Imagine yourself solving a partial differential equation. The lower middle class and corporate bureaucrats are the two variables with respect to the common variable: the politician. Poverty, fake promises and temporary materialistic baits are the constants. There can only be one outcome: the politician gets re-elected into office. No matter how many derivatives you take, the result is still the same. It’s a cyclic process that is affecting the growth of developing countries, such as India. In other terms, it’s referred to as crony capitalism. In simpler terms, the politician makes empty and shallow promises while campaigning, partially fulfills some of them to earn the trust vote of the poor, hence the “partial” differential equation.

In return for pouring money into the politician’s campaign, businesses expect favoritism towards them while drafting agendas and short-term road maps. Examples include but are not limited to: special approvals, overlooking of certain rules and regulations, procedure not duly followed for obtaining certain licenses, etc. One might argue that easing the rules for private corporations would lead to an increase in growth of the economy, as it would help ensure strategic objectives of the organization are met. However, it has an inverse effect. The only motive of private corporations is profit. Period. Higher profits mean an increase in prices of goods and services to continue to meet their ever-increasing profit margin. This leads to a decrease in affordability for the lower middle class and can prove to be catastrophic in the long term. It is important to mention for the sake of this article, all of the assumptions leading to my analysis are based on a very macro-scale. Developing countries like India need drastic improvements in access to public services such as toilets in every rural house, teachers present to teach in government schools, basic access to healthcare, etc. rather than trying to quench the corporate greed in hopes of an economic boost.

Now that we have an idea of what crony capitalism is and its causation, let's dive deep into its effect on the departure of Reserve Bank of India (RBI) Governor, Raghuram Rajan. The NDA Government has always seen Rajan as an “outsider” whose goals and objectives align with those of “corporate riches” while the whole focus of the present government has been about focusing on the poor. Therefore, what was the primary reason that didn’t lead to Rajan’s two-year extension as RBI Governor?

To effectively answer the question, we will have to dig further into his three-year term. Narendra Modi, honorable Prime Minister of India, laid out various schemes and initiatives once he took over in 2014. The most famous amongst those was the “Make in India” initiative. His pet project aims to attract manufacturing factories to set up plants in various parts of the country in order to not only create jobs, but eventually an increase in the country’s Gross Domestic Product (GDP). India calculates its GDP in two different ways, both of which align within the range for margin of error. As companies set up plants, blue-collar workers start to migrate from one city to another in search of seasonal employment. Let’s imagine the worker gets fired from his job. He will then migrate to a different city for a different job. Although there isn’t a significant difference, it results in a bias while calculating the GDP, as the worker isn’t adding any value to the earlier city he was employed in. Given India’s population of 1.2 billion, there is bound to be a standard error. Rajan speculated this possibility and hinted that India’s growth rate of 7.5 percent might be slightly exaggerated. His comments didn’t go down well with the Finance Minister, Arun Jaitley. What upset Mr. Modi further was the fact that he went on to add, “Make in India” isn’t the best idea given the time and should’ve instead been “Make for India.” India is trying to compete with China that is four to five times the size of the Indian economy, and hence solely relying on the manufacturing sector won’t do the trick for India as it did for China.

Well, I agree to disagree here. At the moment, India shouldn’t draw all its attention on inflation, as it would not only hinder growth but also increase unemployment. Consider economic growth as your “friend” and inflation as your “frenemy.” You are obligated to display friendship on the outside, but that does not bind you from having banter once in a while. Therefore, to ensure we are growing at a steady rate of 6 percent, we have to shift our focus on lifting our economy rather than spending our energy on trying to tame inflation. “Make in India” would not only lead to an increase in jobs, but would also decrease social inequality to a certain extent, hence bringing up nominal GDP. Let’s not solely focus on inflation-based GDP a whole lot for now. Inflation does increase in costs; however, growth would increase affordability, hence the two would cancel out (not literally, but you get my point). Again, I’m talking on a macro-scale here.

Let’s try to tie all of the starters and dessert we just digested back to our main course, i.e. crony capitalism. I feel that there is a strong linkup with Rajan trying to break up a “Crony Capitalistic India” and being overcautious to use it as leverage against the politicians. However, cutting growth for the price of a “corrupt system” wouldn’t make the system commit “less of a crime.” As Mr. Modi calls it, “Make in India” is a lion’s step, but it’s a lion’s step in the right direction. We have to take down those who lower the effectiveness of a system by resorting to corruption. It’s a slow process, but the last two years have proved to be steps in the right direction. With Mr. Modi at the helm of affairs, I’m positive and optimistic to see change. As they all say, change is the only constant.