1. How have businesses in India developed differently from their western counter parts?
India, from 1947 to 1991 followed the socialist system of industrial development, wherein the major industries were controlled by the state. The western countries have followed a policy of free market and capitalism during the same time period. The Indian economy was restricted by the License – Permit – Quota Raj, due to which the opportunities of developing new businesses were minimal. This policy insulated the Indian economy from the outside world , and led to monopolies in the public sector which were inefficient, similar to the U.S.S.R. Post liberalisation, with removal of these restrictions, the businesses in India, free from the shackles of the permit system have grown as a fast pace with improving efficiencies. However several businesses, which could not cope with the competition, fell by the wayside.
The western economies have in the capitalistic environment, graduated from family run businesses to control by institutional investors to control by private equity firms in many cases, whereas, their Indian counterparts still have a large proportion run by family run businesses and institutional investors controlled by the government.
Many of the PSU’s in India which have survived the post – liberalisation opening up of the economy are monopolies in their respective markets and today are quite competitive on the global stage. The family run businesses compete fiercely with each other and look for opportunities in newer areas, including global markets. In the western world, there is a growing trend of consolidation with oligopolies emerging in almost all industries, which are being controlled by PE firms. Overall, India’s form of ownership has barely changed over the past decade. The division of profits made by family firms between those in their first, second and third or older generations has stayed pretty constant.
2. Why has Indian business developed in this way?
Indian businesses have developed this way mainly because of two reasons: 1. India followed the socialist policy post independence, which converted the British legacy to public run institutions, and followed a policy of nationalization whereby control of industrial output was controlled by the government. The license – quota – permit raj severely restricted the Indian entrepreneurs from developing new businesses. The family run businesses with deep pockets and good political connections expanded their sphere of influence from their core businesses into unrelated areas where they saw an opportunity to grow. With reforms taking place post 1991 in a gradual manner, many new and existing businesses managed very well to adapt to the changing environment, taking advantage of the technology advances which had already taken place in the western world.
2. With a largely agricultural based economy, the Indian government had focussed on related infrastructure, leading to a weak over all infrastructure for industry. This has led to difficulties in starting new businesses. Similarly, regulations involved in starting new businesses are severely restrictive and cumbersome which is discouraging to entrepreneurs
3. Will it continue to?
Major reforms in several areas are sorely required if Indian businesses and the Indian economy are to maintain the growth trajectory. If these happen, Indian businesses will transform into real global players in a few years. If reforms are soft-pedalled there is a very good chance the Indian business growth story will come to an early end.
4. Can the aspirations it has raised be met?
Yes, the aspirations it has raised can be met. There is every reason to believe that the decision makers in Indian governance recognize what needs to be done and will act accordingly, although not at the pace required. The overall momentum generated by India Inc. should carry it through the current set of problems it is facing. The pool of skilled professionals combined with a large population with a growing purchasing power will project India to the big league. The relatively slower growth rates in the developed economies will give Indian firms the opportunity to scale up to global level at a fairly rapid pace.
5. And is this new form of capitalism good for India—and the world?
The new form of capitalism called capindialism is good for India, at least for the coming generation. As India transforms into one of the largest economies of the world, the moderate growth rates as compared with China, and somewhat controlled, India will be able to protect itself and therefore the world from unexpected shocks. If the country maintains its current rate of growth it is expected to become the world’s third-largest economy sometime after 2030, and hundreds of millions of people will lift them out of poverty. The Indian businesses which survive the growth will be transformed into world class and be controlled indirectly by the Indian public.