Crony Capitalism India

8/12/2019 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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3

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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5

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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6

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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7

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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11

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)


18/56

13

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)


19/56

14

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)]


20/56


21/56

16

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.


22/56

17

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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18

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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19

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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20

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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21

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


27/56

22

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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24

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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25

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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26

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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27

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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28

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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29

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





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


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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30

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


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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31

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


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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32

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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