Steven Pearlstein of The Washington Post wrote, in a recent article on India, that “much of the formal economy is controlled by a handful of family‐run conglomerates that are quick to use their political and financial muscle to move into any sector that shows promise. In a nation of naturally entrepreneurial people, this creates headwinds for independent companies trying to attract talent and capital.”
This is a serious and common criticism, but is mostly wrong. Consider the sensex between 1990 (just before economic liberalization) and today. The sensex comprises the 30 top stock market companies, and the Bombay Stock Exchange keeps changing companies in the list as old giants decline and new ones emerge. If indeed India was dominated by a few oligarchs, the sensex would contain much the same companies today as it did 20 years ago.
That is not the case. Only nine of the 30 companies in the 1990 sensex are still there today. That constitutes a very big churn, and signifies competition rather than cozy oligarchy. The nine survivors are Hindustan Lever, Hindalco, ITC, L&T, Mahindra, Reliance Industries, Tata Steel, Tata Motors and Tata Power.
Who have dropped out? Back in 1990, two car manufacturers, Hindustan Motors and Premier Auto were in the index, while motorcycle companies were too small to figure. The opposite is true today—Bajaj Auto and Hero Honda are in the sensex, while Hindustan Motors has declined to insignificance and Premier Auto has gone bust.
The Birla group was once a mighty colossus, with five companies in the 1990 sensex. Today, only one Birla company remains — Hindalco. Those that have dropped out are Century, Grasim, Indian Rayon and Hindustan Motors.
The Tata group is down to four companies from the six it had in the 1990 sensex. Of these it sold ACC. Voltas and Indian Hotels have dropped out. Three survivors are Tata Steel, Tata Motors and Tata Power. The big newcomer is, of course, software giant TCS.
Back in 1991, critics warned that economic liberalization would result in MNCs pulverizing Indian companies and dominating the economy. Phooey! Many MNCs that figured in the 1990 sensex have suffered relative decline and dropped out. These include GlaxoSmithKline, Nestle, Philips and Siemens.
Other dropouts include Mukand Iron, Bombay Dyeing, Ceat Tyres and Great Eastern Shipping. Once top dogs, they matter little today.
Who are the big newcomers? Infosys, Wipro and TCS are three software giants that now occupy dizzy economic heights, and employ over 100,000 people each. The Jindals were minor businessmen in 1990, but now Jindal Steel and Power is in the sensex, and Jindal South West will surely join the list soon—it has overtaken Tata Steel in domestic steel production.
Anil Aggarwal of Sterlite was nowhere in 1990 but has now overtaken Birla to become India’s top producer of non‐ferrous metals (aluminium, copper and zinc). Bharti Airtel, which was also nowhere in 1990, is India’s top telecom company, way ahead of historical biggies like Reliance, Tata and Birla. Cipla is the only pharmaceutical company in today’s sensex, and has displaced the MNCs that used to be there earlier.
Infrastructure and real estate are new sectors that have soared in the last decade, accompanied by accusations of crony capitalism. They account for two newcomers—DLF and Jaiprakash. Others like Adani and Lanco are ripe for entering the sensex.
Groups like Reliance, that were once famed policy manipulators and later turned world class, are today running global empires successfully. This has led to the theory that anybody who can manage India’s political class qualifies as a world class manager, and can go global!
Reliance Industries, once legendary for garnering political favours, has now moved to a higher plane. It now boasts the biggest oil refinery in the world, sells at global prices, and yet has margins far exceeding those of Singapore’s famed refineries.
Overall, Indian business has undergone a huge churn, despite a fair amount of crony capitalism. One reason is that many of the well‐known crony capitalists today are not old giants but newcomers in real estate and infrastructure — DLF, Unitech, GMR, GVK, and Lanco. There is churn even among cronies.
So, it is simply wrong to claim that India is dominated by a handful of business oligarchs with political connections who wreck competition. The heartening message of 20 years of reform is that newcomers keep breaking into the top 30 with surprising regularity.