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Transcript of Crony Capitalism India
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CRONY CAPITALISM AND INDIA
Before and After Liberalization
March 2008
Working Paper
No: 2008/04
ISID
CRONY CAPITALISM
AND CONTEMPORARY INDIA-II
Surajit Mazumdar
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Surajit Mazumdar
Institute for Studies in Industrial Development4, Institutional Area, Vasant Kunj, New Delhi - 110 070
Phone: +91 11 2689 1111; Fax:+91 11 2612 2448
E-mail:Website:
March 2008
ISID Working Paper
2008/04
CRONY CAPITALISM AND INDIABefore and After Liberalization
CRONY CAPITALISM AND CONTEMPORARY INDIA-II
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Institute for Studies in Industrial Development, 2008
ISID Working Papers are meant to disseminate the tentative results and findings
obtained from the on-going research activities at the Institute and to attract comments
and suggestions which may kindly be addressed to the author(s).
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Table7 IllustrativeListofCasesofMorethanoneCompany
ofthesamegroupinthesameindustry 26
Table8 RelativeImportanceofDifferentCategoriesofIndustries
andtheirOverlaps 29
Table9 SignificanceofNewFirmsamongstLeadingFirms
in28
Category
4Industries
29
Table10 PeriodofOriginofNewMajorIndianPlayers
in28Category4Industries 30
Table11 SharesinTotalSalesof126products 31
AppendixTable1SampleIndustriesRankedAccordingtoSizeofSales 37
AppendixTable2SampleIndustriesRankedAccordingtoShare
ofTop5FirmsandImports 42
AppendixTable3DistributionofSalesofleadingFirmsin28Category4Industries 46
Appendix
Table
4
TheTop
40
Indian
Families/Groups
and
the
Top
10
MNCs
in200506,EachRankedAccordingtoSalesin126SampleIndustries
(inRs.Crores) 47
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CRONY CAPITALISM AND INDIA
Before and After Liberalization
SurajitMazumdar*
[Abstract: This paper, the second in the series, initiates the examination of the nature of the
relationshipbetweenprivatecapitalandtheStateinIndia.Whiletheprincipalfocusisonthepresent
contextofIndiaunderaliberaleconomicpolicyregime,boththepastofIndiancapitalismandthepast
discussionontheconcentrationofeconomicpowerarealsobroughtintothepicturetosubstantiatethe
keyarguments.Thepaperprovidestheoreticalandalsosomelimitedempiricalsubstantiationforthe
propositionthatunlikewhatwouldbethepredictionofcronycapitalismtheory,liberalization,rather
thanreducingthedegreeofsubordinationofpublicauthoritytoprivatecapital,hasonlyfacilitatedan
enhanceddegreeofstatecapture.]
1. Introduction
ThispaperisthesecondinaseriesoncronycapitalismandcontemporaryIndia.Moving
fromthemoregeneraldiscussionofthetheoryofcronycapitalismthatthefirstpaper1
was concerned with, this one initiates the process of directly addressing the current
Indiancontext.Theprimepurpose of thispaper is to make thecase that there existsa
veryreal
business
state
nexus
in
India
under
aliberal
economic
policy
regime
whereby
theexercisingofpublicauthorityisoftensubservienttotheinterestsofprivateprofit.An
additional subtheme of this paper is that the concrete case of Indian capitalism
reinforcestheconclusionsarrivedatinthefirstpaper.
Asmentionedinthatpaper,ifoneweretogobythereasoningofthetheoryofcrony
capitalism, then the phenomenon of cronyism shouldbe globally in rapid historical
retreat.NowhereshouldthisbetruerthanintheIndiancontextemergingwiththeonset
of liberalization. The process initiated since 1991 was clearly a crisisdriven change, in
line with the theorys understanding of how thebreaking down of crony systems is
initiated.IthasinvolvedtheretreatoftheStatefromattemptstodirectthecourseofthe
economy, the dismantling of the entire structure of discretionary controls associated
* ThispaperisthesecondintheseriesonCronyCapitalismandContemporaryIndiaandalsothe
secondbythesameauthor.Theacknowledgementsandthedisclaimerofthefirstpaperapply
tothisonetoo.Email:[email protected] Mazumdar(2008)
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2
with, and the grant of greater freedom to the operation of market forces. The
liberalizationprocesshasencompassedthefinancialsectoraswellastheexternalsector,
withthelooseningofcontrolsontradeandcapitalflows,bothdirectandportfolio.Some
studieshavesoughttoestablishthattheentryofforeigninstitutionalinvestors(FIIs)into
theIndianstockmarkethasconsiderablyimprovedthemonitoringbythemarketofthe
performanceofcorporatemanagements2.Arulebasedtakeovercodehasalsobeenputin place. India has alsobeen from muchbefore 1991 an electoral democracy with an
independentjudiciary and a free press (both of whom have clearly tilted more and
more towards freemarket ideology in recent years). Since 1991 there have alsobeen
numerouschangesofgovernment.
Postliberalization India thus possesses virtually noneof theclassic conditions that the
theory of crony capitalism associates with flourishing crony capitalism. Yet, we shall
argueinthispaperthatitwouldamounttoatravestyofthetruthifweweretoconclude
from
this
that
the
Indian
State
hasbeen
freed,
to
a
great
extent
if
not
entirely,
from
capturebyprivatebusinessinterests.Butweshallcometothatnotdirectlybutaftera
briefjourney intothepastofIndiancapitalism.Twopurposeswouldbeservedbythis
forayintohistorythatwillbecoveredinthefirsttwopartsofthisessay.Oneisthatitcan
serve as a gentle reminder of the fact that the phenomena of state authority serving
businessinterestsinIndiahasbeenstretchedoveralongperiodoftime,itsbeginnings
predatingbyovertwocenturiestheemergenceofthepostindependenceactiviststate.
Secondly, in thatbrief recapitulation of the past, we shall also revisit the old Indian
discussion and debates on the relationshipbetween concentration of economic power
and
a
policy
framework
that
involved
planning,
controls
and
regulation.
Apart
from
providingsomeinsightsthatmaybeofrelevanceeveninthepresentcontext,thisrevisit
wouldcontributetoanappreciationofthefactthatthereareotherwaysthanthatoffered
bythetheoryofcronycapitalismtoapproachthestudyofthebusinessstaterelationship.
Thethirdpartoftheessayshallthenprovidethegeneralargumentswhyliberalization
hasnoteliminatedthestructuralbasisforthecronyisminIndiancapitalismbutinstead
reinforced,perhapscronyisminthenarrowersenseandmostdefinitelythegeneralgrip
of corporate interests over state policy. The fourth and final section shall then try to
providesomekindofindirectempiricalsubstantiationofthisbydemonstratingthatthe
contextofliberalizedIndiancapitalismhasnotinfactprovedtobehighlysupportiveto
thegeneralgrowthofentrepreneurship.
2 Khanna&Palepu(2000)
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2. COLONIALISMAND THE MANY SHADESOF CRONYISM
ThebeginningsofIndiascapitalistexperiencecanbetracedbacktothearrivalinIndia
ofEuropeanmercantilecompanies,themostimportanteventuallybeingtheBritishEast
Indiacompany(theCompany).ThegrantoftheroyalchartertotheCompanybyQueen
Victoria
in
1600
giving
it
a
monopoly
over
the
India
trade
can
be
called
the
first
act
of
cronyismofrelevancetoIndia.Thismonopolywassubsequentlydeepenedinthe18th
centuryby the gradual displacement of other European mercantile companies and the
process of the territorial conquest of India. Conquest converted the Company into
government,themostextremeformofstatecapturepossible,andwhichledtoeventhe
utilizationof surplus revenueforthecommercialactivityofpurchaseofIndiangoodsfor
exporttoEnglandandEurope3.CronyismwasalsoreflectedintheCompanygovernment
helping itsownservantsandotherEuropeanmerchantstoamassvast fortunesfromthe
inlandtradeandevendirectloot.
TheerosionoftheCompanysindependenceandtheincreasingauthorityoftheBritish
crownoverIndianaffairsdidnotmeantheendofcolonialcronyism.Theabolitionofthe
CompanysmonopolyoverthetradewithIndia in1813wasaresultoftheriseofnew
interests in Britain, the industrial capitalist class which was interested in accessing the
Indian market. Their powerful influence, through the Lancashire lobby in the British
parliament,onIndiantradepolicyforoveracenturysincetheabolitionofthecompanys
monopoly,iswidelyacknowledged4.Thefreetradepolicythatthecolonialrulersadopted
in India was surely a case of state intervention. Yet, since that did not involve state
intervention as conventionally understood, the theory of crony capitalism would fail to
recognizethecronyismelementthatisactuallywritsolargeonit.Thattheonewayfree
trade policy provided the environment for the long process of deindustrialization of
Indias economy, the massive destruction of Indias traditional artisanal industry, only
servestoemphasizethisstrongelementofcronyismunderlyingit.
Thebeginningsofrailwayconstructionandtheparallelemergenceofmodern industry
andcapitalistenterpriseinIndiainthemiddleofthe19thcenturybroughtinitswakea
new kind of cronyism alongside the one described above. The business class that
emerged during this period had two distinct componentsexpatriate Europeans and
nativebusinessmenwhomovedfrompurelymercantileactivitiesintoindustry.Ofthese,European enterprise came to occupy the commanding heights of the economy,
3 Dutt(1983)4 Indeed this is the reason that British imperial policybefore 1914 hasbeen often erroneously
interpreted asbeing entirely reducible to advancement of the interests of the Lancashire textile
industry[Bagchi(1980)].
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4
dominatingnotonlyinternationaltrade,bankingandshipping,butalsothesectorsbased
on export markets and those with a large dependence on government purchases. The
privateconstructionofrailwayswasalsoundertakenbyEuropeanenterprise.
ThedominanceofEuropeanbusinessmenwasbasedon,thepersistentadvantagesenjoyed
bytheEuropeansnotonlybecauseoftheirearlystartandacquaintancewithexternalmarketsbutalsobecauseof theracialalignmentofgovernmentpatronageand thefinancialandotherservices
supportingandreinforcingEuropeancontrolovertradeandindustry5.
Inotherwords,thepeculiarcontextofcapitalismemerginginacolonialeconomymade
for a sharp inequality of influence that enabled European capitalists to establish and
maintainadominantpositioninrelationtotheirIndiancounterparts.
ThedominanceofmodernindustrybyEuropeanbusinesshousesbeforetheFirstWorld
War
was
supported
and
reinforced
by
a
whole
set
of
administrative,political,
and
financial arrangements within India. The European businessmen very consciously set
themselves apartfrom native businessmen; they claimed a cultural and racial affinity
withtheBritishrulersofIndiawhichwasdeniedtotheIndianswhomightcompetewith
them.
For theEuropeans,whether civil servantsor military officers or businessmen, society
consistedofotherEuropeans
.this social discrimination was complemented and supported bypolitical, economic,
administrative and financial arrangements which afforded European businessmen a
substantialandsystematicadvantageovertheirIndianrivalsinIndia.6
Thisdescriptionwouldsurelyfitwhatistodaycalledacronycapitalistsystem.
ThepoliticizationofIndianbusinessintheperiodaftertheFirstWorldWar,theprocess
of its alignment with the national movement, took place in thisbackground as native
businessesandnationalistpoliticsfoundcommongroundonissuesofeconomicpolicy.
It was also the process through which many Indian businessmen established their
connectionswiththosewhoweregoingtobepartofthefuturepoliticalestablishment.
A less obvious instance of cronyism during the colonial period was associated with the
emergence of a new kind of foreign enterprise on the Indian scene in the interwar
5 Bagchi(1980),p.205.TheideologyofwhitesuperiorityandtheexclusionofIndiansfromkey
positions in the military and administrative structure were logical corollaries of colonial rule
[Sarkar(1983)].6 Bagchi(1980),Pp.16667
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periodthemultinationalcorporation.Theircompetitivestrength laytoagreatextentin
their command over technology and financial resources, and they were therefore less
dependent thanexpatriate European firmsonaspecial relationshipwithBritish colonial
administrators7. Yet it cannotbe said that British was entirely immaterial to creating a
congenialenvironmentforBritishMNCs.
TheoverseasactivitiesbyBritishCorporationsalreadywelldevelopedbeforetheFirst
World War thus saw significant further expansion in the 1930s. The natural
directionofexpansionformanycompaniesintheinterwarcontextwastheEmpire.8
Manyprominent MNCentrants of that time were in fact of British originforexample,
ImperialTobacco(ITC),ImperialChemical(ICI),Unilever,Dunlop,BritishOxygen,British
Aluminium, General Electric Corporation (GEC), GuestKeenNettlefold (GKN)and no
othernationalgrouphadacomparableapresence.
3. CRONYISMAND THE POSTINDEPENDENCE CONTEXT: THE
DEBATE ON CONCENTRATIONOF ECONOMICPOWER
With the transfer of power, Indian capitalism entered a new phase and this was
accompaniedby shifts in the alignment of patronage towards Indianbusinesses to a
much greater extent than earlier. The strategy of importsubstituting industrialization
and planned economic development that the Indian State adopted soon after
independence was one thatbroadly had the concurrence of Indianbusiness. In that
strategy,apartfromrestrictionsonexternaleconomicinteraction,thestatehadakeyrole
asan
active
agent
of
intervention
in
the
economy,
both
as
producer
as
well
as
regulator.
Privatecapitaltoohadaplaceintheplannedprocessofexpansion,butthatmeantthat
the State or State agencies remained important in the allocation of expansion
opportunitiesbetween private enterprises through a system involving industrial and
importlicensing,foreigncollaborationapprovals,capitalissuescontrols,etc.
Thequestionofcronyism,withoutthattermitselfbeingused,surfacedwithinthelarger
concern with the issueofconcentration ofeconomic power. Thiswasnotsomething
that initially occupied too much of the attention of policy makers, though the
Constitution that came into force in 1950 did refer to such concentration in general
terms9.Norwasitnecessarilythoughtthattheprivatecorporatesectorwasthecentreof
7 Ray(1985)8 Hannah (1983), p. 117. Hannah also suggested that company names like Imperial Chemical
Industrieswerenoaccidents.9 CertainprinciplesofpolicytobefollowedbytheState
TheStateshall,inparticular,directitspolicytowardssecuring....contd...
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suchconcentration.Indeedanearlyargumentwasthatthoughcontroloverindustryhad
become an important source of economic power, land ownership was still the more
important one10. The notion that economic power was heavily concentrated in a few
handswasalsoconsideredasonethatmaybedismissedasanalarmistview11.Itwas
also contended that the real emerging centre of concentrated economic power was the
Stateratherthantheprivatecorporatesector.
while theprocess of concentration of economicpower wasyet to be completed, the
countervailingpowerinthehandsoftheStatehasalreadyassumedsizeableproportions.
The seat of concentrated economic power is shifting from private individuals to
countervailing institutions,particularly the state. This may, if at all, meanpolitical
democratisationofeconomicpowerbutitcertainlyisnotdiffusionofeconomicpower.12
Concentration in the private corporate sector really came under the lens in the 1960s
beginningwiththeappearanceoftheMahalonobisCommitteeReport(1964),whichwas
followed by reports of a number of important Government commissionsthe
Monopolies Inquiry Commission (1965), the Managing Agency Inquiry Committee
(1967),andtheIndustrialLicensingPolicyInquiryCommittee(1969)13.Hazarisseminal
study14,whosepreliminaryresultswereusedbytheMahalonobisCommittee,mustalso
findmentionamongstthemajorstudiesonconcentrationintheprivatecorporatesector
appearinginthisdecade,thoughtherewerealsootherspublishedbeforeoraroundthe
sametime15.
The central empirical fact that generated much of the discussion on private corporate
concentration in the1960swas that this concentration was not exhibiting a downward
trend despite theprocess of industrialexpansionanda few largebusinesshouseshad
maintainedasteadydominanceover thesector.One focusof thediscussion,therefore,
was on the causes of such concentration, with a diversity of such causes as well as
opinionsmakingtheirappearance.Theadmission,thatconcentrationofeconomicpower
(b)thattheownershipandcontrolofthematerialresourcesofthecommunityaresodistributed
asbesttosubservethecommongood;
(c)thattheoperationoftheeconomicsystemdoesnotresultintheconcentrationofwealthand
means
of
production
to
the
common
detriment;
...
[Constitution
of
India,
Part
IV,
DIRECTIVEPRINCIPLESOFSTATEPOLICY,Article39]10 Bose(1952)11 Bajpai(1952),p.31812 Mohnot,p.vii13 GOI(1964),GOI(1965),GOI(1966)andGOI(1969)14 Hazari(1966)15 Mehta(1952aandb),Joshi(1965),Mohnot(1962),Kothari(1967)
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inindustrywastoanextentinevitableandwouldconsequentlyhavetobetolerated,
was indeedquitecommon inthe literature.Considerationsofefficiencyandeconomies
ofscale,scarcityofentrepreneurialtalent,andthegreaterabilityoflargebusinesshouses
tomobilizefinancesandsecureforeigncollaborations,weretypicallycitedasfactorsfor
suchinevitability,thoughothersdidcontestsuchviews16.Theavailabilityofdeviceslike
the managing agency to control companies was also highlighted in the discussion oncausesofcorporateconcentration.Butmostimportantforourpurposeswasthedebate
on the relationshipbetween concentration and the system of controls and regulation,
whichiswherecronyismasitisnormallyunderstood,couldoperate.BoththeMICand
theILPIChighlightedhowthesystemofcontrolsandregulationbecameinstrumentsfor
perpetuating or increasing private corporate concentration. But their analysis did not
reduceitalltoasimpleissueofcorruption.
The MIC did mention the deep pockets of largebusiness houses and their use for
providing
financial
assistance
to
political
parties
and
to
corrupt
public
officials
and
betweenthemselvestheMICandtheILPICalsohighlightedthedeliberatemanipulation
by largebusiness houses of the licensing mechanism17. But there were two mutually
reinforcing additional elements that in their view made for the system of controls
working in favourof largebusiness houses. Onewas the weightof theircredentials
with the authorities. Even if no extraneous considerations were at work, licensing
authoritieskeentoensurethatscarceresourcesareeffectivelyutilizedtendedtofavour
thosewithestablishedcredentials,experienceinexecutinglargeinvestmentprojects,and
whocouldmoresuccessfullyorganizethenecessaryfinancesandforeigncollaborations.
Thiswas
not
afactor
that
depended
on
any
connections
between
business
families
and
publicofficialsbutwasanaturaltendencyflowingfromthesamecontextthatgaverise
to planning and licensing. A second factor reinforcing this was the direct result of
cronyism in the economic domainthe control and influence of largebusiness houses
over banks and financial institutions. Some of these were private entities directly
controlledbythesehouses,buttheyalsoincludedfinancialinstitutionsinwhoseaffairs
thesehouseshadamajorsaythroughtheirrepresentationinthemanagementsofthese
institutions.
R.C.Dutt,however,inaddinganotherdimensiontothisissue,infactturnedtheissueon
itsheadbyarguingthatconcentrationofeconomicpowerwasmorethecausethanthe
effectofhowthesystemofcontrolswasused.
16 SeeforexampleRCDuttsnoteofdissentinGOI(1969)andVKRVRaosintroductiontoGoyal
(1979)17 Ghose(1972)
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Asfarasplanningand controlsareconcerned, theyareby themselvesneutral in this
respect.Theycancertainlybeutilised to increaseconcentration.At the same time they
canequallyeffectivelybeutilizedtoreduceorpreventfurtherconcentration.
the influencewhich thosewhocontrol large largesectorsof the economyhaveon the
economic policies and decisions of Government.can to some extent determine the
mannerinwhicheconomiccontrolsareexercisedbygovernment,andaccountforthefact
thatthesecontrolshavenotbeenactivelyutilizedtopreventincreaseofconcentration.18
UnderlyingthisperceptionofDuttwasaclearcutunderstandingofthequiteimpersonal
powerofbigbusinessthatwasinherentinthestructureoftheeconomy.
Concentratedeconomicpowerinvolvescontroloflargeresources,andalsooflargeareas
ofproductionandoftheeconomyasawhole.Thosewhohavethiscontrolareinaposition
to influence the economic policy in a large measure, irrespective entirely of their
relationship withpolitical parties, whether in opposition or inpower, or even their
relationship with individuals in authority.Aprogrammefor industrial expansion,forinstance,mustdependtoalargeextentonthewillingnessofthecorporatesectortoinvest
their savings for such expansion. Those who control the savings can influence the
incentivesrequiredforinvestment,and,therefore,thewholesetofeconomicdecisions
whichrelatetothisproblem.19
Hazari also expressed a somewhat similar understanding of what concentration of
economicpowerimplied:
The strongest argument against concentration ofprivate economicpower in a mixed
economy isthat, intheabsenceofchecksandbalanceswithwhichapoliticaldemocracysafeguards itself against thepowers of Government, it can and is likely to act to the
common detriment. Onpurely economic reckoning by the strength of itspower, big
businesscaninfluenceboththemarketandtheGovernmenttosecurelargeresourcesfor
ends which are either of lowpriority in terms ofplanning or earn lower returns than
wouldhavebeenearnedbyotherbusinesses,orboth.20
Inotherwords,itwaspreciselytheabilitythatitgavetoafewlargebusinessgroupsto
significantly influence state policy that made concentration in the private corporate
sector a relevant phenomenon. It was left to S.K. Goyal to later explicitly make this
connection between the two while simultaneously distinguishing between businessconcentrationandconcentrationofeconomicpower21.Businessconcentrationinhisview
18 GOI(1969),Pp.19219319 GOI(1969),p.19320 Hazari(1967),p.viii21 Goyal(1979)
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reflectedtheconcentrationincontroloverassetsandtheconsequentabilitytoinfluence
themarketwhileconcentrationofeconomicpoweralsoincludedthepowertoinfluence
governmentdecisionmaking.Sucheconomicpowercouldbeexercisedbybigbusiness
enterprises individually as well as collectively. Concentration of control over assets did
not provide a proper index of the concentration of this power because it was not
distributedinproportiontothecontroloverassets.
The Mahalanobis Committee had also earlier taken a position that the degree of
concentrationofcontroloverassetspersemaynotproperlyindicatetheconcentrationof
economicpower.
The term concentration could also be based in a wider sense of a small number of
individualsorgroupshaving in theircontrol significantvolumesof economicpower in
termsofcapitalorincomeoremploymentormediaofcommunicationwhich,thoughnot
constitutingalarge
percentage
share
ofthe
national
aggregate
in
each
case,
nevertheless
setsthemsomuchhigherthananyotherindividualorgroupintherelevantcontextthat
itgivesthemadisproportionately largeinfluenceandenablesthemtoexerciseeconomic
powernotmeasurablestatisticallybythemereratiosofconcentration.22
TheCommittee in addition hadcommented specificallyon the corporatesector.While
notingthattheindustrialproductionintheprivatesectoraccountedatthattimeforonly
16%ofthenationalproduct,andonlyhalfofthatwasorganizedunderacorporateform,
itsaid:
Butthe
corporate
sector
isthe
most
dynamic
element
ofour
developing
economy
and
mustclaimspecialattention inanystudyofconcentrationofeconomicpowerThough
the increasing size of companies is by itself not necessarily an index of growing
concentrationofownershipof companies and there is some evidenceofan increasing
dispersalofownershipassuchthephenomenonisconducivetogreaterconcentrationof
controlandeconomicpowerandhasfacilitatedtheprocess.23[Emphasisoriginal]
Inotherwords,asBerleandMeanshadpointedout,therewasaclearappreciationofthe
twosidednatureoftheprocessofseparationofownershipandcontrol.And likeBerle
andMeansagain,concentrationofeconomicpowerwasclearlydistinguished from the
absenceof
competition,
though
the
possibility
of
concentration
undermining
competition
wasnotruledoutbyall24.
22 GOI(1964),PartI,pp.252623 GOI(1964),PartI,p.3024 Forexample,theMIChadthefollowingtosay: Bigbusiness byitsvery bigness sometimes
contd...
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competitioncannot,inanyevent,beaneffectiveremedyagainsttheconcentrationof
economic power in India. Concentration is not synonymous with monopoly in this
country becauseevery large group has diversified industrial interests. There is
practicallynoindustrywhichcanbesaidtobeamonopolyofanygroup.25
Notwithstanding its different strands, the debate on concentration did yield a central
commonconclusion.Thiswasnot that theStatehad to withdraw from intervention to
curbconcentrationandthemanipulationofcontrols.Rather,curbingtheconcentrationof
economic power required its own specific intervention. This contributed, along with
otherfactors,toaseriesofmeasuresinthelate1960sand1970sincludingtheabolition
of managing agencies, the MRTP Act, the nationalization of major commercialbanks,
andthenationalizationofgeneralinsuranceandthecoresectorsoftheeconomylikethe
oil sector in the first half of the 1970s. These combined with other measures like the
Foreign Exchange Regulation Act (FERA) to change in important ways the context in
whichthecorporatesectoroperated.Someprivategroupswereindeedhardhitbysome
ofthechanges26.Buttheoperationoftendenciesthatcouldbedescribedascronyismdidnotcease,nordidconcentrationintheprivatecorporatesectordisappear.
The measures aimed apparently at restricting the private sector actually came in the
backgroundofthegeneraldevaluationofplanningfromthemid1960sonwards.Insucha
climate,theabilityoftheStatetodisciplineprivatecapitalsuffered,andthiswasreflected
inwhatthemonopolycontrolmeasuresturnedouttobeinpractice.
The process of undermining of the measures to curb private corporate concentration
beganatthestageof theframingofthe lawsthemselves,withvarious loopholesbeingleft in the system of regulation which large business groups could exploit to their
advantage. The limitations of the MRTP Act in this regard have been extensively
discussed in the literature27.Even though theManagingAgencysystemwasabolished,
succeeds in keeping out competitors.the very presence of bigbusiness in an industry is
likely tohavea deterrent effect on the entryofsmaller units, even in industrieswithout any
specialscopeforeconomiesofscale. [GOI(1965),p.137]25 Hazari(1966),p.359.Hazariinfactarguedthattherealcontradictionwasbetweencompetition
and economic policies (planning) that sought to prevent excess capacity and wastage of
resources.Hazari
(1967),
p.
viii.
26 The nationalization of industries likebanking and coal meant loss of assets for major Indian
groups.ThetakeoverbythegovernmentofitsmajorcompaniesvirtuallywipedouttheMartin
Burn group. The surviving European Managing Agency Houses such as Andrew Yule and
Gillanders Arbuthnot were also eliminated, their concernsbeing acquiredby Government or
privateIndiancapital.Apartfromtheforeignoilcompanies,MNCslikeIBMandCoketoohad
toquitIndia.27 Chandra(1981/79),Goyal(1979),ChalapatiRao(1985),Agarwal(1987).
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business groups were allowed to retain effective centralized control over their
companies28. Extensive use of the device of intercorporate investments was the main
method for this. The firm establishment of public sector dominance in the field of
institutionalfinancealsohadnoadverseimpactfortheprivatesector.Withpublicsector
institutionsbecomingthekeyfinanciersofinvestmentprojectsintheprivatesector,the
ability to secure an industrial license was an almost automatic guarantee that theseinstitutionswouldprovidethefunds.Partofthefinancingbytheseinstitutionstookthe
form of acquisitionsby them of share capital in private companies resulting in the
increasing importance of shareholding of public sector financial institutions in private
sector companies. In addition was the promotion of the jointsector involving
government or government controlled institutions holding a part of the equity. As a
result, public sector holdings of the share capital of major private sector companies
belongingtolargegroupsacquiredsignificantmagnitudes.HadGovernmentpolicybeen
onethatwasactuallydirectedtowardscontrollingprivatesectorcompanies,suchlarge
publicsectorholdingsmighthaveamounted tosevereerosionofthecontrolofgroupsover thesecompanies.But inreality financial institutions followedanexplicitpolicyof
noninterferenceinmanagement,whichmadetheirholdingslargelypassive29.
The lax attitude towards the private sector meant that there was no serious effort to
implementtheplantargetswhereprivatesectorinvestmentwasinvolved.Privatesector
firmsweresystematicallyalloweddeviationsofactualcapacitiesfromlicensedcapacities,
eitherby underutilization of licenses secured orby creating capacities larger than what
wasapproved,whichwereeitherhiddenorforwhomapprovalsweresecuredexpost.A
studyhad
found
such
co
existence
of
under
utilization
and
over
utilization
of
licenses
and
of actual production levelsboth significantlybelow as well as above stated installed
capacitylevels30.Mostbizarreperhapswasthefactthatbigbusinesshouseswereallowed
to takeadvantageof incentivesandconcessions thatwereactuallymeant toencourage
smallbusinesses31. Despite the hypeabout the high tax regime in India, numerous tax
concessionswerealsograntedtobigbusinessasaresultofwhichtherewasahugegap
betweenthestatutoryandtheeffectiveratesapplicabletothecorporatesector32.
28Sengupta
(1983)
29 Indeed the Government actually acted to prevent the scrutiny, of the accounts of the private
sectorcompanieswhichineffectbecamegovernmentcompanies,bypublicauthoritieslikethe
Comptroller and Auditor General. It also helped incumbent managements ward off takeover
attempts.SeeGoyal(1983a,1983b)30 CorporateStudiesGroup(1983).31 Goyal,Rao&Kumar(1984)32 Goyal(1988)
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The onset of the 1980s saw the Indian state developing an increasingly permissive
attitudetowardsthelargeprivatesector,whichonlyreinforcedthetendenciesdescribed
above33. In other words, the series of measures that followed the 1960s discussion on
concentration in the private corporate sector failed to achieve the stated objective of
curbingsuchconcentration.Butwhydidthathappenandwithwhatconsequence?On
thesetherearedifferentviews.
InthetraditionoftheR.C.Duttkindofreasoning,onereviewoftheexperienceafterthe
MRTP Act concluded that the measures to curb concentration were defeatedby the
operationofwhatcouldbeverywellcalledcronyism.
theprimaryfactor responsiblefor the rapid increase in concentration has been the
exercise of economicpower by the influential big business of India. The relationship
between the business houses and the rulingpoliticalparties has been close; and the
associationshave
been
obviously
to
mutual
advantage
at
the
cost
ofpublic
interest
and
in disregard of the constitutional obligations and contrary to oft repeated public
pronouncementsbytheleadership.34
Incontrasttothisisaviewthatdoesnotexplicitlyconsiderthedegreeofconcentration
intheprivatecorporatesectorasarelevantvariable.Thisemergedinthebackgroundof
thefactthatthetransitiontoahighergrowthtrajectoryinIndiahappenedinthe1980s,
beforeratherthanaftertheextensive liberalizationfollowingthe1991exchangecrisis35.
Inthisview,thestatesattemptstocontrolandregulateeconomicactivitytheinfamous
licensepermitrajofwhichthebusinessworldistreatedsimplyasthebenignvictim
acted
as
abarrier
to
the
Indian
economy
realizing
its
growth
potential.
Excessive
controls, it is argued, contributed to the progressive deterioration of the quality of
governance institutions. If thebarrier to growth was weakened in the 1980s, it was
becauseparadoxicallythedeterioration ingovernance,andtheconsequentlyincreasing
collusion between business firms and governance institutions in circumventing the
control regime (cronyism), contributed to reducing the adverse effects of market
distortions in the 1980s. Clearly this perception of the Indian experience of the 1980s
belongstothesamefamilyasthetheoryofcronycapitalism,andisstrikinglysimilarto
theHaberkindofviewofcronyismasasecondbestsolution intheabsenceof limited
government.
33 RodrikandSubramaniam(2005)describedthisasashifttowardsaprobusinessorientationofthe
IndianStatewhichtheydistinguishedfromthepromarketorientationemergingafter1991.34 Goyal(1979)35 Virmani(2004)
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4. LIBERALIZATION AND CRONYISMIN INDIANCAPITALISM
As already indicated in the previous paper, the idea that liberalization signals the
beginning of the end of crony capitalism is based on a misconception that with
liberalization the State ceases to be an important factor in the economic arena.
Liberalization
involves
a
process
of
transition
whose
key
agent
is
the
State,
and
creates
in
its wake numerous opportunities of conferring benefits on businesses having a
privileged relationship with decisionmakers. Just as regulation can provide the
smokescreenforcronycapitalism,liberalizationcansimilarlyprovideasmokescreenfor
grantingfavours tocronies.But it isnotmerely in the transitoryprocess thatcronyism
can flourish.Thecontext thatemergesasaresultof liberalization isalso one inwhich
private capital exercising significant leverage over the State becomes a structurally
inherent feature. The Indian scenario after liberalization can serve to illustrate these
propositions.
ForacountrylikeIndia,oneofthelargestbutalsoamongstthepoorestofThirdWorld
countries,theliberalizationprocesshasalsoinvolvedtheopeningupoftheeconomyto
speculativecapitalflows.Thisitselfbearstheimprintofcronycapitalismbecause,aswas
emphasizedinthepreviouspaper,theworldwideprocessoffinancialliberalizationhas
beendrivenbyfinancialinterestsbackedbypowerfulstates.Inaddition,suchopening
up, it hasbeen argued, puts the economic policy of any Third World country into a
straightjacket that demands adherence to a restrictive fiscal policy and other measures
that wouldmaintain the state of confidence36. To that extent, the State is at least to a
degreesignificantenough toberelevant,capturedby globalized finance.At thesame
time, the attempts to attract even foreign direct investment, given the fact that such
capitaldoesnotliewithinthedirectjurisdictionoftheIndianstate,hastomeansimilar
concessions. Considerations of a level playing field then compel the extension of
concessionseventodomesticcapital.
Two importantexampleswould illustrate theworkingofsuchcumulativeprocessesof
statecapture.The first is thecaseof the taxon longtermcapitalgains fromsecurities.
Foreign institutional investors were first exempted from this tax and this was
subsequently extended to domestic investors37. Thus, a significant tax concession has
beengrantedtoasmallsegmentofwealthydomesticandforeigninvestorsforwhichnojustificationcanbefoundintheestablishedprinciplesoftaxation38.Thesecondexample
relatesprimarilytoforeigndirectinvestment.Toattractsuchinvestment,restrictionson
36 Sweezy(1999/1994),Patnaik,P.(2000),Bello,Malhotra,BullardandMezzera(2000)37 Prof.C.P.ChandrasekharhadpointedthisoutattheSymposium38 SeeBagchi,Amaresh(2004)
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extent of foreign shareholding in Indian companies had to be removed or reduced
significantly.ThiscombinedwitheasingoftakeovernormsmeantthatIndiancompanies
becamevulnerabletotakeoversbybigforeignfirms.Theclimatewasthuscreatedforthe
easingoftheprevailingrestrictionsonbusinessgroupsusingtheresourcesofcompanys
under their control tobuild large controllingblocks in them (through intercorporate
investmentsandbuyingbackofshares).Consequently,incumbentmanagementsofmostIndian companies now usually hold very large controlling stakes. Entrenchment, the
phenomenon that the theory of crony capitalism associates with a crony capitalist
system,hasthusbecomefarmoremarkedinrecenttimesbecauseofliberalization39.
Privatizationthe transfer of ownership of assets from public to private handsis, of
course,theclassicexampleofaprocessinherentinliberalizationwherelargesseofvery
large economic values can be showered on favoured businessmen. The general
experience of the large scale privatization in the socalled transition economies is now
seenalmost
as
arule
to
have
given
rise
to
crony
capitalism
even
by
those
who
advocated
it40.TheIndianeconomywasalsoonewherethepublicsectorhadacquiredasignificant
presencebefore liberalization.Andunlike inthecaseofthetransitioneconomies,there
alsoexistedinIndiaapowerfulclassoflargebusinessgroupspriortoprivatization.The
potentiality for cronyism to work in the process of privatization of public sector
companies was therefore much greater. Given the controversies that have dogged the
Indian privatization process, it would take abrave soul to suggest that the inherent
potentialforcronyisminithasplayednoactualrole.
Butmore
generally,
liberalization
is
atransformation
process
where
rules
of
the
game
are
beingchanged,andinacontextwherethereisalsoprivatizationofpublicassetsandthe
increasing generalrelianceon privatecapital for theproductionanddeliveryofgoods
and services. The enlargement of the area where the profits of private capitalist
enterpriseshavedirectrelationstodecisionsofpublicbodiesisitsconsequence,withthe
conceptofpublicprivatepartnershipeven institutionalizingthis.Traditionally, inmost
capitalist countries significant public sector presence had emerged in sectors where
competitivemarkets cannot functionandwherepublicsectorproductionorregulation
39Rao
and
Guha
(2006).
40 ThisisfromtheIMFsownquarterlymagazine:Inmanytransitioncountries,massandrapid
privatizationturnedovermediocreassetstolargenumbersofpeoplewhohadneithertheskills
northefinancialresourcestousethemwell.Mosthighqualityassetshavegone,inonewayor
another (sometimes through the spontaneous privatization that preceded official schemes,
sometimesthroughmanipulationofthevoucherschemes,andperhapsmostoftenandacutely
in the nonvoucher second phases), to the resourceful, agile, and politically wellconnected
few[Nellis(1999)]
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liberalization,theinformationtechnology(IT)sector,grewrapidlywithouttheassistance
oftheState,ithasactuallybeenoneofthebiggestbeneficiariesoftaxsopsgrantedbythe
Government45.
Thuseveninaliberalizedeconomy,theimportanceofhavingStateauthoritiesasallies
remains extremely critical tobusiness success. Thebusinessstate nexus therefore doesnotdisappearwithliberalization.Themodificationthattherelationshipundergoesisin
factonewherethebusinesssideacquiresgreaterstrength.
Forone,theliberalizationprocessisalsoonethataffectsboththeideologicaloutlooksas
wellasvaluesofpublicofficialsinamannerthatmakesthemmoreinclinedtoactinthe
interestsofprivatecapital.Thepositioningoftheprivatesectorasmoreefficientthanthe
publicsector, the idea that theStateshouldnot interfere in theworkingof themarket,
and the concept of publicprivate partnership, are integral elements of the worldview
associatedwith
liberalization
which
public
officials
would
also
tend
to
internalize.
There
isalsoaninherentcelebrationofmoneymakinginaliberalizedcontextthatcanincrease
theproneness tocorruption ofpublicofficials,and thegreaterpermissiveness towards
internationaltransactionshasalsoaddedanewdimensiontothepossibilitiesofgraft.In
the Indiancase,more thanadecadeandahalfof liberalizationcannotbesaid tohave
reducedcorruption.Moreover,inaglobalizedcontext,privatebusinessenterprisesalso
become the standardbearers of nationalism, nationalinterest, and national
achievementsothatnationalsuccesstendstobeseenassomethingthatcoincideswith
theirsuccess46.
But adoption of a friendlier attitude towards private capital alsobecomes more of a
compulsion for the State with a liberalized economic policy regime for a number of
reasons.Firstly, theprocessofdecontrolhasadualcharacter.On theonehand itmay
mean thatpublicofficials losesomeof the instruments throughwhich they in thepast
could have conferred benefits on favoured enterprises. On the other hand it also
simultaneouslymeans the lossof instrumentsbywhichprivatecapitalmayhavebeen
disciplinedby the State or guided towards performing the role consistent with the
attainment of definite national objectives. With liberalization, concessions and
incentivesremaintheonlymeansavailable.Thisisfurtheraggravatedbythefactthat
thecommandingheightsoftheeconomy,whichatleastinprinciplewastobeoccupied
45 Chandrasekhar(2003)46 The reactions to the few successful cases of major acquisitions abroadby Indian companies,
which includes thepublicsectorStateBankof Indiastepping forward toprovidea$1billion
loan to the Tata group for financing the acquisition of Corus and proudly declaring that it
clearedtheloaninamere5minutes,servetocorroborateandunderlinethis.
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by the public sector in the earlier Indian policy regime, havebeen decisively ceded to
privateenterprise.Privateenterpriseshavecometobeaccordedthepositionofbeingthe
instrumentsforgrowthanddevelopment.InafederalsetuplikeIndias,theleverageof
privatecapitalovertheStateisalsoenhancedbythecompetitionforinvestmentbetween
statesthatliberalizationhasforcedtheminto.
Onemajordevelopmentofgreatsignificanceinthisregardistheimpactofliberalization
ontaxratesandtherevenuestructure.Thegeneralreductionoftheratesofbothdirect
andindirecttaxesispartoftheinevitablelogicofliberalization,andthatthishasresulted
in stagnation or decline in the tax to GDP ratio in India is wellknown. This has,
however, alsobeen accompaniedby the increasing importance the corporate income
taxesintotaltaxrevenuetheshareofthisinCentralGovernmentrevenuehavinggone
up fromunder10% in199091toover30% in200607.Sincea liberalizedregimedoes
notpermithigherratesoftaxation,thelevelofgovernmentrevenuehasincreasinglybecomea
functionofthe
magnitude
ofcorporate
profits.
Since
fiscal
discipline
also
has
paramount
importanceinaliberalizedeconomicpolicyregime,thesignificanceofthisdependence
isallthemore.
Whatallthisaddsuptoisthateconomicopennessofthekindthathastakenplaceunder
IndianliberalizationdoesnotmeanthattheStatehasbecomesirrelevanttotheworking
oftheeconomy.Rather,itisitsabilitytobeautonomousofprivatecapitalistinterests
foreign as well as Indian and collective as well as individualand its capacity to
accommodate the interests of other sections of society, that havebeen underminedby
openness.In
the
language
of
an
earlier
era,
liberalization
can
be
said
to
have
structurally
increasedthesocialpowerofbigbusinessortheconcentrationofeconomicpower.Using
their leverage with the State, private capitalist enterprises can and have been
continuouslysecuringindividualandcollectivebenefits.Indeed,thedistinctionbetween
the individualandcollectivebenefitshasalsobecome increasinglyblurred.There is,of
course, the persistence or even strengthening of business concentration, with
deregulation facilitating the working of the spontaneous tendencies towards such
concentration.Financialsector liberalizationhasalsoenhancedrather thanreduced the
biasinfinancing,withlargebusinessesbeinginabetterpositiontoaccessbothdomestic
andforeignfinancialmarketsthantheirsmallercounterparts.Theheightenedexposure
to global competition has also contributed to tilting the scales in favour of thebigger
players because they have greater capacity to survive and succeed in such an
environment.All of these in turn havecontributed to thebiggerbusinesses enjoying a
disproportionatecloutwiththeState.
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5. LIBERALIZATION AND POWER OF BIG BUSINESS:
SOME EMPIRICALEVIDENCE
That a narrow group of largebusinesses have acquired significant influence with the
State,andareabletosecuremajorbenefitsthroughsuchinfluence,isnotsomethingthat
canbe
easily
established
empirically,
at
least
directly.
Even
though
there
may
be
many
threadswhichconnecttheworldofbusinesswiththatofpoliticsandofficialdom,notall
of these are visible. Even when visible, it may notbe always possible to find direct
evidencethatwouldconfirmthevalueoftheseconnections.Butthesedifficultiesarenot
peculiartotheliberalizationcontext.Howmanyinstancesofsuchdirectproofexist,for
example, to support the widely heldbelief that corruption was characteristic of the
licensingandotherprocessesassociatedwithStateregulationinIndia?Theevidencein
suchmattershasalwaysbeenindirect.
One kindofsuch indirectevidence thatmaybeprovided is the listingofdecisionsby
publicbodieswhosenatureandbackgroundwouldsuggestthatbenefitingoneormore
businessgroupsconstitutedtheirprimemotive.Suchevidencehasa lotofvaluebut is
extremelydifficulttoputtogether.Weshallnotherepresentsuchevidence,leavingitto
otherpapersinthisseries.Insteadweshallconcentrateonanalternativekindofindirect
evidence in the form of results that indicate the nature of the processes at work in
determiningthewinnersandthelosersinthecompetitionbetweenbusinesses.Whoare
the ones who have succeeded in the competition game under liberalization and have
been the principal drivers of changes in the corporate sector? Are they the same old
business groups that had flourished under the old economic policy regime or has
liberalization provided a congenial environment for a newbreed of entrepreneurs to
grow and establish themselves? Have such new entrepreneurs grown purely on the
strength of their entrepreneurship or have other factors outside the economic sphere
contributedtotheirsuccess?Answeringthesequestionsiswhatourevidenceisdirected
towards. These questions acquire significance in view of the widely held view that
liberalizationwassupposedtoeliminatethepotentialsystemofpatronage inbuilt into
theoldsystemofindustrialregulationwithitsartificiallycreatedbarrierstoentryinto
differentindustriesthatallowedbusinessopportunitiesinthemtoberationedbetween
aprivileged fewbusinesshouses (or cronies).With liberalization, itwascontended, it
wouldbeaboveallentrepreneurialabilityandnotapriorcommandoverpatronageorresources that would (a la Schumpeter) separate the successful business from the
failures.Ifthisunderstandingweretobecorrect,thenmorethanadecadeandahalfof
liberalizationshouldhaveproducedsignificantchangesinthemajorplayersindifferent
industriesandattheaggregatelevel.Thatithasnotiswhatourevidencewillshow.
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5.1An Overview
To begin with, one may briefly note some overall evidence about the growing
importanceoftheprivatecorporatesectorintheIndianeconomy.Clearly,liberalization
andtheremovalofmanyexternally imposedconstraintsonitappeartohavecreateda
conducive environment for the expansion of the private corporate sector in India. The
rapid growth of nongovernmentjointstock companies and their paidupcapital that
was observed in the 1980s continued thereafter (Table 1). The notable feature of the
growth after 1991, however, was that it reversed the trend of increasing share of
governmentcompaniesinthepaidupcapitalofthecorporatesector.
Table1
GrowthofCompaniesandtheirPaidupCapital
Ofwhich,NonGovernmentCompaniesEnd
March
No.of
Companies
Paidup
Capital
(Rs.Cr.)
No.ofCompanies PaidupCapital
(Rs.Crores)
ShareofNon
GovtCos.in
PUC(%)
1981 62,714 16,357 64,863 4,914 30.04
1986 1,24,379 36,595 1,23,359 9,507 25.98
1991 2,24,452 74,798 2,23,285 20,313 27.16
1996 4,09,142 1,64,088 4,07,926 87,126 53.1
2001 5,69,100 3,57,247 5,67,834 2,47,501 69.28
2002 5,89,246 4,05,753 5,87,985 2,85,248 70.3
2003 6,12,155 4,57,059 6,10,872 3,26,576 71.45
2004 6,41,512 4,98,791 6,40,203 3,52,432 70.66
2005 6,79,649 6,54,022 6,78,321 4,98,208 76.18
2006
7,32,169
7,30,817
Source:AnnualReportsontheWorkingoftheCompaniesAct
Bythemid1990s,thepaidupcapitalofnongovernmentcompanieshadexceededthat
of government companies and the gap has continued to increase thereafter. Not only
that,theshareoftheprivatecorporatesectorintheeconomysnetfixedcapitalstockhas
alsoincreasedrapidlyafterliberalization,leavingbehindtheshareofnondepartmental
enterprises. In other words, with liberalization there has been a rapid process of
privatization of the corporate sector. A second indication of the rapid growth of the
privatecorporatesectoristhefactthattheorganizedprivatesectorhasgrownfasterthan
therest
of
the
economy,
and
increased
its
share
in
NDP
(at
current
prices)
from
just
over
12%in199091toover19%by200405(Table2).
This growth of the private corporate sector has alsobeen accompaniedby a rather
dramatic shift in its sectoral focus. As is indicatedby Table 3, the services sector has
rapidly displaced manufacturing as the principal sphere of operation of organized
privatecapital.
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Table2
IndicatorsoftheImportanceofthePrivateCorporateSectorinIndia(%)
ShareofOrganizedPrivateSectorinNDPat
CurrentPrices
ShareofPrivateCorporatesectorinNetFixed
CapitalStockat199091prices
198081 12.5 1981 7.45
199091
12.33
1991
10.79
200405 19.24 2006 23.4
Source:ComputedfromdatainCSO,NationalAccountsStatistics
Table3
ShareofManufacturing&ServicesinPrivateOrganizedNDP
Sector 199091 200405
Manufacturing 64.48 37.66
Services 24.41 50.32
Source:ComputedfromdatainCSO,NationalAccountsStatistics.
Thegrowthoftheprivateorganizedsector,however,hasnotbeenonethathasspreadits
benefitswidely.Oneindicatorofthatisthatemploymentinthatsectorhashardlygrown
since1991.Asecondisthatmostoftheprivateorganizedgrowthhastakentheformof
corporate profits. The share of compensation of employees in private organized NDP
declined from 43.81% in 199394 tojust 33.33% in 200405. This trend hasbeen the
sharpest in the rapidly growing services sector where the share of compensation of
employeeshasfallenfrom46.52%in199394to27.54%in200405.Inthemanufacturing
sector,weseea similarstory ifweexclude thesalariesofwhitecollaremployees. The
share of wages in net value added in the factory sector (as per ASI data), which was
30.28% in198182andevenat theendof the1980swas27.65% (198990),hasactually
fallensteadilyandrapidlyto17.89%in199798andfurtherto12.94%in200405.
5.2StabilityandChangein LeadingBusinessGroups
Notwithstandingtheexpansionandtransformationoftheprivatecorporatesector,major
businessgroupsofthepreliberalizationeracontinuetodominatethesector.Table4lists
thelargest25businessgroups/families(intermsofassets)in200506,basedonthegroup
classificationsandcompaniesavailableintheProwessDatabase47.Asmanyas15ofthem
appeared
amongst
the
large
business
groups
in
the
last
list
of
companies
registered
undertheMRTPAct,almostallofthembeingalsoamongstthe25largestatthattime.
TheMRTPActlistings,however,didnotcaptureallthelargegroupsatthattime,and5
47 Since there havebeen divisions in the case of many family controlledbusiness houses, for
facilitating comparison with the past all the different splinter groups of a family controlled
grouphavebeenclubbedtogetherpriortorankingthem.
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of theremaining10 largebusinessgroupsnamelyOPJindal, Ispat,Videocon,Wipro,
andBhaiMohanSinghwerealso largeby198990.Ahintof this isalsoprovidedby
theirassetholdingsattheendof199192,theyearthatliberalizationbegan.
Table4
Assetsof
Top
25
Business
Groups
of
200506
Assets(Rs.Crores.)Rank Rank
1990#
Group/Family
198990# 199192 200506
1 3 Reliance(Ambani) 3,241 9,167 1,63,989
2 2 Tata 6,851 15,564 1,01,219
3 1 Birla 7,235 13,917 67,544
4 26 Essar(Ruia) 437 1,898 44,949
5 15 I.T.C. 742 4,047 30,012
6 OmPrakashJindal 635 26,886
7 28 Hinduja(AshokLeyland) 422 1,277 23,197
8 BhartiTelecom 29 21,808
9 SterliteIndustries 2,480 19,457
10 9 Larsen&Toubro 1,130 3,199 17,589
11 7 Bajaj 1,228 1,908 16,994
12 22 Goenka 570 3,583 16,151
13 Ispat(Mittals) 1,092 15,142
14 21 Mahindra&Mahindra 620 1,223 14,947
15 11 T.V.S.Iyengar 929 1,582 14,176
16 12 UniLever(F) 925 3,368 13,669
17 SLU Jaiprakash 484 1,164 12,845
18 Videocon 873 11,373
19 WIPRO 103 9,595
20 InfosysTechnologiesLtd. 8 9,114
21 JetAirways(India)Ltd. 9,067
22 4 Singhania 1,938 2,952 8,356
23 MoserBaer(F)Group 8,178
24 5 Thapar 1,782 2,665 8,010
25 BhaiMohanSingh 539 7,999
Source:For198990;fortherest,CMIE,ProwessDatabase
Theremaining5groupsmayhavegrownlargeafterliberalization,butinmostofthese
casestheirgrowthtrajectoryhasbeenthroughprocesseswherethevisiblehandofthe
Statehasbeenprominent.BhartiandJetAirwayshavegrownmainlythroughregulated
sectorsnamely telecom and aviation respectivelywhere private sector entry was
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permitted after liberalization. Older large groups have also expanded in similar
directionswith the Ambani, Tata, and Birla groups, for example, having substantial
interests in the telecom sector. A large part of Sterlites assets come from privatized
publiccompanies.Again,oldergroupstoohavebenefitedfromprivatizationtheTata
acquisitionofVSNLandReliancesacquisitionofIPCLbeingtwoprominentexamples.
The lowtaxedITsectorhasbeenthedomainofInfosysgrowth,asithasbeenalsoforoldergroupslikeTataandWipro.
Table5
Distributionof278BusinessGroupsbyRatioofR&DExpendituretoTotalSales
10%andabove(4) 12%(14) 0.51%(25)
RanbaxyGroup TataGroup BajajGroup
Dr.ReddysGroup Mahindra&MahindraGroup ThaparGroup
SunPharmaGroup T.V.S.IyengarGroup KirloskarGroup
TorrentGroup Hinduja(AshokLeyland)
Group
Kalyani(BharatForge)Group
510%(9) BharatiaGroup AmalgamationGroup
CIPLAGroup ElgiGroup AsianPaintsGroup
LupinGroup EicherGroup Modi
FirodiaGroup SanmarGroup EscortsGroup
ZydusCadilaGroup SamtelGroup RamcoGroup
WockhardtGroup HFCLGroup RajjuShroffGroup
IndSwiftGroup RicoAutoInds.Group AlchemieGroup
PanaceaBiotecGroup ShyamTelecomGroup ExcelIndustriesGroup
GlenmarkPharmaGroup JyotiGroup RaneGroup
ZeeTelefilmsgroup EasunGroup MehtaC.K.GroupLarsen&ToubroGroup
25%(11) 00.5%(117) GhiaGroup
PiramalGroup Ambani SandesaraGroup
MoserBaerGroup Birla CosmoGroup
DaburGroup OmPrakashJindalGroup ElderGroup
AurobindoPharmaGroup SterliteInds.Group SonaGroup
IpcaLabsGroup Hero(Munjals)Group JagsonpalGroup
AlembicGroup Goenka WSIndustriesGroup
JBChemicalsGroup MurugappaChettiarGroup Grauer&WeilGroup
MindaS.L.
Group
Singhania
Alkyl
Amines
Group
UcalFuelGroup GodrejGroup BatliboiGroup
Indoco(SureshKare)Group UBGroup
NatcoPharmaGroup Bangur,etc. 0%(108)
Note:FiguresinBracketsindicatenumberofgroupsineachcategory
Source:ComputedfromProwessDatabaseofCMIE.
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23
Table 5 illuminates the fact that dominance in the Indian private corporate sector can
hardly be attributed to the dominant firms being the significant technological
innovators.Itshowsthatonlyafewbusinessgroups,almostalloftheminvolvedinthe
pharmaceutical sector, invest any significant portion of their revenue in research and
development. More strikingly, the largest Indian groups are mostly in the category of
lowspendersonR&D.
5.3LiberalizationandChangesin MarketLeaders:Resultsof aSampleStudy
Thebroad empirical picture of the previous section canbe further reinforcedby the
resultsofastudythathasagreatermicroorientation.Changesintheoverallpictureof
leadership in the corporate sector should reflect both the changes in the relative
importanceofindustriesaswellasthosewithinindividualindustries.Thegrowthofnew
largegroupslikeBharti,Infosys,JetAirwaysorevenMoserBaerisassociatedwiththe
formerkindofchange,andneitherofthemcanbesaidtohavegrownbydisplacingless
efficient incumbent private sector firms in the industries through which they have
grown. But if liberalization was supposed to remove entrybarriers in general in the
industrial sector,barriers that protected inefficient incumbents from competition, then
one should expect that the composition of leading firms in different industries should
haveundergone importantchangessince1991.Oursamplestudyoutlinedbelow looks
at thenatureof thesechanges in themanufacturingsector,with theemergingservices
sectoralsomakingabriefappearance.
5.3.1
The
Sample
For the purposes of this inquiry, we chose 126 manufactured products coveredby the
latestissueofCMIEsMarketSizeandShares(CMIE2007).Theprincipalcriterionused
forshortlisting theseproducts from the243covered in thepublicationwas thesizeof
the market48 for these manufactured products in the year 200506, and a threshold
minimumsizeofRs.1000croreswasapplied.Sincecomparisonshad tobemadewith
thesituationontheeveofliberalization,onlythoseproductscouldbeconsideredwhich
were also coveredby CMIEs Market and Market Shares 1992 (CMIE 1992)and which
providedcomparableinformationfor199091.Inafewcases,theproductsappearingin
the latest issue did not directly appear in the 1992 issuebut were included with other
productsorinformationaboutthestateofthe industrieswereindirectlyavailablefrom
relatedindustries.Thesewereincludedinthesamplebecauseitwaspossibletomakean
assessmentof thechangesandcontinuitiesover the period19912006.However,some
48 TheCMIEcurrentlydefinesthesizeofthemarketforanyproductassalesbydomesticfirmsof
that product (domestic plus exports) plus imports of the same. In other words, domestic
purchasesplusexportsofanyproductconstitutethetotalmarketforit.
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productslikesoftdrinks,marineproducts,anddiamondshavebeenexcludedbecauseof
difficulties incomparing theirpre andpostliberalizationscenarios49.The totalsalesof
the126productsfinallyincludedamountedtoRs.759245.1crores50,equivalentto42.07%
ofthetotalvalueofregisteredmanufacturingoutputfortheyear200506.Butthesesales
were highly unevenly distributed amongst the 126 products, with a mere 13 of them
accountingforover50%oftheaggregate(andthefirst8forover40%)(Table6).Attheother end, 57 products accounted for less than 10% of the total sales (for details see
AppendixTable1).
Table6
MarketSize,DomesticConsumptionandSalesoftheTop13SampleIndustries(Rs.crores)
Product/Industry MarketSize Domestic
Consumption
SalesValue Cumulative
PercentageShare
inTotalSalesof
SampleProducts
1Steel 117211.30 101667.20 97589.60 12.69
2Drugs&Pharmaceuticals 46115.20 24536.30 41600.00 18.10
3SpunYarn 39012.10 30811.10 38750.00 23.13
4PassengerCars 33198.90 33198.90 33198.90 27.45
5Cement 33013.90 31898.50 33000.00 31.74
6Sugar 30654.00 30084.90 30000.00 35.64
7VegetableOils 34216.30 34216.30 25500.00 38.96
8Motorcycles 19073.40 19026.20 19073.20 41.44
9Paper 17879.70 16901.70 16200.00 43.54
10M&HCVs 15178.40 14138.10 15086.50 45.50
11Urea 15970.30 15966.00 14250.00 47.3612Cigarettes 13709.30 13594.90 13664.10 49.13
13Fabrics 168941.80 160901.50 13454.81* 50.88
*Includesonlysalesof807companies;aggregateindustrysales=Rs.167000crores
Source:CMIE2007.
49 Inthecaseofsoftdrinks,thecoveragecertainlyexcludesthemajorplayers,theybeingclosely
held MNC affiliated unlisted companies. The problem of noncoverage of MNC affiliated
unlisted companies also afflicts other industries, in particular the consumer electronics
industries. But in their case, the degree of noncoverage is firstly lower, and secondly, while
assessingthe
changes
in
them
we
will
take
into
account
the
important
presence
of
these
unlisted
companies. Marine products (where there is a substantial export component) have been
excludedbecausenopropercomparisoncanbemadebetween199091and200506manyof
thefirmstowhichsalesareattributedinthe1992issuewereclearlynotproducers,suggesting
thattheseweretradingsalesforsecuringexportbenefits.Inthediamondindustry,theprocess
offirmsbecomingincorporatedentitiesonlybeganinthesecondhalfofthe1980s.50 Inthesalesoffabrics,inwhosecasealargepartisbyunorganizedunits,wehaveincludedonly
thesalesofthe807companiesintheCMIEsample.
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5.3.2 Concentration in IndividualIndustries
Theunevennessintherelativesizesofdifferentindustriesmakethetaskofassessingthe
in general level of concentration in Indian manufacturing industries somewhat
complicated. On the one side is the reality that a large number of industries are fairly
concentratedinthesensethattherearefewdomesticplayersinthem.Butthemajorityof
thefewrelativelylargerindustriesarealsoamongsttheleastconcentrated.Thuswhilein
thecaseofasmanyas57productsinoursampleover90%ofsalesareaccountedforby
thetop5firmsandimports51,only3ofthetop13productsaccountingforoverhalfofthe
salesnamelymotorcycles,mediumandheavycommercialvehicles,andcigarettesare
amongstthese13(fordetailsseeAppendixTable2).Otherindustrieswithinthese13
likespunyarn,fabrics,vegetableoils,sugar,etc.havea largenumberoffirmswithin
whomsalesaredistributed.
Thispattern,ofa few large lessconcentrated industriesanda largenumberofsmaller
but highly concentrated industries, is of course not new. As brought out by the
examination of industrial concentration by the Monopolies Inquiry Commission, a
similarscenarioprevailedoverfourdecadesago52.Eventhe199091pictureasitappears
in the 1992 CMIE issue was of the same kind, with the more and less concentrated
industriesbeing the same as in 200506. Lack of comparability of the data does not
permitgeneratingquantitativeresultsonthetrendsinmarketconcentration.Butitdoes
notappearthatthereisanyindustryamongstthe126industriesinoursampleexhibiting
a significant increase in the number of major firmsbetween 199091 and 200506. In
otherwords,liberalizationhasnotresulted inanymajorprocessofdeconcentrationin
individualindustries.
But in the context of any discussion of concentration in individual industries in India,
threeimportantpointsneedtobekeptinmind.
Firstly,thephenomenonofthesamebusinessgrouphavingmorethanonecompanyin
thesame industryhasnotcompletelydisappearedand in factcanalsobefound in the
relatively larger industries. Thus, actual levels of concentration are higher than the
patternofdistributionofthemarketbetweencompanieswouldsuggest.IntheCement
industryfor
example,
the
top
four
companies
had
amarket
share
of
alittle
over
41%
in
200506.
51 Partly, of course, this high share canbe attributed to a large level of imports10 of the 12
productswhereimportsexceededthesalesofthetop5firmswereamongstthese57products.
However,these10productsaccountedforlessthan6%ofthetotalsalesofall57products.52 GOI(1965)
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Table7
IllustrativeListofCasesofMorethanoneCompanyofthesamegroupinthesameindustry
MarketShareof:Product/Industry Group
LargestSingle
groupco.
Allgroupcos.
Cement
Birla
AV
11.65
22.28
Cement Holcim GujaratAmbuja 11.25 22
AluminiumFoils BirlaAV 37.45 42.17
AnimalFeeds Godrej 11.30 20.30
AxleShafts Kalyani 32.03 51.37
Beer UB 39.62 77.41
EthyleneGlycol Reliance 45.80 74.13
FerroAlloys IMFA 11.35 17.05
Floor&Walltiles SomanyEnterprises 10.93 18.20
Kalyani 24.82 28.79Forgings
Amtek 10.09 16.35
GlassHollowares SomanyEnterprises 28.02 40.09
LAB Reliance 31.99 48.88
MaterialHandling
Equipment
Tata 12.04 18.84
GardenVareli 6.01 6.87PFY(incl.POY)
Reliance 36.30 47.14
MFederalMogul 27.61 34.95PistonRings
Amalgamations(Simpson) 9.20 16.54
PSF Reliance 59.36 69.35
PVC Reliance 35.04 56.68
PVCPipes&Fittings Kisan 5.10 12.80Steel JindalOP 5.21 9.42
JindalOP 10.99 13.70
Kejriwal 5.98 8.00
SteelPipes&Tubes
JindalBC 2.37 3.34
DhampurSugar 2.15 2.77
Sakthi 1.35 2.58
KCP(VRamakrishna) 1.05 1.79
SaraswatiIndl.Syndicate 1.15 1.69
Sugar
ThiruArooran 0.94 1.64
Ruchi
8.30
10.68
Vanaspati
AmritBanaspati 4.27 7.09
VegetableOils Ruchi 14.19 17.83
Wines,SpiritsandLiquors UB 35.78 53.01
Vedanta(Sterlite) 8.09 13.43Wires&Cables
SuranaUdyog 1.02 1.79
Source:DerivedfromCMIE2007
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ButthesefourcompaniesbelongedtoonlytwogroupstheAditya(Kumarmangalam)
Birla group and the HolcimGujarat Ambuja combine. The former groups cement
companiesbetween themselves accounted for 22.28% of the market, while the cement
companies controlledby Kumarmangalam Birlas grandfather, B.K. Birla, which he is
supposed to inherit, had another 7.9% of the market53. Combining this with the 22%
share of the HolcimGujarat Ambuja companies, one can say that effectively the top 2firms had a combined market share of over 50%. That the cement industry is not an
exceptioninthisregardisillustratedbythecaseshighlightedinTable7.
Secondly,thedegreetowhichdifferentmanufacturedproductsinoursampleproperly
representaproductmarketwhichshouldonlyincludesalesofclosesubstitutesvaries
considerablyacrossproducts,andislowerincaseofsome(thoughnotall)ofthelarger
industrieslike drugs and pharmaceuticals, fabrics, steel, and paperwith the first of
thesebeing the most extreme case. This is an additional reason why the degree of
concentrationtends
to
be
underestimated.
WhiletheabovetwohavebeenrelevanttotheIndiancontextevenearlier,thethirdisa
new phenomenon, of major companies in some industries not getting coveredby the
CMIE on account of theirbeing fully owned subsidiaries of parent MNCs. In some
casesrefrigerators, televisions receivers, washing machines, etc., being typical
examplesthese firms couldbe amongst the top 5 firms, and the concentration ratios
emerging from the CMIE samples could be consequently lower than the actual. A
possiblyrelatedproblemisthefollowing.Therearesomeobviouscasesofindustriesin
CMIE2007
where
companies,
which
were
part
of
the
sample
but
not
appearing
amongst
those,listedhavinghighermarketsharesthanthoseactuallylisted.Forexample,inthe
caseofscooters,thetotalsalesofallthe7samplecompaniesisshowntobeRs.2834.39
crores,whichisalsotheaggregatemarketsize.Onlysixcompaniesare,however,listed
andtheiraggregatesalesareshowntobeRs.1191.52croresor42.04%ofthemarket.This
would mean that the unmentioned 7th company would have a market share of nearly
58%! In the case of refrigerators too, 8 listed companies havebeen shown to have an
aggregatemarketshareof56.45%andthetotal10samplecompaniesashareof97.44%,
leavingacombinedmarketshareofover40%forthetwocompaniesnotnamed!
5.3.3 Continuity andChange in theLeading Firms
The heterogeneous pattern of concentration suggested that dualcriteriabe applied for
determining major firms in industriesbased on either size or relative position in the
53 Thecompaniescontrolledbydifferentfactionsofthefamilytogetheraccountedfor37%ofthe
market.
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industry. Accordingly, we defined a leading firm in any industry in 200506 as one
whicheitherwasamongstthetop5firmsinthatindustryorhadsalesofatleastRs.100
crores in that industry. Having thus identified the leading firms, we categorized the
differentindustriesonthefollowingbasis,usingCMIE1992forcomparison.
Category1industries: Those in whom the leading players in 200506 prominently
featuredcompanies/groupsalreadypresentintheindustryin199091.Theproportionof
such industries can serve as an indicator of how widespread hasbeen the role of the
incumbencyfactorindeterminingtheleadingfirmsafterliberalization.
Category2industries:Thoseinwhomtherewerenewmajorplayersbutfromamongst
the large Indian/NRI business groups existing in 1990, entry having been achieved
through acquisitions or otherwise. This is an indicator of the importance of prior
membershipinthecategoryoflargebusinessinenablingfirmstotakeadvantageofthe
changedentry
conditions.
Category3industries:ThoseinwhomnewmajorplayerswereaffiliatesofMultinational
Corporations(MNCs),MNCentryhavingbeenthroughacquisitionsorotherwise.Thisis
aparallelcategorytoCategory2.
Category4industries:ThoseinwhomtherewerenewmajorplayerswhichwereIndian
controlledbutnotfromamongsttheold largegroups.Therelativeimportanceofthese
industries would be an indicator of the degree of emergence of new Indian
entrepreneurshipin
the
sample
industries.
These four categories are, of course, not mutually exclusivebut overlapping. But their
relative significance in the sample can help illuminate the impact of changes in entry
conditions.TheseareshowninTable8.
Ascanbeseeninthetable,asmanyas119ofthe126industriesinthesample,accounting
for nearly 98% of the total sales of the sample industries, fell in category 1 with 51 of
these being exclusively in that category. At the other extreme, only 28 industries
accountingforlessthan40%oftotalsalessawtheemergenceofnewIndianplayers,and
inthesetooinallbarringonetheoldincumbentfirmstoocontinuedtooccupyleading
positions. Further, in some of them the emergence of new Indian players amongst the
leadingfirmshasbeenaccompaniedbyolderlargegroupsbeingamongthenewmajor
players in these industries. The latter phenomenon, and the emergence of new MNC
players, is also witnessed in many other industrieswithoutbeing accompaniedby the
former.
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Table8
RelativeImportanceofDifferentCategoriesofIndustriesandtheirOverlaps
OverlapwithCategory:
1 2 3 4
Total
No. 51 34 21 27 119Category1
Industries
SalesShare
(%)
34.27
32.85
14.41
39.32
97.58
No. 34 4 3 10 39Category2
Industries SalesShare(%) 32.85 1.66 1.56 18.42 34.93
No. 21 3 1 2 23Category3
Industries SalesShare(%) 14.41 1.56 0.13 3.73 14.96
No. 27 10 2 1 28Category4
Industries SalesShare(%) 39.32 18.42 3.73 0.21 39.53
Notes:1)SalesSharereferstoshareinaggregatesalesofallsampleindustries;2)Overlapofany
categorywithitselfreferstothosewhichareexclusivelyinthatcategory.
Source:DerivedfromCMIE2007.
Thus, thestability of leading firmshasbeen a farmorewidespreadphenomenon thanthat of their displacementby new Indian players. Even where older incumbents have
beendisplaced,oldlargegroupsorMNCsratherthannewIndianplayershavereplaced
theminmanycases.Indeed,evenintheindustrieswherenewIndianfirmshavemadea
mark,theyaremoreprominentthanolderincumbentsorlargegroupsinonlyahandful
ofindustries.Typically,eveninsuchindustriesoldergroupsandMNCshavetendedto
overshadownewfirms.AsTable9shows,onlyalittleunderaquarterofthetotalsales
of leading companies in the 28 Category 4 industries were accounted forby the new
Indianmajorplayers(fordetailsseeAppendixTable3).
Table9
SignificanceofNewFirmsamongstLeadingFirmsin28Category4Industries
ShareofNewFirmsinTotalSalesofAll
LeadingFirms
NumberofProducts ShareinTotalSalesofLeadingFirms
inall28products(%)
Over50% 7 7.04
25to50% 12 37.73
Lessthan25% 9 55.23
24.66%(Overallshare) 28 100.00
Source:DerivedfromCMIE2007.
EventhenewnessofthenewIndianbusinesshouseswehavebeentalkingaboutalsois
only in the sense that they were not recorded as firms in the respective industriesby
CMIE1992.But thismayhavebeenonlybecause theywereprivate limitedcompanies
then, or they may have simplybeen overlooked. We therefore undertook a further
exerciseoftryingtoascertaintheageofthesefirmsandwhentheyenteredtheindustries
in which they appear amongst the major firms in 200506. This exercise threw up the
result that the overwhelming majority of these supposedly new firms were in fact
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already inexistencebefore liberalizationandwereoften thoughnotalways incumbent
firmsintheindustrieswheretheyappearedprominentlyin200506(Table10).Indeed,
inmanycases,thefirmsdatebacktobeforethe1980sandsomehaveevenhadalifespan
stretchingbacktothepreindependenceperiod.
Table10
PeriodofOriginofNewMajorIndianPlayersin28Category4Industries
CategoryofNewIndianPlayers Salesin200506(Rs.crores) PercentagetoTotal
FirmsOriginatingbefore1980 26033.94 49.94
FirmsOriginatingbetween1980and
1991
21626.61 41.48
FirmsOriginatingafter1991 4471.12 8.58
TOTAL 52131.67 100.00
Source:DerivedfromCMIE2007.
Aclear
cut
and
unambiguous
conclusion
that
emerges
from
the
above
is
the
following.
The entrepreneurialbase from which the major Indian firms in 200506, in the 126
manufacturedproductsappearinginoursample,havebeenmainlydrawnwasonethat
was already in existence before the initiation of liberalization. The easing of entry
conditions in individual industries does not therefore appear to have contributed
significantlytoeasingofthegeneralbarrierstoentryintotheclassofthosewhocontrol
industrialassetsandmarkets.Oursampleisalsosufficientlylargeandrepresentativefor
theseconclusionstobegeneralizedforthemanufacturingsectorasawhole.
Theseconclusionscanbe fortifiedbyexamining theoveralldistributionofsales in the
126 industries taken together shown in Table 11, which is also importantbecause the
leading groups in different industries are not mutually exclusive. This shows that
companies belonging to the Indian groups that were large before the onset of
liberalization accounted for nearly half of the total sales by privately controlled
companies in the 126 products in the sample, with MNCs present from before
liberalizationaccountingforanother10%.Lessthan40%ofsuchsales,andlessthan35%
ofthetotalsaleswastheshareofotherIndianprivatefirms,andthisincludedthesales
ofmanyfirmsofpreliberalizationorigin.
Companiescontrolledbythetop40Indianfamilies/familygroups,fromarankingbased
on sales in these 126 industries, accounted for42.64% of the total sales and the top 10
MNCcontrolledcompanieshadashareof8.46%.Inotherwords,salesinthe126sample
productswerehighlyconcentratedinafewhands(fordetailsseeAppendixTable4).Of
thetop40Indianfamilies/familygroups,only5didnotoriginatefromthelargeIndian
groupsattheendofthe1980sbuteachhadbeenbornbeforethat.TheVedantaorSterlite
groupoftheAgarwals,whohavebeenalreadymentionedearlier,hasbeeninthemetal
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businessandbecamefamousbyacquiringBALCOandHindustanZincwhenthesewere
privatized.TheSinghalsoftheBhushanSteelsgroupshavebeeninvolvedwiththesteel
industry since the early 1970s. The Dhingras of Berger Paints acquired the 1923
incorporatedcompanyfromtheUBgroupin1991.TheNirmagroupofKarsanbhaiPatel
beganin1969.TheAdanigroup,havingbegunasapartnershipfirmin1988,wouldhave
tobedubbedtheyoungestofthese5groups.Evenmanyoldfamilygroupsaboutwhomthe general perception may be that they are in terminal decline and who are not
generally portrayed these days as the symbols of corporate Indialike Thapar, JK
Singhania, Shri Ram, Dalmia and Bangurstill appear to be of fairly significant
proportionswhentheirdifferentsplintergroupsarecombined.
Table11
SharesinTotalSalesof126products
Category Sales ShareIntotalSales ShareinPrivate
Sales
Cooperative 6267.64 0.83
Govt.ControlledPrivateSectorCos. 5162.37 0.68
PublicSectorCos. 61120.62 8.05
OldNonPrivateTotal 72550.63 9.56
OldIndianlargeGroups 338730.55 44.61 49.33
OldMNCs 69480.71 9.15 10.12
OldLargePrivateTotal 408211.26 53.77 59.45
NewMNCs 17692.12 2.33 2.58
MNCsTotal 87172.83 11.48 12.69
Others 260791.11 34.35 37.98
TotalSales
759245.12
100.00
Source:DerivedfromCMIE2007.
5.3.4 Services andtheEmergence ofNew Entrepreneurial Groups
Does the general picture of stability amongst major entrepreneurial groups despite
liberalization change very much if we were to also take into account the new services
sectorsthathaveseenrapidgrowth?Apparentlynotifweweretoconsider,forexample,
thetwomajorsuchserviceindustriestelecomservicesandsoftwareeventhoughthe
relative newness of these sectors should have made them conducive for entry of new
firms.
Intheformer,theonlymajorIndiangroupthatdidnotfigureamongstthelargegroups
of thepreliberalizationerawas theBhartigroup,andeven thisgrouphadestablished
itself in themanufactureof telephonesbefore liberalization.Othermajorplayers in the
telecomindustrywerepublicsectorenterprisesBSNLandMTNL,oldgroupslikeTata,
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Birla AV, Reliance and Essar, or foreign companies like Hutch (now acquired by
Vodafone).
Inthesoftwareindustry,6ofthetoptencompaniesintermsofsalesTataConsultancy
Services, Wipro, HCL Technologies, Tech Mahindra, Iflex Solutions, HewlettPackard
Globalsoft,andLarsen&Toubro Infotechwhobetween themselvesgenerated48.54%of the total industry sales in200506, were associated with old Indian large groups or
MNCs.Of the threeremaining top10companies, the largestwas InfosysTechnologies
withamarketshareof17.88%.ButInfosysstartedoperationswaybackin1981.Satyam
ComputerServices(marketshare9.18%)wasincorporatedin1987.PolarisSoftwareLab,
thesmallestofthetop10companies,toooriginatedinthe1980sandCitigroupplayedan
importantroleinitsformation.Newentrepreneurialgroupsinthesoftwareindustryare
thus crowded into the 23% market share leftby the top 10 for remaining 684 other
companies.Inotherwords,evenasectorlikesoftware,apparentlythemostconduciveto
the
emergence
of
new
entrepreneurship,
has
not
made
any
significant
dent
to
the
dominanceofolderestablishedenterprisesorentrepreneurialgroups.
6. CONCLUSION
The general conclusion that has emerged from the preceding discussion so far canbe
summedupasfollows: the timehasnotyetcome towritetheepitaphof Indiancrony
capitalism,ifonedoeschoosetousethatexpressionasadescriptionoftheintertwining
oftheworldofbusinessandmoneymakingandthatofpoliticsandadministration.Such
intertwininghasbeenafeatureofIndiancapitalismfromitsbirthandliberalizationhas
onlygiven itarenewedvigour.Inwaysdifferentfromthepastbutforthatreasonnot
less significantly, globalized finance and a narrow spectrum of large and established
businesses have exercised influence on and alsobenefited from the decisionmaking
process of the State. The empirical evidence presented clearly shows that under
liberalizationthemainactorsanddriversofchanges,intheprivatecorporatesectorand
in different individual industries, havebeen existing domestic and foreign large firms
andincumbentfirmsthatisfirmswithapasthistoryratherthannewentrepreneurs.
Private capital,both domestic and foreign, andboth industrial and financial, has also
succeededduringthisperiodinimposingtoagreaterextentitswritonthedevelopment
process of the Indian economy, to the exclusion of other segments of Indian society.
Whilethecorporatesectorandfinancialmarketshavegrownrapidlyandenlargedtheir
presence in the Indian economy, the exclusive character of that growth is now widely
recognized. In either its narrower or wider sense, therefore, a high degree of state
captureisatleastadefactoifnotadejurerealityincontemporaryIndia.
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