with wealth creation. I think one of the virtues of the new economy is that we actually celebrate the creation of wealth. I mean so many poor boys want to be like Bill Gates. I do think there is a problem if much of this wealth comes from proximity to the government. If you look at the areas where we have so many billionaires, many of them are not software entrepreneurs; it's things like land, real estate, natural resources and areas that require licences. Some (of our businessmen ) have genuinely created entrepreneurial firms that have done wonderful things. But there are other areas which are less competitive and where proximity to government helps. That's a worrisome factor. In the longer run, these things will correct themselves, sometimes. But you could go the way of Mexico. The way Mexico has gone is a situation where you essentially have oligarchies counterbalanced by strong unions and both have in a sense shut down economic growth. This is the famous middle-income trap that Mexico is in. Well, we're still not middle-income, but we could get trapped before then if we don't watch out for the need for ensuring that we have competition, ensuring that a few entities don't grab all the benefits that are coming from economic growth.  
Are you suggesting that what's happening in India now is a sort of crony capitalism... I would think that we are in a position to get to a more free enterprise form of capitalism than any of the fast growing developing economies primarily because we have a much more democratic set-up and we have in a sense an entrepreneurial spirit that has developed over many centuries. I wouldn't so much call it crony capitalism as oligarchic capitalism and I would argue that there is a danger that if we let the nexus between the politician and the businessman get too strong, we could shut down competition. That could slow us down tremendously and also maybe create questions eventually for our democracy. So, I would think this is one area - competition, transparency, more openness about government contracts, more openness about land deals - these are things we need to be working on.  
You use a very interesting phrase in your book - the "privatization by stealth of the state in India". What exactly are you referring to? It's more than that. I worry that in the areas where there isn't adequate governance, we are letting the private sector determine things that should naturally be the prerogative of the state. For instance, take the SEZ scheme where the whole apparatus of setting up the infrastructure for any area - because we don't have the entities capable of creating the apparatus - we are giving it over to the private sector but in many situations not necessarily charging an adequate return for the state for giving up the prerogative. Essentially, it's telling them, 'you make your money from real estate and so on, but in the process create the infrastructure that we cannot.' That to my mind is privatization by stealth. If there was an open auction and you got people bidding the price, that would be fine. But we don't do that and that is something we should be asking more questions about.