Uday Kotak, who founded one of India’s largest private sector banks, rightly argued that India must not let a handful of tycoons and conglomerates “define its destiny”. He accordingly urged the country to aim for broader growth with many “winners” in a recent interview to the Financial Times. There is no absolutely no doubt that in India, like elsewhere in the US and Japan, the dominance of very large companies or conglomerates—who have a huge footprint in more than one industry—has been growing.
The trend of industrial consolidation has proceeded apace with many sectors being taken over by fewer and bigger entities. This is evident in telecom, airlines, steel, cement, aluminium, synthetic fibres, polymers, paints, cars, trucks, two-wheelers, tractors, tyres, consumer electronics and electricals, toiletries and even biscuits. The country’s 20 biggest firms now generate 80% of profits generated by the economy, which is twice what it was a decade ago according to Mumbai-based fund manager Marcellus. Three years ago, this agency’s blog Behold the Leviathan: The Remaking of Indian Capitalism highlighted in detail the growing concentration of investment and profits by the largest companies.
Besides Kotak, even former RBI governors like Raghuram Rajan have noted this phenomenon of rampant conglomerate, if not crony, capitalism and underscored the danger that it poses to India’s growth story. The country has the “dubious distinction” of the largest number of billionaires per trillion dollars of GDP; that many of them have amassed wealth from land, real estate and natural resources due to proximity to government. This eliminates competition, discourages innovation, widens income disparities and slows growth. Conglomerates also use their pricing power which is one of the factors behind elevated inflation in the economy. The dark side of conglomerate capitalism is also reflected in the sharp rise in big-ticket corruption after reforms were implemented since 1991 which upsets even the ardent advocates of liberalisation. While conglomerates historically have had a close relation with the State, the fact remains that there has been a fair amount of churn among their ranks. Out of the 50 biggest conglomerates in 2014-15, only 15 were part of a similar list of 1990-91. The 35 new entrants comprised many who were small, if not non-existent, in the pre-reform era, according to an article in Seminar.
The big question is how can all of this change for “many flowers to bloom”, as argued by Kotak? For a version of capitalism that is more competitive rather than conglomerate in nature to take root in the country, can a solution be found through a trust buster strategy recommended by former RBI deputy governor, Viral Acharya, for breaking up large industrial firms and their monopolies or oligopolies by regulatory fiat or competition commission diktat? A complicating factor no doubt is that the growing dominance of a handful of very large companies has also been facilitated by the networked economy—highways, cheap flights, broadband, GST—which has allowed large, efficient firms to use superior technology and better access to capital to squash smaller competitors and change the template of conglomerate capitalism, as argued by Marcellus. If the India growth story is to be more broad-based in nature, greater checks and balances through regulatory agencies which have the authority to intervene, and if necessary, to check market abuses is imperative.