(Reproduced with thanks from Live Mint, 22 November)
Last month, the business empire of Eike Batista, once the world’s seventh-richest man and a mascot of economically resurgent Brazil, collapsed. The disaster ought to focus our minds on the perils of credit-fueled economic growth and highly leveraged corporations not just in Brazil but also in other BRICS countries.
Batista secured extraordinary loans and investments from a government bank against the promise of high productivity from his oil fields; he used taxpayers’ money to fund a lavish lifestyle for himself, with such plutocratic accessories as fast cars, yachts and a wife who was a former Playboy model. His debt-fueled engine spluttered to a stop when his fields were exposed as dry and his flagship oil company, OGX Petroleo and Gas Participacoes SA, was left with no cash to service debts amounting to more than $5 billion.
Last week, as I drove past the forlorn, deserted airport in Shimla, which India’s high-flying Kingfisher Airlines Ltd once connected to the world, I thought of India’s own version of Batista: the flamboyant owner of Kingfisher, Vijay Mallya, who was as much the poster boy for an apparently supercharged economy as the Brazilian businessman was. A liquor baron, Mallya worked hard to live up to his beer’s tagline, the King of the Good Times, by partying with Bollywood stars onboard his luxury yacht, the Indian Empress; he also ran a race-car franchise and supervised a swimsuit calendar.
Laden by debt, Kingfisher imploded last year after failing to pay its employees for seven months. Shortly after the wife of one of the unpaid staff members committed suicide in October 2012, Mallya’s young son posted on Twitter that he was playing volleyball with bikini-clad models.
His business empire now imperiled at other weak points, Mallya has lowered his profile. In August, India’s state-backed banks, which are owed about $1.4 billion by Kingfisher, departed from their own culture of leniency and taped a notice to the door of the carrier’s headquarters: Their plan, unrealizable for now, is to seize the building in order to recover unpaid debts.
You would be wrong, however, to conclude that the profligacy of India’s corporate borrowers and spenders belongs safely to the past. The dramatic slowdown in India’s economy over the last few months has exposed what many of us suspected all along: that the country’s economic boom in the last decade was largely fueled by debt, enabled by unprecedented inflows of foreign capital, rather than by broad, sustained and sustainable liberal reforms. Indeed, the idea of reform itself came to be confused with the liberalization of economic policy restraints on organized business, as Santosh Desai, an advertising professional and commentator, points out.