The recent furore surrounding the allocation of roughly 1,050 acres of land in Bhagalpur/Pirpainti to an Adani Power project year a 33- lease at a token rent of Re 1 per annum and accompanied by political allegations of favouritism — crystallizes a recurring malady in developing democracies’ political-economy: the conflation of headline macroeconomic expansion with distributive rectitude and institutional probity. The controversy has three intertwined dimensions that require disentangling before any normative verdict:
- The micro-facts of the transaction and contractual architecture (what precisely the lease/PSA stipulates, what land was state-owned versus privately acquired, and what compensation/rehabilitation modalities were used);
- the political economy logic — why incumbents might underwrite private capital with fiscal or quasi-fiscal concessions, and how such concessions alter investment incentives and rent extraction; and the macroeconomic dialectic — whether elevated GDP growth rates and rising per capita income indices meaningfully translate into social welfare gains if allocation is skewed by preferential deals that concentrate economic rents rather than diffuse productive capacity. Recent reportage and the parties’ statements (including a press release from Adani regarding a power-supply agreement for 2,400 MW to Bihar and denials from the state/centre regarding “gifting” land) confirm that this is not merely a parochial squabble but a paradigmatic instance of the broader debate over crony capitalism in India.
At the level of transactional mechanics, the narrow inquiry is deceptively empirical: were public assets — prime agrarian parcels and ecological capital (notably trees) — monetised at market-congruent opportunity costs or transacted at concessional terms for ex ante public benefit (e.g., cheaper power supply, employment generation, local infrastructure)? Reporting by multiple outlets summarises the allegation: lease for 33 years at Re 1 per year; meanwhile state authorities have emphasised formal land acquisition/compensation procedures and insisted that the arrangement is part of a 25-year power supply arrangement intended to secure energy for Bihar’s grid. There is, therefore, a dual narrative: the opposition’s charge of rent-appropriation and the government’s countervailing assertion of procedural validity and developmental rationale. The raw facts available in the public domain (PSA signed; foundation stone ceremonies; state cabinet approvals for lease tenures) must be read against documentary disclosures (lease deed clauses, award of compensation to landholders, environmental clearances) before concluding that the arrangement amounts to appropriation of public patrimony rather than a negotiated public-interest concession.
But the political-economic anatomy of cronyism is not reducible to a single lease; it is the accrual of repeated concessions, regulatory forbearance and institutional capture that, cumulatively, redistribute the surplus from the public purse to a narrow cohort of politically proximate firms. Crony capitalism is an equilibrium pathology: governments, particularly in fiscally constrained polities seeking high-visibility projects or investor-confidence signals, may deploy below-market leasing, tax holidays, land-aggregation via eminent domain and preferential tariff structures to catalyse projects that are politically desirable. This calculus yields short-term headline wins — a new ‘mega’ plant, a foundation stone with political optics, immediate construction employment — but the longer-run welfare arithmetic can be perverse if the concessioned rents are expropriated by insiders and civic compensation (in cash, land for land, or livelihood rehabilitation) is superficial. The consequence is allocative distortion: scarce land and public capital flow not to the most efficient bidders but to strategically connected conglomerates, with ambiguous social returns. Political economy literature emphasises that such distortions erode competition, elevate barriers to entry and create a risk-weighted premium that distorts real investment decisions away from productivity-enhancing activities and toward rent-seeking intermediation. See, by analogy, classic treatments of patronage-based industrial policy and the contemporary critiques of “state-enabled capital concentration.”
Macro-statistical vindication of policy — the refrain that “GDP is rising; therefore all is well” — is both seductive and misleading. India’s aggregate macroeconomic performance over the last decade has been robust in absolute terms: nominal GDP and per-capita income have risen materially (see attached chart: nominal GDP and GDP per capita 2015–2024, approx.). But aggregate growth masks distributional sclerosis and institutional deficits: a higher national GDP does not axiomatize fair distribution of gains, nor does it immunize a polity from the corrosive effects of concentrated rents. The charts attached illustrate the twin phenomena: (a) the ascent of India’s nominal GDP into multi-trillion dollar territory; and (b) the far humbler trajectory of GDP per capita (in current USD), which has risen but remains modest relative to advanced economies and still marks vast intra-national heterogeneity. In other words, aggregate size (India as the world’s fourth largest nominal economy) coexists with a low per-capita baseline and persistent regional and social inequality.
Why is cronyism inimical to genuine per-capita welfare gains? Three mechanisms are analytically salient.
- First, rent diversion: when public assets are under-priced, the surplus accrues privately rather than being internalised via competitive procurement or used to finance public goods.
- Second, investment misdirection: concessions create an artificial incentive structure favouring capital-intensive, politically connected mega-projects over labour-absorbing micro and small enterprise growth; this matters for a country with millions of surplus labour seeking formalisation.
- Third, institutional erosion: repeated preferential treatment undermines regulatory credibility, raising the country risk premium, increasing cost of capital for unconnected firms, and ultimately depressing the pace of broad-based entrepreneurship and productivity diffusion. These are not abstract risks — international investors, rating agencies and governance indices watch for signs of capture because they signal persistent policy unpredictability and implicitly discount future returns. Transparency International’s Corruption Perceptions Index (CPI) is a blunt instrument but a revealing barometer: India’s CPI score and rank indicate that corruption-related perceptions persist as a governance concern that can impair the economy’s ability to transform headline GDP growth into widely felt prosperity.
The Adani controversy affords an instructive case study in this causal chain. Consider the public benefit claim: if a concessional lease lowers the capital cost of the project and thereby reduces the delivered tariff for consumers, there might be a defensible public rationale — provided the saving is transparently accounted for, contract performance is monitored, and distributive compensation is made to displaced stakeholders. But reportage suggests a more ambivalent ledger: political actors allege token rents and alleged coercion in land aggregation; state spokespeople insist formal procedures were satisfied and the PSA will supply critical baseload capacity to Bihar’s grid under a multi-decadal arrangement. The empirical question — whether the social rate of return exceeds the social opportunity cost when all public losses and gains are tallied — cannot be resolved without full disclosure of the lease contract terms, tariff modelling, and ex post audits of the land acquisition process. Transparency, disclosure and independent auditing are the natural institutional antidotes to such opacity.
What of the government’s posture?
Politically, the incumbent administration has repeatedly foregrounded macro indicators (GDP growth, rising per-capita income, poverty reduction statistics) as evidence of successful stewardship; administratively, it emphasizes procedural compliance in state decisions (cabinet approvals, formal PSA signings, claims of compensation to landholders). At the same time, the opposition has exploited perceptions of preferential access to argue that political proximity has conferred undue private advantage. The analytical retort from the administration is straightforward: large projects attract concessions everywhere; the salient metric is net social welfare increase, not intermediate contract prices. But this rejoinder fails if the process that generates the concession is non-competitive, opaque, or if the fiscal externalities (foregone municipal revenues; ecological degradation; and opportunity cost of cheap land) are not internalised. For democratic accountability, the onus falls on the executive to make public the full contract appendices and the impact assessment so that independent analyses can adjudicate whether the deal exhibits public-value or private capture. Reporting indicates the state cabinet approved a 33-year land lease and that Adani Power has signed supply agreements — but it also records political pushback that demands more documentary transparency.
At the international level, governance and investment-climate commentators have not been complacent. International investigations — notably the Hindenburg episode and subsequent regulatory probes into market conduct — exposed the reputational risk that accrues to corporates and, by extension, to the markets that host them. Even though Indian regulators have, in some instances, cleared specific allegations (for instance, recent reporting notes a SEBI decision on many probes), the episode underscored how governance lapses or perceived preferentialism can dent investor confidence and inflate the country’s political risk premium. For sovereign policymakers, the lesson is grim but simple: persistent perceptions of cronyism can blunt the very investment flows that large projects purportedly attract, because institutional fragility raises counterparty risk and deters patient, productive foreign and domestic capital.
From an applied economic policy vantage, three remedial axes are worth emphasising. First, procedural transparency and ex ante competition: large land allocations and long-term concessions should routinely be subject to competitive bidding and independent impact assessments whose methodologies and results are public. Second, compulsory social audit and accounting: project appraisals must include a ledger for ecological services (trees, biodiversity), community livelihood losses, municipal foregone revenues and the anticipated fiscal subsidy implicit in concessional leases; where the net public benefit is positive, the accounting should show by how much and for whom. Third, institutional insulation: the adjudicatory and procurement functions that evaluate large projects should be insulated from direct political direction — whether through independent commissions, third-party auditors, or legal standards that make opaque deals judicially challengeable with expedited hearing schedules. These are not radical prescriptions: they are standard good-governance practices that enhance the credibility of pro-growth policies by ensuring that growth is not bought at the cost of rent concentration. The trade-off between speed (of project approvals) and scrutiny (of public value) is real, but democratic institutions must bias toward scrutiny if growth is to be sustainable and socially legitimised.
It is also necessary to address the empirical claim that “GDP increase is of no use to business or the public” when the distribution is concentrated. This claim has normative and empirical components. Empirically, an expanding GDP can increase opportunities for business broadly (larger domestic demand, scale economies, infrastructure spillovers). But if the institutional environment becomes predictable only for those with political proximity, generalised business — especially SMEs and new entrants — suffers. The dissonance between broad macro growth and sectoral stagnation of non-connected firms is precisely the kind of milieu in which per-capita gains are uneven: aggregate per-capita income rises while many households see little change in consumption or access to quality services. The net social welfare function depends on the marginal propensity to spend of the beneficiaries and the multiplier of public investments; when gains accrue to the already affluent or to conglomerates who repatriate profits or invest in capital-intensive non-labour projects, the distributive multiplier is low. Hence the plaint that GDP growth has “no use” is shorthand for a deeper failure of inclusive transmission mechanisms.
A final and more sobering point concerns investor signalling and sovereign reputational externalities. When domestic regulatory processes appear to endorse or implicitly tolerate preferential allocations, foreign institutional investors — who price their exposure to governance quality — may either demand higher returns or rebalance away from locally risky sectors. The repercussion is not immediate collapse in capital inflows; rather it is a higher cost of capital for riskier domestic firms, compressed competition, and potential crowding out of more productive entrants. International governance indices (Transparency International’s CPI and other measure-based assessments) matter in this calculus because they enter into the decision matrix of global fiduciary investors and ratings agencies. Thus, the narrow defence of a single favourable lease must be weighed against the long-term cost of eroding the institutional trust necessary for cheap and abundant capital.
Perhaps the most corrosive implication of crony capitalism lies in its distributional outcomes. When public assets are disproportionately channelled to corporate elites, the consequence is a skewed wealth distribution where a minuscule elite consolidates economic gains while median citizens remain excluded from the dividends of growth.
Global evidence underscores this. According to the World Inequality Lab (WID), the top 1% of Indians corner over 22% of total income and nearly 40% of wealth, while the Oxfam India Inequality Report (2023) estimates that the bottom 50% hold a meagre 3% of wealth. This staggering asymmetry reveals that aggregate GDP growth often disguises the hollowing out of inclusive prosperity.
India’s macroeconomic narrative in the past decade has been dominated by celebratory projections of aggregate GDP growth. The IMF projects India as the fastest-growing major economy, while in nominal terms India has surpassed Japan to become the world’s fourth-largest economy. However, the paradox is stark: India’s per capita income remains among the lowest in the G20.
According to World Bank data (2024), India’s per capita GDP stands at ~US$2,697, while Japan—now displaced by India in aggregate GDP rankings—maintains a per capita GDP of ~US$32,476. The juxtaposition reveals a twelve-fold disparity in average income, underscoring that aggregate GDP rankings offer symbolic prestige without translating into lived prosperity.
In conclusion — and returning to the Adani lease moment as an emblematic episode — the salient lesson is that macroeconomic aggregates (GDP, headline per-capita figures) are necessary but not sufficient metrics for assessing public-value. The institutional scaffolding that governs asset disposals, regulatory adjudication and contractual transparency determines whether growth is a distributive engine or an ostentatious façade for concentrated rent extraction. The public policy response should therefore be threefold:
- Full documentary transparency of the Bhagalpur/Pirpainti concession and related PSA terms, followed by independent ex post evaluation;
- institutional reforms to strengthen competitive procurement and independent oversight for large land and infrastructure allocations; and
- statutory mechanisms to ensure that the fiscal externalities of concessional public assets are internalised either through direct compensation into public coffers or binding performance clauses that deliver tangible consumer or community benefits.
Only then will the numerical ascendance of GDP and per-capita income be matched by genuine improvements in living standards for the broad majority.