As Corruption Abates, Hope Amid a Slowdown

Graham Crouch for The New York Times

A landscape created by an illegal iron mining operation in Hospet, India, that was shut down in court.

HOSPET, India â€" After a decade of rapid economic growth, India is in the midst of a sudden swoon. The stock market has fallen, the value of the rupee has plunged, and India’s longtime hope of catching up to China appears increasingly distant.

Truck drivers once employed on such grounds sought work in August.

But some prominent Indian economists believe the recent slowdown may actually be a good thing for the country. They argue that much of India’s recent boom was fueled by a toxic mix of political corruption and crony capitalism that some feared would spiral out of control.

As in Russia, Indian oligarchs with political connections have made vast fortunes while hundreds of millions remained desperately poor. India has 55 billionaires, second-most in Asia, even though more than half of its citizens have no access to toilets. India’s democracy seemed to be offering many of its people little help or hope.

“For years, I have been terrified that India was being captured by the oligarchs,” said Ajay Shah, a professor at the National Institute of Public Finance and Policy in New Delhi. “I am excited about the past few weeks because I think this period shows the resilience of Indian democracy.”

Mr. Shah called the last 10 years of rapid economic growth a “corruption bubble,” and he and others said the price of India’s present political and economic correction would be enormous, with growth in the next five years likely to be much less than in the last 10 years.

Yet, even those who have benefited from the recent corruption-fueled boom and are now suffering with its collapse are glad to see a crackdown.

Three years ago, Hospet, a midsize mining town in the heart of what in medieval times was the Vijayanagara Empire, was thriving thanks to an illegal mining bonanza. A local kingmaker had used political connections and bribes to avoid cumbersome and expensive permit processes. He opened scores of illegal mines and greatly increased production. Thousands of ore-laden trucks rumbled daily through Hospet’s streets. Much of the town’s populace was either directly or indirectly on the take. Times were good.

Then India’s creaky justice system began to swing into action. Mining was stopped. The kingmaker, G. Janardhana Reddy, was arrested, and the local economy tanked.

But, remarkably, in dozens of man-on-the-street interviews, not one person in Hospet said the corruption should have been allowed to continue.

E. Vishwanath, owner of V.S.R. Minerals, was typical. Three years ago, he owned 10 dump trucks and leased 1,000 more and made nearly $2,000 a month, a high salary in India. He owned a car, gave his wife heavy gold chains and invited as many as 200 people to catered birthday parties for his young daughters.

Since the change, banks have repossessed his trucks and he has been forced to sell his car and his wife’s jewelry. His daughters’ birthday parties are now small family affairs.

“We were very happy then. We were spending and enjoying life,” Mr. Vishwanath said. “Now, it’s totally nil.”

But instead of blaming judges for ending the boom, Mr. Vishwanath blamed corrupt politicians for making it too frothy.

“I think we have to totally stop the corruption,” Mr. Vishwanath said. “If it had been regulated, I would still be in business.”

Kiran Kumar, manager of the Krishna Palace hotel, had much the same reaction. During the boom, his hotel was bursting with steel and mining executives from China and Australia, his banquet facilities were booked months ahead of time, and he always sold out his supplies of Johnnie Walker Black Label whiskey.

Now, his hotel’s occupancy and room rates are half what they were, his restaurant and banquet facilities are largely empty, and almost no one drinks Johnnie Walker anymore.

Despite the hardship, he is passionately against corruption. This year, he paid a bribe to get his 4-year-old son into a good school, an indignity that outraged him. “I know I benefited from corruption, but I’m still against it, and everyone else in India is, too,” he said.

Sourindra Banerjee, an assistant professor of marketing at the University of Warwick in Britain, said corruption had been more acceptable in India when its economy had been small and closed. But now that India has entered the global market, expectations both inside and outside India have changed. “Foreign investors won’t stand for the kind of corruption that has always been fairly common in Indian companies,” Mr. Banerjee said.

Hari Kumar contributed reporting.

A version of this article appears in print on September 10, 2013, on page A10 of the New York edition with the headline: Silver Lining Seen Amid Economic Woes.