FEW observers, when the reforms began in 1991, could have predicted the sea change that Indian business has undergone since. It is a fair bet that the next decade and a half will see a transformation just as sweeping.
Ranked by their stockmarket value, only three of India's top ten companies at the end of the 1991-92 financial year were still on the list at the end of March 2006 (see table 5). Two are big consumer-goods firms, ITC and Hindustan Lever. The third is Reliance Industries (RIL), from which a big chunk, now known as the Reliance-ADA group, was hived off after a bitter public battle last year between Mukesh Ambani and his younger brother, Anil.
The new arrivals illustrate three trends in Indian business since 1991. One is the emergence of the new industries of IT, BPO and telecoms (TCS, Infosys, Wipro and Bharti). Another is the partial withdrawal of the state from the parts of the economy it used to dominate (ONGC, Indian Oil and the National Thermal Power Corporation are all state-owned companies, listed on the stockmarket since 1991). Third, and overlapping, is the huge importance of the energy industry.
As for the next 15 years, it is hard to pick winners in the present buoyant mood. Tata's Mr Gopalakrishnan is far more cautious than many in India about the country's prospects. “More than half the current optimism”, he says, “is in the human mind.” A new generation that has never experienced global growth of 4% a year before, he thinks, is getting carried away. After all, the world is full of big uncertainties: terrorism; America's fiscal and current-account deficits; their mirror image, China's export dependency; and so on. It is unlikely, he says, that India can sustain growth at 8% a year, or move on to 10%.
Yet even he thinks that there is “no industry that is not going to boom.” The dismemberment of the sprawling Reliance empire seems to prove the point. Besides its grandiose retail plans, RIL this April received record commitments for an IPO of shares to help finance the building of another oil refinery. The parts of the empire that are now in Reliance-ADA include companies in some of the fastest-growing industries: communications, financial services, entertainment and utilities. The communications arm alone claims a 20% market share of the mobile-telephone market, which is expected to grow to 500m users in the next decade.
However broad-based the boom, it is not a caucus race, where everybody will win and all must have prizes. Only a few Indian companies are fully ready to compete internationally, with professional managers independent of the owners' meddling. Most Indian business is still in the hands of family firms, and most people take it for granted that this will continue. The boss of a big manufacturing firm, asked at a business conference about succession planning at his (listed) firm, did not miss a beat. The important thing, he said, was not to allow minor relatives—nephews, cousins and so on—to run their own departments or subsidiaries. Much better to set them up in firms of their own and give them contracts. A senior Citigroup executive dealing with smaller firms says these are doing so well they are running out of uncles to lead new businesses.
Most of the companies mentioned in this survey are family concerns. The board of Gokaldas Exports, the garment-maker, includes three brothers and three of their sons. Atul Kirloskar is proud to run a “fourth-generation” company. Both branches of the Reliance family stress their continuity with the “legacy” of the Reliance group's founder, the father of Anil and Mukesh Ambani. Tata Sons is still run by the head of the clan, Sir Ratan Tata. Even Wipro is largely owned by Mr Premji, whose father founded the firm.
It used to be argued that the reluctance of families to cede control of Indian companies prevented them from becoming international successes. That may well be true of many smaller firms. The larger ones, however, are being forced to become more transparent and “professional” by the demands of the stockmarket and of globalisation. The dismemberment of Reliance by sibling rivalry rather than by commercial pressures seems to belie this. But in the nine months after the demerger, the constituent parts of the former group saw their market capitalisation rise by some $25 billion. It was hard to feel sorry for the benighted minority shareholders.
A study of Indian companies by the Institute of International Finance, a think-tank in Washington, DC, concluded that corporate government in India was “above average”, and that some companies, such as Infosys, “serve as examples of how equity markets reward well-governed companies”. The best Indian companies are well placed to take on the world.
Ambani family values
Mukesh Ambani lists four forces that will drive competitiveness in the coming decades, and argues that all play to India's strengths. The first is globalisation, where both in terms of labour (through its own diaspora and through the legions working in outsourcing) and in terms of the capital markets, India is well integrated. The second is technology, where India now plays a part at the cutting edge of global research and development. The third is demography, where the supply shortages reported in this survey should blind no one to the fact that 23% of the increase in the world's working-age population over the next five years will be in India. Where else, as Mr Ambani asks, could anyone contemplate the sort of recruitment his retail plans envisage? Lastly, there is democracy, which might pose short-term obstacles, say to the reform of labour laws, but provides a long-term stability and resilience that China, for example, has yet to demonstrate.
For all four reasons, it is hard not to be optimistic about Indian business. A fifth is the high calibre of some of its present leaders. Typically, they have spent some time being educated abroad and are full citizens of a global world, holding panoramic views of economic trends and of India's role in them. But typically, they are also patriots and philanthropists who see it as part of their duty to make things better for Indian society.
Of course the failings of Indian society also have an impact on business. In Bangalore in April, after the death of a 77-year-old much-loved film actor, Rajkumar, tens of thousands took to the streets to honour his passing; but the mourning soon turned into ugly rioting in which eight people died. The city, jewel in India's IT crown, was largely closed for business for two days as an excluded underclass took the chance to vent its spleen. Business leaders know that including the excluded majority in the rise of modern India is essential for social harmony, and ultimately for the success of their firms. They also know that compared with improving their bottom lines, this really is the hard part.