The recent telecom scandal in India provokes a question about its market economy. But before we can answer the question of crony capitalism in India, we have to determine what exactly crony capitalism is, how and why it is created, who exactly are the `cronies', how it affects the growth, and most importantly whether it can be stopped.

The telecom scandal began in 2008. At that time, Andimuthu Raja headed the Indian Telecom Ministry. Raja apparently had three qualifications for the job. He was loyal to the politically crucial Dravida Munnetra Kazhagam (DMK), a regional party based in Tamil Nadu. He also had a close relationship with the DMK Leader, Karunanidhi's daughter Kanimozhi. Finally, he was politically no threat to anyone.

Raja was in charge of an auction in 2008 that sold valuable mobile telephone spectrum licenses. Eight of the new telecom licenses were sold to domestic companies for a total of about $2 bn. These companies then turned around and sold stakes to large international telecom firms like Telenor of Norway and Etisalat of the UAE. An investigation started in 2009 has resulted in charges that the licenses were sold at prices that cost the Indian government about $39 bn.

As part of the investigation, several of India's best-known tycoons, including Anil Ambani, Chairman of Reliance ADAG, Prashant Ruia, the billionaire Chief Executive of Essar Group, and Ratan Tata, distinguished Chairman of the Tata Group, have been questioned by either Central Bureau of Investigation or by Parliamentary committee to determine their involvement. It is a perfect example of several powerful families using their government connections to acquire for themselves or their firms competitive advantage at public expense—also known as crony capitalism.

The Analyst Magazine, Crony Capitalism in India, Market Economy, Indian Telecom Ministry, International Telecom Firms, Central Bureau of Investigation, Emerging Markets, South Korean Economy, Regulatory Discrimination, Bureaucratic Discretion.