COMMON INTERESTS: (From left) Ramesh Gelli, N. Chandrababu Naidu, Ramalinga Raju,Y.S. Rajashekhar Reddy and K.S. Raju

It was the inauguration of the Emergency Management and Research Institute (EMRI), the emergency not-for-profit medical service started by the Byrraju Foundation — the corporate social responsibility wing of the Satyam group — at a posh hotel in Hyderabad. The chief guest was none other than the then President, A.P.J. Abdul Kalam. Satyam managers were busy ensuring that chief minister Y.S. Rajashekhar Reddy and all the Congress politicians were received properly. Even the President was asked to delay his arrival by 15 minutes so that the politicians could be attended to with due ceremony.

The story could well be apocryphal. But as the murky Satyam drama unfolds and skeletons keep tumbling out of the cupboard, it is evident that the Rajus had significant political clout, first with the Telugu Desam government under N. Chandrababu Naidu and then with the Congress government under Y.S. Rajashekhar Reddy. Both Naidu and Reddy are now distancing themselves from Raju and alleging that the other granted him undue favours.

Satyam is only the latest example of a very common malaise — the nexus between business and politics. So what’s new? “If you put the lens only on Andhra Pradesh it looks worse here, but move the lens to other states and you will see that all developed states have this nexus,” argues the head of a Hyderabad-based firm. But, as G.V.L. Narasimha Rao, managing director of Delhi-based polling agency Development and Research Services (DRS), points out, the nexus has acquired a more pervasive form in Andhra Pradesh. “Everyone in the state is on a fast track mode and the tendency to adopt somewhat unscrupulous means to achieve this is perhaps more than in other southern states.”

Apart from Raju, two high profile and politically well-connected Andhra businessmen met rather ignominious ends in the past five years. In 2004, the Global Trust Bank, founded and taken to dizzying heights in just 10 years by businessman Ramesh Gelli, collapsed after its flirtation with the stock market came a cropper. Weeks before the Satyam imbroglio surfaced, K.S. Raju, chairman of the Nagarjuna Group, was arrested for not repaying depositors in group firm Nagarjuna Finance.

There are several reasons why the business-politics nexus took such deep roots in Andhra Pradesh. Traditionally an agricultural state, Andhra Pradesh’s limited entrepreneurial skills are concentrated in a few communities — Reddys, Kammas, Rajus and Velamas — who also happen to be politically active (barring the Rajus). Secondly, marriages between political and business families are also more common in the state. For instance, GVK group founder G.V.K. Reddy’s son is married to the daughter of Congress MP T. Subbirami Reddy, himself a prominent businessman. Lanco group honcho L. Rajagopal (also a Congress MP) is the son-in-law of former Union minister P. Upendra.

The state’s irrigation programme from the late 1950s to the 1970s saw many agricultural families investing in construction. Most of the prominent business houses (including Satyam, the GVK group, the Lanco group) trace their origins to construction contracts. In those days, recalls an old-time Congress politician, it was a matter of helping someone from one’s own community or village.

There were quid pro quos in the early days too, but usually this was in the form of donations or providing logistic support during elections.

Things started changing in the 1980s when the focus shifted to infrastructure development and industrialisation. Rules began to be bent more blatantly to suit businessmen. In the early 1980s, a senior officer who, despite instructions from the chief minister, did not clear a proposal to increase the state government’s stake in a joint venture firm and refused to divert money allocated for another purpose, was unceremoniously transferred from his post.

This was also the time when the second generation of business families in Andhra Pradesh was beginning to take charge. “The younger generation is more aggressive and ready to do things — both legitimate and illegitimate — their parents wouldn’t have dared to,” says the scion of a prominent industrialist family in the state. “The earlier generation was content with a slower pace of growth, but not their successors.”

The unholy nexus between business and politics solidified further after 1991, when economic liberalisation not only opened up opportunities for entrepreneurs but also shifted the centre of economic decision making to the states, notes a Hyderabad-based executive. With states having to compete for investment, tax sops and cheap land became the main magnets to woo industry. “There is a large element of discretion in providing both and when this is exercised, there will be a quid pro quo,” says the executive.

Chief minister N. Chandrababu Naidu’s obsession with building up his image as a CEO putting the state on to a new growth path led to an aggressive wooing of industry and ample use of these discretionary powers. “Where there is more economic activity there will be more corruption,” says E.A.S. Sarma, former Union finance secretary who is at the centre of the Forum for a Better Vizag and is battling the state government in cases relating to land acquisition for industry.

It certainly helped if governments wanted to promote particular industries, notes C. Kutumb Rao, chief financial analyst at Hyderabad-based portfolio management firm Prime India Securities. Satyam’s Raju was making his mark in the IT sector at a time when Naidu was encouraging the industry. Gelli was the poster boy of banking sector reforms and a hefty amount of state government funds for education and health were put in GTB. The present government’s award of Rs 1,50,000 crore of irrigation contracts in the past four years, says the Congress politician, has come as a windfall for many infrastructure firms. All this resulted in the inevitable give and take — a prominent infrastructure firm is said to have offered stakes in every project it bags to relatives of politicians.

It isn’t just economic activity that is fuelling business corruption in Andhra Pradesh, but also the nature of its politics. Not only are there more political parties now, says the industrialist, but the greed of politicians has also grown, a point the Congress leader concedes.

Most industrialists take care to make friends on both sides of the political divide. “Like a good Hindu, I propitiate all deities,” says another industrialist. Despite running foul of Indira Gandhi, the late K.V.K. Raju of the Nagarjuna Group, for example, had ingratiated himself with north Indian Congressmen as well as with Andhra Pradesh leaders like K. Vijay Bhaskar Reddy, K. Sanjeeva Rao and P. Shivshankar. But his influence didn’t diminish when N.T. Rama Rao of the Telugu Desam became the chief minister.

The Satyam imbroglio may transform corporate governance. But will it change the business-politics nexus in Andhra Pradesh?