Tata, Birla and Mahindra: The only survivors
Corporate India has remained a family-owned enterprise over the years
India has gone through many cycles of economic growth since Independence. But one thing has remained constant through the economy in the last seven decades: The dominance of family-ownedbusinesses.
Most of the country’s largest companies continue to be family-owned, despite the rise of government-owned and institution-owned enterprises in the 70 years.
Starting as an open market economy, India became a planned economy by the mid-1950s, where private enterprise was forced to play second fiddle to the newly established public sector. Things came full circle in 1991 when economic planning was dropped in favour of the market mechanism and the private sector was once again free to grow as it wished. This cycle has created a series of winners and losers, with a steady rise of new companies and decline of older, inefficient ones.
For example, only three business groups have been able to maintain their presence in the league table over the years: Tata, Birla (now AV Birla) and Mahindra. These three business groups were ranked among the country’ s top 20 business houses in 1951 and are still among the country’ s biggest business groups in terms of combined assets of their listed group companies ( seetable). With the exception of the House of Bajaj, ranked 18th in 2017, no other business group on the top 20 list existed at the time of Independence. Today’s large business groups such as the Mukesh Ambani group, Bharti, Vedanta, Adani, JSW, OPJi nd al,Wi pro and Sun Pharma are products of the economic changes of the 1980s and 1990s.
This, say economists, shows the dynamism of the Indian economy and its entrepreneurial class. “India’s private sector certainly does appear to have become more dynamic in relation to the situation that obtained in the immediate postIndependence period,” says Raman Mahadevan, an economist and business historian based in Chennai. He says one of the distinctive features of the contemporary history of the corporate sector is the persistence of family control over firms and companies.
This is borne out by the data. Familyowned enterprises control the majority of corporate assets and generate the bulk of revenue in the organised sector, despite massive growth of the public sector during the post-Independence period.
For example, family-owned business groups accounted for 84 per cent of all assets of the top 20 business groups in 2016-17 and 79 per cent of their revenue.
Family-owned enterprises accounted for 60 per cent and 55 per cent of the combined assets and revenues, respectively, of all listed companies in 2016-17. In comparison, the share of public sector companies in assets was 30 per cent 2016-17, while institution-owned independent companies controlled around 8 per cent of corporate India’s assets.
Economists attribute the persistence of family enterprises to the ability of the business community to adapt to the changing external environment and policies. “The industrial licensing system was used by established business groups to pre-empt capacity in many industries and prevent entry of new capital,” says Mahadevan.
Beginning in 1970, there was the rise of a class of first-generation entrepreneurs who grew by becoming vendors to large private and public sector enterprises in engineering. Many of these entrepreneurs now own some the biggest companies in sectors such as automobiles, consumer durables, metals, mobile telephony, pharma and chemicals. Older business groups that failed to enter these sunrise sectors and remained wedded to older industries such as textiles or agro-based consumer products declined in importance over the years.
The role of portfolio is visible in the continued dominance of the Tata and Birla groups. The Tatas, for example, were one of the first to exit textiles and invest in emerging sectors such as automobiles and informational technology. The Birlas made big bets on cement, non-ferrous metals and telecom. These industries now dominate their portfolios.
Family-owned businesses are once again at the cross-roads, with many struggling with poor domestic and global growth and high indebtedness. They also face challenges from first-generation businesses or multinationals that have no historical baggage.