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Cover Story
 

India INC.: from crutches to wings
While many Indian businesses slipped into oblivion post-licence Raj, the era also witnessed the rise of a host of new entrepreneurs who revelled in the emerging opportunities.
Issue Date - 16/02/2012
 
While 1947 marked the end of the British Raj in India, it also witnessed the creation of a new power in Indian business – the corporate dynasty. With exclusive access to government licences and plenty of regulations to keep competition at bay, these business houses thrived. Aided by solid political and business connections, corporate dynasties like the Dalmias, the Mafatlals, the Thapars, the Modis, the Singhanias ... (well, the list goes on) swelled and diversified without having to respond to consumer demand. They called it the Licence Raj!

The Licence Raj was a result of India’s decision to have a planned economy where all aspects of the economy were controlled by the state and licences were given to a select few. Not to say, the chosen ones blossomed and grew rich, until the liberalisation (which actually started with the partial decontrol of the cement sector by in 1982 and not 1991 which many believe) at large came as a shock that sounded the death knell for many Indian business dynasties and a fall from grace for some others. For instance, Century Textiles, Indian Rayon, Hindustan Motors, and Grasim were all part of the extended Birla empire that split up among family members after the 1980s and barring Hindalco and Grasim, none of the other companies could truly keep up with the pace of the liberalisation era.

The fall of the Modis is another glaring example of what happens when a business house becomes complacent in a closed economy. During the 1970s, it did appear as if the foundation being single-handedly built by the little known Gujar Mal Modi would someday rival the edifices built by Tata and Birla. But it all faded away as India opened its doors to foreign competition in 1991. Once thought to be the largest, best ‘connected’ and most powerful business group of the country, the Modis are now politely referred to as ‘bygones’ in corporate circles.

How can one forget the Singhania empire (spread across various product manufacturing platforms like aluminium, nylon, polyester, paper, steel-belted, radial tyres, et al) that once thrived during the pre-liberalisation era. But thanks to tough competition from the professionally-managed new domestic companies, which were better acquainted with global practices and where leadership was decided on the basis of competence rather than the law of inheritance, this conglomerate too was considered as a rank average in its attempts to advance forward beyond the Licence Raj.

Then there was the mighty Thapar Group that owned Ballarpur Industries Limited. Founded by Karam Chand Thapar in 1929, it was it was one of the top 10 business houses of India till the 1970s and the early 1980s. Come today, and the group seem to have lost its might and influence. Although the group’s business is today represented by over 50 companies, only a few of them are actually proud of their financial stability or industry status.

When one looks at those who dropped out in terms of sectors, textiles is one area that appears prominently. Century Textiles, Bombay Dyeing, and Indian Rayon Industries were all thriving in the 80s. While the lifting of quotas did provide a lot of opportunities to the textile industry, it also brought in foreign competition, which in turn forced several home-grown players to either vanish from the scene or struggle hard to stay afloat.

While Bombay Dyeing just couldn’t cope with an entrepreneurial economy that emerged in the late 80 or early 90s and saw a drastic fall in fortunes, Century from the B. K. Birla Group was forced to diversify into cement, shipping, pulp & paper, et al in order to survive. Similar was the story of the Wadia group, which missed important opportunities to then competitor Reliance.

 
Not just textile, the automotive segment too has the obvious cases of Hindustan Motors and Premier Automobiles; legacy companies which were running around like headless chickens when competition intensified. Both remain bit players. While the former is still struggling with a consolidated net loss of Rs.505.2 million on revenues of Rs.5.7 billion in FY 2010-11, the latter posted sales of just Rs.1.71 billion in FY 2010-11.

The reason is simple. These companies certainly did not know what hit them, when the Indian government was compelled to open ‘flood gates’ for foreign competition by a financial crisis in the beginning of 1991. It was time to give up the Licence Raj and embrace a new era, where there could be just one route to survival – be the best! And who followed this simple rule, not only survived but also thrived.

A case in point is the legendary Tata Group. In the era of post-licence Raj, when many business conglomerates were forced to bid adieu to the corporate sector, Tata group withstood it all. From Tata Steel becoming the lowest-cost steel producer in the world, to hiving off stakes in many industries, from Tomco to the Ambassador hotel chain, from TCS acquiring Chinese operations, to Tata Motors taking over the British pride JLR, from telecom, to infrastructure, Tata Group continues to lead till date.

Reliance (then headed by Dhirubhai as a single group) too showed that it wasn’t a focus on core, but rather efficient project management, whether in petrochemicals, textiles, chemicals, education, telecommunications or the most recent foray into retailing, which defined how successful one could be.

Bajaj is perhaps one of the finest example of ‘a stitch in time saves nine’ proverb. The company under Rahul Bajaj suffered from the typical complacency of the Licence Raj period. Rahul Bajaj was in fact the head of the now infamous Bombay Club, which protested vehemently against liberalisation. However, slowly, the Group restructured itself. Cut today, and Bajaj Auto continues to win Indian hearts when it comes to two-wheelers.

While many Indian businesses slipped into oblivion post-licence Raj, the era also saw the rise of a host of new entrepreneurs who revelled in the emerging opportunities, particularly two names – Narayana Murthy of Infosys Technologies and Sunil Bharti Mittal of Bharti Enterprises.

Realising the vast potential of the telecom sector long before any of his counterparts did, Sunil Bharti Mittal sold mobile connections to the well-heeled, when the price of a handset was around Rs.40,000 (nearly the cost of a second hand Maruti car) and calls used to cost a whopping Rs.16 per minute. And today, when India is adding millions of mobile connections every month, his company – Bharti Airtel – has become a household name and India’s largest teleco (in market share). Similar is the case with Murthy who with six other engineers co-founded Infosys (in 1981), which today, is a global leader in the “next generation” of IT & consulting with revenues of $ 6.82 billion.

The 80s and the 90s certainly heralded a significant change in the dynamics of Indian businesses and those who survived it, actually became leaders!

Manish K. Pandey           

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