December 20, 2022

Analysis

##### The evolution of India’s corporate sector from 2000 to 2020

“The systemic, long-term nexus between the political elites and big business will not go away anytime soon,” wrote journalist M. K. Venu in 2015. Writing in the aftermath of Obama’s second visit to India, Venu suggested that “crony capitalism” had to be grasped in a deeper sense to reflect not the odd favors bestowed on this or that industrialist by the government of the day, but the system that cemented the ties between state and capital. In this case, it was a handful of family-owned businesses that knew they could always depend on India’s governing class, starting with the prime minister. Venu cited a revealing example of this bond. “At the Modi-Obama reception at Rashtrapati Bhawan [on Sunday 25, 2015], about two dozen industrialists had been invited and were seen standing in a queue to greet the US president. About six to eight of those present collectively owe close to Rs. 3.5 lakh crore1 to banks, mostly public sector undertaking (PSU) banks. The banking industry in India has about Rs.5 lakh crore 2 as total capital and nearly 70 percent of it is exposed to just a half a dozen industrial houses. Technically, if these business houses were to go bust, 70 percent of India’s banking capital will get wiped out. In short, they are too big to fail. So they have no worries really, as the system sustains them.”3

In what follows, I present a precis of the evolution of Indian big business over the last two decades, starting with a fact which is hardly ever foregrounded, namely, that the business families who formed the mainstay of industrial capitalism in the country for a whole three or four decades after Independence have either disintegrated or have been disintegrating and will soon cease to exist as coherent entities, let alone cohesive ones. Next, I shall present the results of an exercise that involves looking at the biggest non-banking companies in the country (both listed and unlisted) in terms of who actually owns them and of the different categories of ownership we can divide them into. Here the chief result is that since the 1960s, when both R. K. Hazari and Mike Kidron wrote fine studies of big business, there have been massive changes in the Indian corporate sector.4 Dominance no longer lies with the fabled large business houses of the past but with an entirely new breed of capital. In section three, I shall turn to the cycles that span first a major boom (one of the most rapid periods of growth in Indian manufacturing) in the 2000s and then the slowdown that came to grip most areas of private business for the greater part of the last decade. The slowdown began in 2011 and shows no obvious sign of letting up even today. As the quote from Venu suggests, the banks are central to this sharply fluctuating picture, and their abject prostration before private capital casts doubt on whether any such thing as “finance capital” can even be said to exist in India’s economy. In the final section, I offer an alternative perspective that breaks with the shallow characterization of “crony capitalism” in favor of a deeper reflection on what we are up against.

### Splits, divisions, and decline

Over the course of the last decades, the family-controlled corporate groups that once dominated Indian capitalism have to a large extent disintegrated. There are two main causes for this. First, Indian corporations have been plagued by spectacular failure, resulting in the rapid decline of tycoons like Vijay Mallya (Kingfisher Airlines), Subhash Chandra (Zee TV), and Anil Ambani, of families like the Dhoots (Videocon), Nambiars (BPL), Mafatlals (Mafatlal Industries), and Ruias (Essar), and of once leading companies like Ranbaxy. In the case of Ranbaxy, the death of Parvinder Singh, the founder’s son, led to a decade of gross mismanagement by his two sons, both of whom are currently serving six-month jail sentences. Ranbaxy is today a subsidiary of Sun Pharmaceuticals, the country’s leading drugs company, while the Essar empire has been divided between Rosneft (oil) and ArcelorMittal (steel). Videocon’s assets have been acquired by Anil Agarwal (Vedanta), and Subhash Chandra’s flagship is now in Sony’s hands. With very few exceptions, these were not situations brought about by conflict within families. What drove them to insolvency was some combination of strategic miscalculation (Mallya launching Kingfisher with little grasp of the airline industry; the Mafatlals buying out Shell’s stake in Nocil at considerable cost), formidable competition from global players (Videocon and BPL in consumer electronics when LG and Samsung were making their entry), and downright fraud (the siphoning of loans)—all coupled, of course, with gargantuan levels of debt that the state-owned banks had no compunction creating.

More common than these instances of spectacular failure have been the divisions that have marred Indian corporate history for the past several decades. Not all divisions within India’s business families have been acrimonious. The Singhanias, Goenkas, Thapars, and Jindals would all see asset divisions (between sons) that engendered no obvious resistance. The latest of these as recently as 2013. The conflict that garnered the most public attention was the bitter estrangement between the Ambani brothers (Reliance Industries, India’s leading conglomerate), which, one writer has argued, “was largely about wresting control over reserves of natural gas that lie below the ocean bed” in the Bay of Bengal. The first signs of this came in 2004 when Mukesh Ambani admitted there were differences over “ownership issues.” What gave this conflict its peculiar shape, to say nothing of its intensity, was that Reliance was India’s leading example of a substantial, vertically-integrated enterprise and, as Paranjoy Guha Thakurta argues, their father Dhirubhai believed “it would be next to impossible to divide the Reliance group that had now become consolidated into one monolithic entity. He thought institutional and individual investors would strongly resist a split,” which may well be why he died without having drawn a will.5 In 2010, the Supreme Court gave the older brother Mukesh control of the gas business.

Not all “family divorces” have been as straightforward as the Ambanis’. Some have involved a very large number of claimants. Like Dhirubhai, Gujarmal Modi, the founder of the Modi Group, who had five sons and six daughters, died intestate in 1976, and the sprawling assets of the group were left to the de facto control of his brother Kedar Nath, who had the interest of his own three sons in mind. The bitter family battle that ensued forced the financial institutions to intervene by proposing a truce that divided assets between the two sides in a 60:40 ratio. But, as one writer notes, “What everyone misjudged was the difficulty that the group would have in disentangling the cross-holdings within its companies.”

The group’s shareholdings comprised a complex web of holding firms in which every brother had a stake and that made it virtually impossible for family members to go their own way, even if they wanted to… For the FIs, the family battle served a double whammy. Not only were they stuck with a messy state of affairs within the companies, the Modis also refused to repay loans. They said that the cross-holdings of the various family factions were so complex that the liability of each of the brothers could not be fixed until the division of property was effected. So, the FIs blacklisted the entire group, complicating matters further.6

The investment companies that R. K. Hazari had warned government about in Nehru’s last years have always been at the heart of the system of corporate control by India’s family conglomerates.7 Reliance was said by one finance director I interviewed alongside Gautam Mody many years ago to have 400 investment companies operating from a single address.8 When asked why so many investment companies were needed, cross-holdings were cited as a major reason for their existence.

Another case of protracted family conflict which became impossible to resolve thanks to a convolution of cross-holdings was that of the Bangurs, Kolkata Marwaris whose fortunes burgeoned when they acquired the substantial jute interests of a British managing agency in 1954. In 1987, a deal to divide the family businesses three-ways came unstuck because the shareholdings were impossible to unscramble. The Bangurs were said to have around eighty investment companies but it proved impossible to transfer shares by exchanging those between battling cousins.9 This necessitated a further division of the group in the 1990s. As one journalist put it:

The family split into five factions due to differences among members of the younger generation…Under the terms of separation, the cross holdings of the companies were to be transferred at zero-value. Each group would have unencumbered control of the companies under it…And the group would be bound together by old ties and their joint holdings in real estate, charitable, and religious trusts. (Corporate watchers felt a total recast of the management system was needed.) This is unlikely to happen in the near future because the factions are racked by internal rivalries.10

The Hindujas, Chhabrias, and Wadias are other more recent examples of families where brothers, cousins, fathers, and sons have been embroiled in battles. In the case of the Hindujas, it was said that “the family has been revealed to be deeply divided after court proceedings spilled into the open,” and “the stage may now be set for the break up of one of the biggest conglomerates in the world. With dozens of companies—including six publicly traded entities in India—the Hinduja Group employs more than 150,000 people in thirty-eight countries.”11

### The transformation of the corporate sector

Table 1 presents a break-up of 270 listed non-banking companies. The top 100 companies here account for almost 90 percent of the aggregate net sales of all 270 companies. They are the backbone of the corporate sector. Within the top 100, public sector companies account for 44 percent of all sales, even though their share of the number of those firms is just 14.4 percent, showing that enterprises under government control are larger than average.

##### Table 1: The 270 largest listed non-banking companies: Numbers and concentration ratios by type of ownership (FY22 net sales in ₹ crore)

Strikingly, of the twenty top business houses that were studied by R. K. Hazari in the mid-sixties, only nine figure in this group of 270 listed companies. Half of those twenty business groups have disappeared. Once dominant business groups like the Thapars, Sahu Jains, Scindias, Mafatlals, Sarabhais, and Kilachand no longer figure anywhere, even among as many as 270 listed companies. (The Sahu Jain family owns Bennett, Coleman which is the unlisted holding company for the Times of India and related concerns.)

Numerically, the largest group is what I’ve called the “New Capitalists,” which are business groups or firms that have emerged since the 1980s. Within this group a distinction must be made between firms that belong to the newer conglomerates such as Ambani’s Reliance or the Jindal Group, and firms that largely stand alone, outside any conglomerate structure. Some of these, like Infosys, are hugely successful but most are smaller-sized establishments in software services, pharmaceuticals, logistics, real estate, infrastructure, and so on. Some are in niche markets like renewable energy, water management, and off-highway tires. The sixty-five companies of this latter type were founded by quintessential “first-generation capitalists” who are usually described as “entrepreneurs.”

In terms of listed company sales, the dominant shares are still held by Public Sector Undertakings (PSUs), followed by New Capitalists and, some way behind them, by the few remaining large business houses of the past that have retained their leading position despite vastly greater levels of competition since the 1990s. (These are the Tatas, the Aditya Birla Group, Mahindras, and the Chennai-based Murugappa Group, among others.) Between them, these three types account for close to 85 percent of the aggregate sales of big companies.

New Capitalist firms which are part of conglomerates are on average over three times bigger than sixty-five New Capitalist firms that are “stand alone.” The latter also have the highest percentage of non-manufacturing-related businesses of all categories in the sample. The thirty-seven companies that form some part of the “new conglomerate” groups belong to a total of thirteen business groups (Mukesh Ambani, Jindals, Sunil Mittal, Anil Agarwal, Gautam Adani, Hindujas, Mehtas, Piramals, Balkrishan Goenka, Anil Ambani, and the various groups named after R.P. Goenka (he died in 2013), Sanjiv Goenka and the Gallas of Amara Raja). Of the forty-seven companies controlled by the more traditional large business houses, fourteen belong to the Tatas, seven to the Aditya Birla Group, and five to the Murugappas. The remaining twenty-one are dispersed across another fourteen business houses, so here the pattern is more concentrated, suggesting that there is greater polarization within this category. The ten biggest private sector groups and firms account for 56.3 percent of the aggregate net sales of the private sector; the top two (Reliance and Tatas), a considerable way ahead of the others, account for just over 25 percent.

New Capitalists are the most fervent supporters of Prime Minister Modi. This is the case among both bigger groups (Ambanis, Adani, Sunil Mittal (Airtel), Anil Agarwal (Vedanta), the Hindujas, and Sudhir Mehta of the Torrent Group) and some smaller and less solid ones (e.g., the media tycoon Subhash Chandra who recently lost control of his flagships, with Zee Entertainment passing to Sony). Political funds are mobilized through so-called Electoral Bonds, and doubtless the groups just mentioned are major contributors to those, though the public will never actually know, since there is zero transparency about who contributes by way of the Bonds. (The anonymity of donors is a strict rule of the scheme, which has so far generated political contributions worth $1.34 billion since March 2018.) State enterprises remain crucially important despite underinvestment and the massive hostility that’s been drummed up against them over the past three decades. That the Modi government forcibly removed state-owned Hindustan Aeronautics Limited from the Rafale combat aircraft deal with Dassault Aviation in 2015, making way for a businessman who was sliding rapidly into bankruptcy, is one example of the way public policy is being shaped with respect to major companies.13 As Table 1 shows, the Foreign Company share of total sales in India is a mere 5.3 percent. This statistic may appear to run against clichés about the oversized role of multinationals in developing economies like India’s. However, Table 1 concerns only listed companies and the picture changes dramatically when we turn to an analysis of unlisted firms. As Table 2 shows, out of the 172 unlisted firms analyzed there, no fewer than seventy-eight (45.3 percent) are foreign companies with a collective share of 44.2 percent of the aggregate total income. This reveals the extent to which newer multinational entrants in the Indian market (software services giants, for example) have a strong preference for remaining private companies, doubtless because they are under no compulsion to raise capital in the equity market. By contrast, both the bigger state enterprises and large business houses have a clear preference for listing. ##### Table 2: 172 unlisted non-banking firms based on Dunn & Bradstreet’s “Premier 200 Unlisted Companies”: Numbers and concentration ratios (FY21 total income in ₹ crore) The total combined sales of both listed and unlisted companies comes to ₹7,760,970 crore, which at ₹80 to the US dollar is equivalent to$970.12 billion, just short of a trillion dollars. Taking “total income” figures as a proxy for sales for the fiscal year of 2021, the combined sales totals of these various groups (in ₹ crore) is as follows:

On this reckoning, the three leading categories of firms in the Indian corporate sector then become (1) the state enterprises, (2) the New Capitalists, and (3) foreign companies. Between them, they account for close to 80 percent of the combined sales of listed and unlisted companies taken together. The large business houses of the past are no longer dominant as a group, since only a handful of these old, restructured, and now more tightly centralized conglomerates even figure in the calculations above.

### End of the affair: A debt-fueled boom and its aftermath

With the exception of a sudden sharp drop in the last two quarters of FY2009, the second half of the first decade of the new millennium saw an investment boom dominated by the private sector. A boom was clearly gathering momentum by the time the first of the two coalition governments headed by the Congress Party (UPA 1) came to power in May 2004. The growth rate of manufacturing, which had slumped to 2.9 percent in FY2002 (from an earlier peak of 14 percent in FY96), was 6 percent in FY2003, 7.4 percent in FY2004, and 9.2 percent in FY2005. The remaining nine years of UPA rule saw the boom cresting in FY2007, then breaking momentarily to register the immediate effects of the global financial crash, before moving sharply upwards in a V-shaped recovery as the RBI loosened monetary policy, and finally beginning a sustained fall until manufacturing actually contracted in the UPA’s last year in office.14

Among Asian countries India was exceptional in having family businesses with extensive exposure to capital-intensive sectors such as steel, power, and telecoms. The trouble with this sprawling conglomerate model is that the promoters themselves, especially the newer capitalists, had no “skin in the game.” As one analyst explained:

Bankers typically wanted tycoons to put in some of their own funds, not only to provide an incentive to ensure the project went well, but also because it would be used to absorb losses if things went wrong. But Gupta discovered that this equity component was often a mirage. The tycoons deployed a clever deception, telling Bank A they were putting equity into a particular project, when the money had in fact been raised as debt from Bank B, as part of the financing of an entirely different project, and then quietly transferred over. Both Banks A and B were kept in the dark, while the tycoon had to put in no money of their own.15

Ashish Gupta was the analyst who in 2012 set alarm bells ringing about the mounting bad debt problem of the state-owned banks. In his own story of India’s reforms, published in 2020, the deputy chairman of the Planning Commission of that time confirms that this is what was happening with infrastructure projects that were being financed with shorter maturity borrowing from the banks:

Some time in 2011, Gajendra Haldea brought to my attention that private investors were negotiating large loans from public sector banks by estimating project costs in loan applications much above the approved costs [for] the project…The banks were legally free to accept a larger project cost and lend more if, in their judgment, they believed the project could service the debt…Unduly high levels of borrowing raised the suspicion that unscrupulous promoters may be siphoning off the surplus amounts from the project and then recycling them back as their own equity contribution.16

The boom saw a very substantial expansion in listed companies. At the end of 2010, a quarter of all family-controlled firms that were listed had done so during the 2000s boom.17 But different sectors and layers of capital responded to the boom in their own way. The tycoon-controlled, self-styled “diversified conglomerates” that hadn’t been in existence for much more than a decade would account for the bulk of the bad loans the banks found themselves stranded with when the boom had passed for good. Other sectors of capital exemplified other strategies. In software services, firms like TCS (Tatas) saw an exponential growth in employee numbers, with India’s IT Majors taking on tens of thousands of employees every year, at least until the financial crash of 2008.18 Their chief markets were and remain in the US and UK.

Global acquisitions were also a marked feature of the boom. Ratan Tata’s drive to make Tata a global brand involved a spate of acquisitions that included Tetley (2000), Daewoo Trucks (2004), Brunner Mond (2005), Corus (2007), and Jaguar Land Rover (2008). Tata eventually paid $12.7 billion for the Anglo-Dutch steelmaker Corus, a deal that the late Cyrus Mistry would later describe as “overpriced.” Kumar Mangalam Birla, head of the largest and most successful of the various Birla groups, acquired US-based aluminum can maker Novelis in 2007, making Hindalco the world’s largest aluminum-rolling company. Lakshmi Mittal, who is not from one of the traditional business houses, acquired Arcelor in 2006 to create the world’s second largest steel company. ArcelorMittal is a good example of a foreign-headquartered Indian-origin global giant that has now entered the Indian market to mop up the distressed assets of families such as the Ruias that went bust in the downturn of the 2010s.19 The expansion of private capital into infrastructure (via so-called public-private partnerships), and into asset-heavy sectors such as steel and energy, was financed by debt. The years from 2007 to 2012 saw a steep growth in borrowings. The moment of truth came with Credit Suisse’s 2012 report titled House of Debt, which argued that Indian banks had increased their loans by 20 percent since 2007, largely to a select group of corporate entities. The ten groups mentioned (Adani, Essar, GMR, GVK, JSW, JPA, Lanco, Reliance ADAG [Anil Ambani], Vedanta, and Videocon) had seen their total debt level jump five times in the past five years, to equal 13 percent of all bank loans and “98 percent of the net worth of the banking system.” The report concluded that “the concentration risk is high”: (1) all banks appear to have high exposure to the same few groups; and (2) investments of most of these groups are in similar sectors and projects (primarily, power and metals) and many of them may be stressed. The asset profile of many of these groups is similar, with infra[structure], and to a large extent, power assets driving up investments in the past few years.20 As it turns out, in the years that followed no fewer than seven out of the ten groups analyzed in this report became the subject of insolvency proceedings initiated by banks. Meanwhile, a report commissioned by the Reserve Bank in 2014 soon after Raghuram Rajan became governor could refer to a “steep erosion” in the asset quality of the state-owned banks. It noted that, over the past year, “loan asset quality in banks has deteriorated at a frightening pace.”21 The report’s author P. J. Nayak suggested that the key underlying issue was the way the public sector banks were governed. In a less formal setting, talking to the Financial Times journalist James Crabtree, he was less restrained. “I met with a number of retired chairmen of banks, and the kind of stories they told me about dishonesty in the banks were really extraordinary,” Nayak told Crabtree. “There is corruption in the system, and there is no point pretending otherwise.”22 The slowdown that began in 2011 has shown no signs of subsiding. Manufacturing remains as sluggish as ever, and major foreign companies such as Ford, GM, and Holcim have exited India. Millions of manufacturing sector jobs have been lost.23 Thanks to recession in the global steel market, exports were badly hit, with the Chinese dumping steel at “unthinkable” prices.24 After the boom years of the first decade of the millennium, real estate volumes halved in 2012–2019. In telecoms, Reliance Jio (Mukesh Ambani) began a price war in the last quarter of 2016 that triggered a crisis throughout the industry. By September 2020 his brother Anil was pleading bankruptcy in a London court to forestall Chinese creditors; a year later the Pandora Papers would show him to have$1.3 billion stashed in no fewer than 18 offshore companies!25

The past decade has seen a succession of scams with the banks cheated out of thousands of crores, the collapse of two major airlines, and at least one gratuitous government intervention that devastated a huge informal sector that mostly runs on cash.

Over the last five years the commercial banks have written off more than ₹10 lakh crore (that is, ₹10 trillion equal to $126 billion) by way of bad loans. However, the major innovation of these years was the Insolvency and Bankruptcy Code (IBC) of 2016. ### Bankruptcies and the centralization of capital Under the IBC, companies bid for other companies that have declared bankruptcy under the Code. Since rival bids can lead to litigation, an appellate tribunal constituted under the Companies Act, 2013 (the NCLAT) hears appeals against orders passed by the National Company Law Tribunal and the Insolvency and Bankruptcy Board. The key point to note about these bids is that they are a powerful means of centralizing capital since the strongest bids come from rivals within the industry who have the deepest pockets. Thus ArcelorMittal acquired Essar Steel following a “bitterly contested legal battle that went all the way up to the Supreme Court.” In 2019 it was reported that: Essar Steel’s capacity will immediately make ArcelorMittal the fourth biggest player in a nation where the administration plans to invest trillions of rupees in infrastructure… Without doubt India’s insolvency process is reshaping its steel industry. Five companies from the sector were among twelve large debtors ordered into the bankruptcy court in 2017 by the regulator in a clean-up of one of the world’s worst piles of bad debt.26 In telecoms, the country’s sixth largest operator Aircel filed for bankruptcy in the National Company Law Tribunal (NCLT) in Mumbai “due to fierce competition and high levels of debt.” Aircel is the fourth telecom firm to wind up since Mukesh Ambani-led Reliance Jio debuted in September 2016, “unleashing a disruptive price war in the sector with its free voice calls and dirt-cheap data.”27 India’s largest cement maker UltraTech (Aditya Birla Group) acquired Binani Cement under the Insolvency Code but only once the Supreme Court upheld the appellate tribunal’s order approving the bid. Both layers of capital—that is, the declining traditional large business houses such as the Khaitans as well as more rapidly bankrupted newer conglomerate groups such as Essar (Ruias) and Videocon (Dhoots)—have been at the receiving end of insolvency decisions under the new law. Videocon’s assets were recently acquired by Vedanta (Anil Agarwal) at a stunning discount. Agarwal is said to have offered only 4.1 percent of the total outstanding claim of ₹88,000 crore.28 The banks’ claims, equivalent to almost$12 billion, were reduced by a whole 96 percent. As for the Khaitans, it was recently reported that:

McNally Bharat, an engineering, procurement, and construction (EPC) company promoted by the Khaitan family of Williamson Magor Group was admitted for corporate insolvency in May this year based on a petition filed by Bank of India… The Khaitan family has completely exited Eveready Industries (by) mid 2022 by selling their stake to the Burman family, promoters of Dabur. The sale of Eveready Industries is linked to the stress faced by McNally Bharat. Khaitan had pledged shares of Eveready Industries to finance McNally Bharat… Separately, the Khaitan family is struggling to retain control of McLeod Russel India, the largest bulk tea producer in India.29

Here is a perfect snapshot of the last days of one of those disintegrating business families we began with.

These are early days yet. Thanks to the asset quality reviews instituted by the Reserve Bank when Rajan was governor and the willingness to acknowledge that the banks have a bad debt problem, Indian finance capital has only just woken up, and this despite the repeated early warnings that had piled up already by the end of the 1990s. That some companies will evoke considerable interest among competitors is obvious. Anil Ambani’s Reliance Capital, one of India’s largest NBFCs, has reportedly received fifty-four bids in all, with most bidders keen on buying the entire company. Again, it’s worth stressing that these are bids under the Insolvency Code. In this case both Tata and Gautam Adani are in the race.

### The “divine right” of Indian promoters

India’s “mixed economy” model, constructed in the 1950s, depended crucially on the private sector being able to sustain accumulation through public investment. In Marx and Keynes, the German-American economist Paul Mattick argued that post-war British social democracy had envisaged the mixed economy “not as a partial transformation of private enterprise into state-enterprise, but as a full employment program realized through government initiative in order to increase production within the private-enterprise system.” Mattick also described India’s version of the mixed economy as “state-aided private capital development,” distinguishing it sharply from China’s state capitalism.30 In India the correlation of public investment and industrial growth was obvious to state functionaries in the Congress Party. Minister of State for Finance K. V. Ganesh told Parliament in March 1972 that since 1962, when “public investment decreased, there ha[s] been stagnation in industrial growth.” Public investment and industrial growth, he maintained “have somehow become correlated as far as economics is concerned.”31

With the dramatic decline in public investment that started as early as the mid-1970s, the government’s priority by the early eighties increasingly came to focus on the expansion and modernization of the private sector. The Sixth and Seventh Plans (1980–1990) “depended for the first time on major increases in private investment,” which was expected to grow 4½ times in the early eighties, then double again in the late eighties.32 Thus by the time the economy was thrown open in the 1990s, US investment banks could describe India as having “a huge and vibrant corporate sector.” But it was clear to almost every one of the 170-odd corporate interviewees who were interviewed by two colleagues and myself towards the end of the decade that the corporate sector was no longer a homogeneous bloc. One banker referred to “smaller companies which are relatively new, where there are extremely aggressive, successful family managements… A lot of these managements have had education abroad, they’ve worked abroad in companies which have specialized in their industry.” They were “a new generation of businesses who want to grow very fast.” There could scarcely have been a better description of the group that figures in the Tables as “stand alone” New Capitalists. But, about many of the larger business groups, this banker said, “Lots of them, Essar, Singhanias, are all absolutely declining quite rapidly, really.” Another professional, who retired recently from what was then Booz Allen & Hamilton, said, “The middle tier, the Mittelstand of Indian capitalism, is deeply troubled. Clearly, family businesses in that group are in deep, deep trouble.” So by the end of the 1990s differences such as these were fairly obvious. But the vast majority of those interviewed would have agreed with one banking analyst who claimed, “There are very few very good companies in India,” by which he meant companies that were not just well managed but mindful of the interests of minority shareholders and in this sense serious about corporate governance.

This is not the place to produce an inventory of the corrupt and self-dealing nature of the way a whole swathe of promoter-dominated companies have been run—even when those companies have “professional” managements and “independent” directors and the rest of it. In his first speech as governor of the Reserve Bank, Raghuram Rajan is supposed to have said, “Promoters do not have a divine right to stay in charge regardless of how badly they mismanage an enterprise… Nor do they have the right to use the banking system to recapitalise their failed ventures.”33 In November 2014 this was followed by his Verghese Kurien memorial lecture where the same theme was aired:

In India, too many large borrowers insist on their divine right to stay in control despite their unwillingness to put in new money… [T]he promoter threatens to run the enterprise into the ground unless the government, banks, and regulators make the concessions that are necessary to keep it alive… Why do we have this state of affairs? The most obvious reason is that the system protects the large borrower and his divine right to stay in control… the amount banks recover from defaulted debt is both meagre and long delayed.

And again:

When recovery actually takes place, the enterprise has usually been stripped clean of value. The present value of what the bank can hope to recover is a pittance. This skews bargaining power towards the borrower who can command the finest legal brains to work for him in repeated appeals, or the borrower who has the influence to obtain stays from local courts—typically the large borrower. Faced with this asymmetry of power, banks are tempted to cave in and take the unfair deal the borrower offers. The bank’s debt becomes junior debt and the promoter’s equity becomes super equity. The promoter enjoys riskless capitalism—even in these times of very slow growth, how many large promoters have lost their homes or have had to curb their lifestyles despite offering personal guarantees to lenders?… The system renders the banker helpless vis-à-vis the large and influential promoter.34

When Rajan’s term as governor was drawing to a close by the middle of 2016, his Chicago colleague Luigi Zingales wrote about the anger he had engendered amongst India’s “great political and economic dynasties, who established their power on political connections, if not directly on corruption.”35 Zingales chose to frame this tension between Rajan and big capital as a “fight against crony capitalism.” Since this has now become such a widespread characterization of state-capital relations in countries like India, it’s worth returning to Venu’s point about the systemic nature of “cronyism” as well as Nayak’s assertion that “there is corruption in the system.”

The kind of shameless favoritism that promotes one industrialist or one group of magnates over another cannot possibly capture what is meant by saying there is corruption in the system. Big business has always managed politics through influence peddling, regulatory capture, political donations to campaign finance, and so on. But the field of this management of politics is “many capitals,” that is, the competition between capitals and the unabashed ability of some to move far ahead of the others by using their proximity to government. This was as much the case with Reliance under both Dhirubhai and his two sons as it is the case with Gautam Adani today. What the term “crony capitalism” does is call for a level playing field between capitals. What it does not do is address the issue of the governance of capital—let alone the accountability of promoters either as a fraction of capital or as a class. Implicit in Rajan’s critique is the suggestion that India could strive for a more efficient form of industrial capitalism, one closer, say, to that of the bank-based economies (Germany, for example), or one in which the mass of large companies are widely held, and where there is a substantially larger number of well-managed independent firms of the kind which are currently so rare in India. (These constitute only six companies out of 270, as shown in Table 1.)

In conclusion, it’s worth drawing attention to the extraordinary implications of the July 2018 NCLT order which put a formal end to the conflict between Cyrus Mistry and Ratan Tata.36 Governance issues were at the heart of the bitter clash triggered by the latter’s unceremonious sacking of Cyrus Mistry in October 2016. A key issue underlying those tensions was the control exercised by the Tata Trusts over the operating companies of the group through the unlisted holding company Tata Sons. When Mistry became Chairman of Tata Sons in 2012, the implied understanding was that he would have the same freedom to run the group that Ratan Tata himself had previously enjoyed. This proved not to be the case. Mistry took over as the slowdown was starting to have a major impact on profitability. Worst affected was Tata Steel Europe (formerly Corus Group plc), which found the UK government ignoring the company’s requests for protection against the Chinese dumping of steel. By 2016 it was losing $1 million a day, and “losses were accumulating faster than the profitable Indian operations could clear them.”37 Mistry’s decision to cut losses by looking for a buyer for Tata Steel Europe would have had to have been a major flashpoint, given the prestige that Tata himself associated with the Corus acquisition. When the matter ended up in court, the arguments from Tata’s formidable legal team sounded simply ludicrous in strictly capitalist terms. Harish Salve claimed publicly that “Mistry’s emphasis on profitability by writing off loss-making businesses did not fit with the overall ethos of the Group”—as if the Tatas were in business for reasons other than sustaining profitable businesses.38 “When Corus was purchased it was a commitment to the British government,” Salve said, ignoring the fact that UK Chancellor George Osborne had steadfastly refused to impose an anti-dumping duty when the company had called for one and thus partly caused the losses. Salve’s “Tata is an institution” line was simply nonsense. For his part, Mistry had obviously resented interference in key business decisions. He explained to the court that “Ratan Tata’s interference loomed over all decisions he had wanted to make through his tenure.” “The Trusts often breached protocol by interfering excessively,” a criticism that was entirely supported by the general legal counsel of the group who emailed Mistry to say, “a prominent law firm had told him that there was a general impression in the market that the Trusts control Tata Sons and Cyrus does not have a free hand, but no one knows the exact mechanism through which the Trusts exercise control.”39 As for the NCLT order, which was subsequently upheld by the Supreme Court, this argued that Mistry had laid too much emphasis on having a “free hand” in managing affairs of the Tata Group. This, it claimed, was “incongruous with corporate governance.” In order to protect the minority shareholder, the argument went, the majority’s viewpoint could not be overlooked. “Otherwise, it will become curtailment of the rights of the majority shareholders.”40 There could scarcely be a better indication of how deeply entrenched the “divine right of promoters” has become in the sinews of Indian society, and how well this chimes with the majoritarianism that currently dominates India’s political life. 1.$56.5 billion at the exchange then prevailing

2. $80.7 billion 3. M. K. Venu, “Lalit Modi is a Small Symptom of the Continuing Malaise of Crony Capitalism,” The Wire, June 16, 2015. 4. R. K. Hazari, The Structure of the Corporate Private Sector: A Study of Concentration, Ownership and Control (London, 1966); Michael Kidron, Foreign Investments in India (London, 1965). 5. See Paranjoy Guha Thakurta, Gas Wars: Crony Capitalism and the Ambanis, revised edition(New Delhi, 2016), pp. xx, 6, 63–4. 6. Shyamal Majumdar, Business Battles, from the excerpt published in “Everything you Wanted to Know about the Modi Business Family Feud,” Firstpost, August 5, 2014. 7. R.K. Hazari, “Ownership and Control: A Study of Inter-Corporate Investment,” (in 3 parts) Economic and Political Weekly (Bombay), vol. 12, nos.48-50, November 26, 1960–December 10, 1960. 8. Jairus Banaji and Gautam Mody, “Corporate Governance and the Indian Private Sector,” Oxford Department of International Development Working Paper, 2001: https://www.qeh.ox.ac.uk/publications/corporate-governance-and-indian-private-sector. 9. Kamaljeet Rattan, “Bangur Family Members Bicker about Dividing Assets,” India Today, January 31, 1989, updated October 17, 2013. 10. “The Problems of an Ageing Tree,” Business Standard, February 26, 2013. 11. “Billionaire Hinduja Brothers Call Truce on Bitter Family Feud,” Bloomberg, November 12, 2022. 12. See Ravi Nair and Paranjoy Guha Thakurta, The Rafale Deal: Flying Lies? (2022) for the most substantial account so far. 13. The calculations are based on updated data on manufacturing growth in the Economic Survey, from ES 2003-04 to ES 2016-17. The “new series” data is generally thought to overstate actual growth by about 2.5 percentage points. 14. James Crabtree, The Billionaire Raj: A Journey Through India’s New Gilded Age (London, 2018), pp.186-7. 15. Montek Singh Ahluwalia, Backstage: The Story Behind India’s High Growth Years (New Delhi, 2020), pp.317-18. Haldea was an official in the Ministry of Finance with some expertise in how PPP projects worked. 16. Credit Suisse, Asian Family Businesses Report, 2011 (October 2011), Table 2, p.6. In its section on India the report notes “Profitability of family businesses has fallen since 2007 due to their significant investments in fixed assets”, and also that “Net financial leverage increased dramatically from the early part of the decade into the boom phase driven by a sixfold growth in gross debt leverage. Both net and gross debt ratios remain significantly above that of regional peers.” (p.30). 17. S. Ramadorai, The TCS Story and Beyond (New Delhi, 2011), p.142. 18. The Ruias themselves have recently claimed that Essar is now debt-free, having repaid$25 billion from the sale of major assets over the past five years.

19. Credit Suisse, House of Debt, August 2, 2012 (by Ashish Gupta and Prashant Kumar), p.3.

20. Reserve Bank of India, Report of the Committee to Review Governance of Boards of Banks in India (May 2014), pp. 4, 19.

21. Crabtree, Billionaire Raj, p.193.

22. The best short survey of the decade is R. Nagaraj, “Understanding India’s Economic Slowdown,” India Forum, January 20, 2020. He describes the 2010s as being a decade of “unheard of economic distress.”

23. See this interview with Ravi Uppal, head of Jindal Steel and Power, from January 2016.

24. “Pandora Papers: Nine Big Takeaways from the Explosive Tax Haven Leaks,” Financial Express, October 4, 2021.

25. “Homecoming Costs Tycoon \$7 Billion in Year of Legal Drama,” Bloomberg, March 9, 2019.

26. “Aircel Goes Bankrupt, Becomes Fourth Telecom Player to Bow Out as Cut-Throat Price War Takes Toll,” Business Today, March 1, 2018.

27. Subrata Panda, “Vedanta Arm is Paying Almost Nothing for Videocon Group, Says NCLT,” Business Standard, June 16, 2021.

28. Sangita Mehta, “Megha Engg, Nalwa Steel, Fifteen Others Keen on McNally Bharat,” Economic Times, October 22, 2022.

29. Paul Mattick, Marx and Keynes: The Limits of the Mixed Economy (London, 1971), pp.145, 257.

30. K. V. Ganesh to the Lok Sabha, March 25, 1972, cited Chirashree Das Gupta, State and Capital in Independent India (Cambridge, 2016), p.157.

31. Francine R. Frankel, India’s Political Economy, 1947–2004 (New Delhi, 2005), p.586.

32. Rajan cited Crabtree, Billionaire Raj, p.191.

33. The lecture can be read here: https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=929

34. Luigi Zingales, “RBI Governor Raghuram Rajan’s Fight Against Crony Capitalism,” ProMarket, June 11, 2016.

35. Tragically, Cyrus Mistry died in a car crash on September 4, 2022.

36. Nevin John, “Trophy Buy, Distress Sale”, Business Today, May 8, 2016.

37. Salve quoted in Deepali Gupta, Tata vs. Mistry: The Battle for India’s Greatest Business Empire (New Delhi, 2019), pp.46-7. Gupta’s book is by far the best account of this dismal episode in Tatas’ history. Mircea Raianu, Tata: The Global Corporation That Built Indian Capitalism (Cambridge, Mass., 2021) brings his story down to these recent events.

38. Gupta, Tata vs. Mistry, pp.96 (interference by Trusts), 116 (Vasani’s email), 129 (loomed over all decisions).

39. Gupta, Tata vs. Mistry, pp.218-219.

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