India needs champion companies to achieve a high growth trajectory
Firms need an enabling environment, and the government’s support to grow and achieve scale
The Indian economy has been characterised by strong growth and a stable macroeconomic landscape. The recently implemented structural reforms, including the Goods and Services Tax and the Insolvency and Bankruptcy Code, have strengthened the foundations for future growth. The possibilities are promising. For example, 10% GDP growth for the next eight years will more than double per capita income, from the current level of $1,939 to $4,077.
How can India capitalise on its growth potential? Achieving size and scale are prerequisites for the economy to be highly competitive and innovation driven. Indian firms must also enhance integration with Global Value Chains and increase local value. Overall, India must increase exports significantly. To do this, Indian companies must have the capability to emerge as global champions and penetrate global markets. These companies will also help create the requisite jobs needed for India’s young population as well as play a huge role in supporting developmental goals, in addition to contributing immensely by way of taxes to the government.
Large, formal firms drive income and efficiency. With scale, companies can lower per unit costs and compete in global markets thereby raising their own standards. Research has shown that high growth economies and sectors depend significantly on large, publicly listed enterprises. On average, revenues from these enterprises contributed 66% to high income countries’ incomes. Similarly, in emerging high growth markets, studies find that about 52% of GDP is attributable to publicly listed companies. In India, however, such companies contribute only 34% to GDP.
The prevalence of large firms is a key characteristic of well performing economies and sectors. On average, high performing countries have 163 large companies per trillion dollars of GDP compared to about 94 in India. The firm size distribution in India and China’s apparel sectors also presents a stark example. Firms employing more than 200 workers dominate the Chinese apparel market, accounting for about 56% of the sector. In contrast, large firms account for only 5.3% of India’s apparel sector.
There are certain good practices that large enterprises imbibe in economies, which is a vital reason why large enterprise in India must expand and broaden.
Almost every high growth or high income economy has blue chip enterprises that define the country’s exponential growth. Brands like Sony and Toyota from Japan, Samsung, LG and Hyundai from Korea and Alibaba and Huawei from China, Walmart and Apple from the USA, or Ikea from Sweden, are behemoths that have played critical roles in driving growth in these economies. Today, these brands are drivers for creating sustainable wealth and livelihoods in their home economies.
India has a rich tradition of successful enterprises across sectors that are able candidates to be promoted as national assets. For instance, ITC in the FMCG business, Mahindra & Mahindra in the farm automation and auto business, L&T in engineering services and TCS in consultancy solutions are just some noteworthy examples. Each of these companies has created tremendous value in their respective sectors and generated significant employment.
Consider the example of ITC. The company’s leadership decided to aggressively diversify in the mid-1990s to reduce its dependence on its core tobacco business. ITC now has 13 successfully diversified businesses, creating 60 lakh livelihoods in the country. Its e-choupal initiative — through which farmers sell directly to the company — has benefitted over 40 lakh farmers. Collaborating with central and state governments, ITC is engaged deeply in 25 districts under the NITI Aayog’s Aspirational Districts Programme and in various public-private partnership projects with states. The projects focus on aspects such as skill development, sustainability, financial inclusion and waste management. By 2030, ITC’S businesses and value chains are expected to create 10 million sustainable livelihoods and empower 100 lakh farmers.
Tata Consultancy Services (TCS) is another such champion company. Employing nearly four lakh consultants across 45 countries, TCS was India’s first listed IT company to cross the USD100 billion market capitalisation figure. Similarly, Hero Motocorp is the world’s largest manufacturer of two wheelers. Today, this Indian manufacturer has a presence in the Americas, Europe, and West Asia, and employs over 7,000 people. We need many more such entities to boost India’s global presence and generate the jobs required for our young population.
The government is firmly behind the initiative of enhancing the business environment in India, through Make in India and efforts to improve the ease of doing business. The government is also enabling new firms to set up and expand. The start-up revolution has begun in earnest. Start-up India is another landmark initiative. It aims to create a world class innovation ecosystem. A 19-point Action Plan for Start-up India emphasises setting up incubation centres, easing patent filing, providing tax exemptions, setting up a ~10,000 crore corpus fund and creating a faster exit mechanism.
Competition and innovation are critical factors driving growth. For India to reach the next stage in its economic trajectory, the government’s task is to create a supportive, enabling environment for firms to grow and achieve scale. Only by facilitating champion companies can India fulfil its growth potential and move to the next rung in its development. jobs such as domestic work, anganwadi work and health work? Transgender people must take legal recourse simply to access jobs despite being qualified. For example, Shanavi Ponnusamy, a transwoman and engineer who faced an unprecedented number of job rejections, was finally informed by Air India that they did not have jobs for people of her “category”. Her case against them for discrimination is now being heard in the Supreme Court.
Many transgender people face pressure to conform to their assigned gender and many are kicked out or run away from home during their early years, with no birth or education certificates. Those who have education certificates but change their appearance and name or gender identity markers on other identification documents find that employers are unwilling to employ them due to incongruent documents. It is in this context that many join traditional hijra occupations of mangti or badhai toli, which society fails to distinguish from begging. Some engage in sex work. The Bill seeks to criminalise “enticement” to beg, as does the Trafficking Bill with punishments of up to 10 years of jail time, and the community’s concern is that this will enhance the police persecution they already face.
The Bill does not define or penalise discrimination, while being discriminatory in how it penalises sexual violence against transgender persons with jail time ranging from six months to two years, in comparison to the punishment of seven years to life term for sexual assault on cis-gender women (who do not identify as transgender) in the Indian Penal Code. The future of the transgender community is being held hostage by a poorly drafted Bill. We fervently hope the Rajya Sabha will not pass this Bill into law.