The Socio-Capitalist Cocktail

“The mafia doesn’t care about generating revenue for the government. In my case, I care a lot about the government. I run this business and add huge sums to the state exchequer.”

Ponty Chadha ¹

If one commodity easily succumbs to the parameters and agendas of both socialist nations and capitalist economies, it is alcohol. Like corruption, alcohol is the object of accusatory messages in the moral conventions of most communities. But like corruption, alcohol is the expelled  sacred, hiding in the basement. There is a common metaphysics between corruption and alcohol; it occupies the same grey area, in economy, practices and values. This is certainly what Ponty Chadha understood early on, when he started what would become nearly three decades of the greatest alcohol empire that India has known. Mostly, the general audience discovered his name on November 17^th, 2012, when a shootout between Chadha and his muscle, and Chadha’s brother, Hardeep, happened around their Chhatarpur farmhouses, leaving both brothers dead. But Ponty had been a major player in economy and politics long before. Potentially, anyone from North India watching the news this day had already encountered his silent presence: “In addition to being a liquor baron, sugar miller, real-estate giant, and food distributor, he became a paper miller, soda-bottler, large-scale poultry farmer, Bollywood film producer, public transport operator, hydroelectric dam builder, mall and multiplex erector, educationist, philanthropist and African-land speculator.” ²

Why would alcohol be the ideal socialist-capitalist cocktail of corruption? As Chadha regularly claimed to justify his deeds, alcohol is more than one commodity among an infinite number of other items commercialized by any capitalist economy. Around the globe, alcohol has the peculiarity of bringing particularly high taxes to the state. From early on, national constitutions have banked upon the ethical taboo of alcohol to increase its revenue. Alcohol would be a ‘contradictory’ product of consumption. While it may provide a sense of pleasure for the consumer, it is also a harmful item for human health, when consumed in excess. But the commodity itself is such that it enhances its over-consumption. Clearly, the fact that alcohol, just like tobacco, are not strictly necessary for sustaining a human organism, does not suffice to explain for the huge taxation such commodities face in most modern states. There is clearly a moral, if not moralistic assumption here: the state must leave the individual free to consume what she desires, including potentially harmful items, but because ultimately the state is supposed to be accountable for the sustenance of its population, higher taxes could be levered for such commodities. The state here contends that individuals choosing ‘wrong’ commodities should pay a higher price to help the state in its inversely benevolent activities. One may notice the already existing moralistic imbalance against alcohol, even before this commodity gets more demonized through its organic association with corruption. The ‘evil’ of an industrialist building his rhetoric on the taxation of alcohol, and the consequent justification of his activities as state-beneficiary ones, is thus only an economic response to a set of arbitrary pre-existing structures at the level of the state. And the results remain undeniable. Once Chadha’s empire was hegemonic enough for him to increase the value of its commodities, an increase of 10 to 15 percent was observed in Uttar Pradesh and neighbouring states. Quickly named as ‘Ponty prasad’ or ‘Ponty tax,’ this increase was absolutely beneficiary for the government of BSP Chief Minister Mayawati: “Between 2008 and 2012, state revenues on liquor excise increased more than 70 percent to ₹ 8.139 crore.” ³ This represents, for only one state of India, an addition in the budget of more than one billion dollars.

How could economic actors like Chadha not strive in developing socialist nations like India? Indeed, Indian politics is both remarkable for its democratic and socialist inception since the Gandhi-Nehru tradition, but also for a booming economy after the opening of the market by Manmonhan Singh in the 1990s. Indian politicians, across governments, parties, and states bureaus, are thus caught between the demagogical rhetoric – and duty – of looking after the overwhelming poor populations of the country, while also allowing aggressive capitalist ventures amenable to chip in substantial contributions to their budgets. Clearly, India’s promise of developments cannot count on individual-based taxations, especially in a country where 90% of the work remains unofficial. This leads states to rely upon more fruitful financial sources, and the taxation of the alcohol industry, as well as its underground politics, are necessarily major events.

Mehboob Jeelani’s article on Ponty Chadha’s rise gives a clear idea of the amount of power, influence and literal physical violence that is required to become the monopoly-holder on alcohol over the most-populated state of India. It takes more than a Harvard Nobel Prize genius to tackle an economical problem such as this one: if politics has its realpolitik, Chadha’s own story reveals that there is also a realeconomik. While fundamental economic laws and practices were naturally followed by Chadha, a lot of his growth was due to a deeper understanding of his terrain and a rapid and pertinent grasping of the politics in place. Interestingly, this includes a fare deal of differently useful skills. A gangster cannot operate at this scale without a neat costume. When Mahesh Gupta took over as excise commissioner, Chadha did not blatantly resort to his imposing position in the local economy:

“Soon after Gupta took up his post in 2008, Chadha came from Delhi to pay his respects in person at Gupta’s official residence in Lucknow, and the two men visited with one another on several subsequent occasions. “He was a very careful human being,” Gupta said. “He would fix an appointment with you, though he could have simply called and met us whenever he felt like it. But he would always follow proper procedure.” ⁴

Proper procedure: the official grammar of the post-Enlightenment modern state. Activities must follow a logic, a procedure, an agreed-upon order of things, in order to be accepted. Such etiquette would seem superfluous at the level of these major political and economic players, but Chadha knew that it was an important token in the political terrain in question. When it was Mulayam’s turn to be Chief Minister, the transfer of politico-industrialist networks also followed proper procedure:

“The meal was dominated by silence: Mulayam spoke rarely, mostly complaining about his insomnia and other health problems; Chadha kept quiet. … You don’t calculate the profits and losses at a meeting like that, [a senior] SP leader said. “You just need to convey that you are loyal to the politician—and Ponty had mastered that art.” ⁵

Corrupt Indian democracy is thus not local autocracy: efficiency is not the only scale of one’s success; the decorum must be maintained. The decorum of legal procedures conducted by calm and rational agents, but also the self-justified convention of a legitimate search for profit. And this is where the context of a capitalist economy is particularly convenient. As a capitalist actor, Chadha’s preoccupation was not political, power-related or even ideological, but simply one of profit. Since Marx, capitalism is unambiguously recognized as the game of profit permitted by the under-remuneration of the actual creators of the commodity. And the bigger, the better: throughout the world today, industrialists and states work hand-in-hand to fructify this profit. Therefore, capitalism is interestingly democratic, since it addresses reality and production through the single denominator of profit. All values, all individuals and all institutions can be reduced to economic worth, becoming thus the ultimate value of reference. In a way, while profoundly corrupt in his economic practices, Ponty Chadha was not the least corrupt in the motivations of his economy:

“The former SP general secretary Amar Singh, who once wielded great influence with Mulayam [the CM of Uttar Pradesh in 1989-1991, 1993-1995 and 2003-2007], explained Chadha’s political buoyancy to me in simple terms: “He gives 70 percent of his bribes to the party in power and 30 percent to the opposition.” If you mattered and could help Chadha expand his interests, then he would throw his weight behind you—regardless of party, identity, or ideology.” ⁶

In this light, the corrupt Indian capitalist is the modern version of the Biblical parable of the sower: he throws ‘seeds’ everywhere, profoundly confident that at the end, his own ‘fruits’ will grow.

To reach this stage, Chadha had to take his project with patience. Passing from the almost complete monopoly of distribution over the town of Moradabad, inherited from his family business, to state-size distribution, would take a few years. Such a process generally occurs with one major local player establishing privileged contacts with state politicians. For Ponty Chadha, this took place in the wake of Mulayam Singh Yadav’s chief ministry term in 1989. Often, the industrialist sends ‘gifts’ in the form of substantial cash donations, to the politician who needs it to reinforce his strength in an election. In western societies, this is called lobbying and it is, to a certain extent, legal. After all, an election-based democratic system is meant as the most equalitarian of all political systems, but it is forgotten that electors are not simply ‘rational’; that it takes more, for a few candidates, than just to announce their participation in the race. No election, across the globe, could be realized without the financial help of industrial partners. In spite of appearing clearly in the blueprint of democratic elections, the popular rhetoric against corruption still reads this as a scandalous and abnormal practice. The fact is: till date, no effective alternative has been found. In turn, the industrialists get preferential treatments in their business. Mulayam was elected mostly on the basis of a caste-based discourse, announcing brighter days for the economy of lower-caste communities. A project was announced, promising the right for the communities living on riverbanks to collect the sands necessary for building constructions. But Chadha could very quickly take over the deal and control the entire resource as well as supervising the realization of a handful of real-estate deals, in Noida. But this was still a relatively modest scale. In the 1990s, Uttar Pradesh underwent a few years of upheavals, with eight different chief ministers and three periods of president’s rule. When state policy is shaken, other legal procedures are set. Chadha found ways to bypass one-year permissions:

“State policy was to auction off wholesale liquor licenses on an annual basis. The number of outlets a wholesaler could serve was strictly limited, so in order to bag large numbers of licenses at a single go, Chadha pioneered a system called “playing proxy”: gather as many trustworthy people as possible and load them up with cash to outbid rivals. Through these cartels, which became known as “liquor syndicates”, Chadha snapped up most of the alcohol distribution licenses in western Uttar Pradesh.” ⁷

A decade later, Chadha would have improved the strategic move dramatically. When, in 2010-2011, new auctions were held, this time by Mayawati’s government, for state-owned, under-performing refineries, Chadha set a complex network of related companies to easily control the bids: “Many of these companies had common shareholders and directors, shared a single address, and paid to participate in the auctions using demand drafts with consecutive serial numbers issued by the same bank branch on the same day.” ⁸ The case would ultimately become a scandal, but it takes a solid legal procedure to weaken someone who has accumulated incredible wealth, the best political connections and a significant body of hired gangsters. Here, Chadha turned his back to the official policy of the state – and to the comfortable rhetoric of ‘a business fuelling in tax money’ – to try attempting more conventional moves to secure profit. The point of monopolizing bids and neutralizing competition during an auction is to secure the bidding, but it is also to keep the bids from climbing too high. Less loss from less investment: certainly a golden rule well beyond the exclusive sphere of corrupt capitalists. In the same style, Chadha also managed to earn the ₹ 10,000 crore, midday meal scheme contract, and his profit would be magnified by another universal economic rule: to decrease costs, use commodities of lower value. The food prepared under the scheme did not satisfy the minimum nutritional quality. ⁹

But, again, Ponty Chandha’s financial success was more than the abridge version of an Economics 101 textbook. His practices were at times even counter-intuitive. While the business did not grow as fast as usual in a divided Uttar Pradesh, Chadha’s activities moved to Punjab in the wake of a new decade. There, the initial strategy of entry in this new market was surprisingly aggressive: ““Ponty never cared about the market,” Garcha [Penjab’s biggest liquor distributor at the time], now in his late 70s, told me. “For a liquor shop worth 10 lakh ₹, he would propose 50 lakh.”” ¹⁰ Here the entrepreneur outbids in order to secure the deal, but a substantial margin is lost in the process. But soon, the investment is rewarded: “After acquiring large wholesale licenses, Chadha would then co-opt the small middlemen who connected distributors to hole-in-the-wall-shops. “He was loaded with a lot of money and he bought almost every small-time contractor,” said Garcha…” ¹¹ More than a matter of corruption, it is a capitalist problem that occurs here. It is not an illegal practice to outbid a competitor over a deal; but it is the prerogative of economic policies at the state and national levels to prevent the consolidations of monopolies such as that of Chadha’s. The liquor baron in the making was, by and large, only playing the legal cards of aggressive capitalist expansion.

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Image courtesy: Art Alcohol