[Answered] Analyze the implications of the growth strategies adopted by Indian conglomerates for the Indian economy.

Introduction: Give the context regarding Indian conglomerates.

Body: What growth strategies are adopted by corporates and what are its implications?

Conclusion: Way forward.

Indian conglomerates are large, diversified business entities that operate in multiple industries and sectors. These conglomerates play a significant role in the Indian economy, contributing to employment generation, innovation, and economic growth. They often have a long history and legacy, with some conglomerates tracing their origins back to the pre-independence era.

What are growth strategies adopted by conglomerates?

  • Diversification: The Indian conglomerates pursue the strategy of diversification to expand their business. The big business houses in India have diversified their assets in sectors ranging from telecommunications, retail trade, media, and entertainment businesses.
  • Mergers and Acquisitions (M&A): the big business houses pursue M&A to expand their business, gain access to new technologies, and increase their market share. Some of the popular M&A in India are: Adani Group acquired NDTV, Ambuja Cement.
  • Marketing: Companies nowadays spend a large part of their fortune on marketing and branding to maintain their presence in markets. This enhances brand visibility and creates customer loyalty.
  • Global ventures: Corporates pursue global expansion to tap into the international market base, establish subsidiaries, diversify revenue sources, and promote research and development (R&D).

What are the implications of such growth strategies?

  • Increased concentration of wealth: Various reports have cited that the share of assets in the non-financial sectors owned by the Big-5 business groups has risen from 10% in 1991 to nearly 18% in 2021, whereas the share of the next five has fallen from 18% to less than 9%.
  • Reduce competition: Such growth strategies are used to stifle competition as only big corporate houses can deal with shocks related to demand and supply. It results in profiteering, through the manipulation of costs and prices thereby fostering extreme asset and income inequality.
  • Unethical nexus between state and corporate: Corporates try to influence democratic institutions through media manipulation, and pressure groups leading to influence in policy formulation and political process.
  • Risk of Overextension: Diversification into multiple industries can pose risks if the conglomerate lacks the necessary expertise or resources to effectively manage all its businesses. Poor management or inadequate oversight can lead to financial instability and underperformance in certain sectors.
  • Social and Environmental Impact: While many conglomerates have CSR initiatives, there can still be negative social and environmental impacts associated with their operations. For example, conglomerates in industries such as mining, energy, or manufacturing may contribute to environmental degradation or social inequalities if not managed responsibly.

Conclusion:

The government should act as a facilitator and support the MSMEs which are a major source of employment creation, contribution to GDP, and revenue generation. The government should strengthen its regulatory framework toward mitigating risks and ensuring responsible business practices.

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