The great Indian business family is dead. Long live the next great Indian business family. Like taxes and death, this key pillar of life in this country is ubiquitous. But like much of society around it, there are clear signs it is atomizing. No longer is the son of the rice merchant destined to continue the family tradition. He, and in some rare cases she, is experimenting with newer opportunities being constantly thrown up by a rapidly changing economy.
That though doesn’t mean the end of the business family’s dominant role in the Indian environment. Family Business Network, the Lausanne-based federation of business families, estimates their contribution to India’s gross domestic product at a whopping 70%.
Not that there’s anything particularly aberrant about this. According to consulting firm Ernst and Young, 85% of companies in the Asia-Pacific are family-owned. Similarly, family businesses make up more than 60% of all European companies ranging from sole proprietors to large international enterprises. What’s more these businesses create value for themselves but also for the broader markets. Across the world, including in India, returns generated by family-owned businesses have been consistently higher than those by non-family owned ones.
For this they have been amply rewarded. According to the Billionaires Insights Report 2020 published by UBS and PwC the net worth of India’s billionaires has surged 90% in the 11 years since 2009.
It mirrors a worldwide trend of big businesses getting bigger. Thus, the Wall Street Journal recently advertised for the position of Reporter, Google. It isn’t uncommon for media outlets to assign reporters to cover specific sectors or countries but doing that for selected companies is rare. But so dominant are some global companies and so pervasive their influence that it may be blasphemous but not entirely untrue to say that Google matters more than many countries. As WSJ goes on to say in its job description: “Google’s impact on business and society is vast. Beyond its core search-and-advertising business, it is one of the world’s biggest video distributors through YouTube, the largest smartphone-software supplier thanks to Android, a leader in developing self-driving-car technology through Waymo, and a top contender in the booming cloud-computing industry.”
As it is with Google today, so it has been with others like McDonald’s, WalMart and General Motors in the past. Size leading to market dominance has ensured that some businesses have a disproportionately large influence on the world. It has led to the constant tussle between big business and regulators keen to ensure they don’t squeeze smaller competitors out of the market.
That’s where the biggest danger of business family dominance in India lies. The first two decades following the liberalization of the economy threw up new names in the business landscape of the country. Entrepreneurs like Sunil Mittal in telecom, Uday Kotak in banking, Naresh Goyal and later Rahul Bhatia and Rakesh Gangwal in aviation, rushed to take advantage of the opening up to the private sector of areas that had hitherto been reserved for state-run monopolies. Some like Naresh Goyal came to grief. Others soldiered on and have become the business families of today. At Wipro, the software-to-consumer products conglomerate that was set up by Hasham Premji in 1945, the third generation of Premjis, in the form of new chairman Rishad Premji, is now in charge.
It is the way economies with relatively free markets grow. In fact, crystal ball gazing in the late 1990s led several analysts to predict that in the future Indian business would be driven by companies like Ranbaxy, Samtel, Infosys, ILFS, Kotak Mahindra and Yes Bank, as much as it would by existing powerhouses like Reliance and Tata.
The future is here and sadly most names in that list of future stars have dropped off with only Kotak and Bharti holding fort. In fact, over the last few years, a disturbing trend has emerged with a handful of powerful families mopping up businesses across sectors. Despite a surge in entrepreneurship generously funded by private equity and venture capital, there aren’t too many start-ups that look like challenging the incumbents whether it is in existing business areas or even brand new ones like e-commerce, green energy, telecom or retail.
Worse still, if some recent changes proposed by the country’s central bank are implemented, that dominance may grow to dangerous levels. With capital being the first need of any new venture, RBI’s proposal to allow business groups to set up banks may just add more heft to their existing clout. In a linkedin post two former deputy governors of the RBI, Raghuram Rajan and Urjit Patel warned that allowing corporate entry into banking “will further exacerbate the concentration of economic (and political) power in certain business houses.”
The tragedy is that going forward the Indian business world could end up looking more like that of the pre 1990s era when a handful of names reigned supreme. Groups like Aditya Birla, Ambani, Mahindra and Mahindra, Vedanta, Bajaj, Jindal, Munjal, RPG, Hinduja, Murugappa, Lalbhai and Adani are a throwback to our past. In the 21st century, they need to be challenged by newer groups. That’s not going to happen if regulation, and regulators, continue to throw their lot with the incumbents.
Sundeep Khanna is a columnist, business writer and executive editor at the Mint.
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