India’s conglomerates are getting too big for comfort

Source– The post is based on the article “India’s conglomerates are getting too big for comfort” published in “The Hindu” on 17th July 2023.

Syllabus: GS3- Economy

News- The article explains the increasing concentration of wealth in India and increasing closeness between business and state.

What shows the increasing concentration of wealth in India?

The Adani Group continues with its acquisitions even after the Hindenburg report. Financial markets are lending it more money, despite its over-dependent on debt.

Tatas and the Aditya Birla empire are also performing well. The biggest of India’s big businesses seem to be thriving.

But all the businesses in India are not making progress. The performance of a large number of informal enterprises is not good and they have not recovered from COVID-19-inflicted losses.

As per a report by a former Reserve Bank of India Deputy Governor, 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. While the share of the next five has fallen from 18% to less than 9%.

What are the dangers associated with a rapid rise in industrial concentration?

It uses market power to stifle competition. It leads to profit inflation or profiteering, through the manipulation of costs and prices. The result is extreme asset and income inequality.

Institutions of democracy are influenced by them through means such as the capture of the media. The role of civil society as a countervailing power is reduced in this process.

The ultimate result is corporate influence over political processes and the formulation of policy.

These tendencies are not stalled by competition in the ‘market’ but are a consequence of the functioning of markets.

Asset and income inequality increases, and therefore there is differential power among economic agents, the functioning of the ‘market’ favours the rich.

What are the emerging trends that show the narrowing of political distance between the state and big business?

1. Powerful voices within and outside the state have adopted neoliberalism. This implied adoption of the view that the role of the state is not to regulate private capital, but to facilitate its growth as means to all round economic progress.

Advocates of neoliberalism argue that the competition generated by a liberalised regime will counter concentration. The reverse has happened.

In areas such as telecommunications and civil aviation, there was the initial increase in the number of new players. But a few were finally left, with signs of collusion among them. The consumer will be the loser.

2. There is the propagation of the view that the state must help strengthen domestic big business against giant global competitors. State policy, diplomacy and public resources will be key instruments in this process.

Liberalisation opened Indian markets, induced global competition for Indian businesses. But the state is protecting and promoting sections of big business through large-scale subsidies and transfers.

3. State is not interested in reducing the influence of money in politics. Connections of politics with big business are necessary for resources needed to “manage” elections and win electoral support.

Over time, there has been a change in policy to legitimise corporate donations to political parties, including through the electoral bonds scheme.