Corporate India: A work in progress

The history of India is usually narrated through stories of either myriad rulers or the hapless lives of its subalterns. Equally important, and still a work-in-progress is the history of Indian business which provides critical insights into the nation’s contemporary political economy.

Enterprise has been integral to India’s development across millennia, whether it was trading beads with ancient Mesopotamia or participating in commerce within the South Asian landmass. The colonial rulers introduced industrial modernism, as represented by mechanical machinery and mass production, to India with the launch of a cotton factory in 1854. Not much happens after this. The manufacturing footprint is faint — comprising some cotton, jute, sugar, paper, cement and steel — with capital goods production markedly absent from industrial development. The business groups that emerged from pre-Independence with some investment intact were the Tatas, Birlas, Thapars, Kirloskars, Mafatlals, Lalbhais and Walchands, among others.

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Indian business history has four clear phases marking the 75-year post-independence arc.

The first phase stretches from independence till the end of the 1980s. Independent India’s first company — launched 10 days after the tricolour was hoisted in Parliament — was Gwalior Rayon and Silk Manufacturing Ltd rechristened Grasim in later years. The company became not only Corporate India’s midnight child but also symbolised the indigenous industry’s attempt to forge an independent identity.

The years after independence were marked by state autarky with the government reserving basic and heavy industry for the public sector and leaving the rest to the private sector. Industrial licensing decided which private company could manufacture how much of what and where.

The post-Independence period found many Indian business families coming into their own, though some of them might have been in existence even pre-Independence. In 1973, the enactment of the Foreign Exchange Regulation Act forced many multinational companies to dilute their shareholding in India, with IBM and Coca-Cola bowing out. State presence in the industry reached its apogee during Indira Gandhi’s term, which started with the two-stage nationalisation of banks (1969 and 1971) and coal mines (1971 and 1973). From only five companies in 1951, the public sector expanded to 200 companies by 1985. Rajiv Gandhi had become prime minister by then and his policies were the first hesitant attempts at economic reforms.

The late 1970s and the 1980s provided a springboard for many Indian business groups, some belonging to old families and some wanting to leverage emergent economic openness.

The 1990-91 balance of payments crisis and the consequent economic reforms package ushered in the second stage of India’s business development. The reforms package abolished industrial licensing, slashed the number of industries reserved for the public sector to three, accorded automatic approval to foreign investment in certain industries and lowered import tariffs progressively, among other measures.

India’s 1990-91 economic reforms were necessitated by structural changes in the global economy, especially the collapse of the Soviet Union and its centralised economic planning model, as well as the early globalisation waves that had started washing up on India’s shores.

Interestingly, another embryonic development since Rajiv Gandhi’s time found a critical mass in the final years of the old millennium, marking the third phase in India’s corporate history. The services sector, led by information technology and financial services, now contributed to 50 per cent of India’s GDP. This had been in the making for a while.

There is a sense that a fourth phase may have already taken hold, but when is difficult to pinpoint. This involves the software-as-a-service firms and the start-up/unicorn culture.

(The author is a policy consultant & journalist.)