A Concentration Problem

Policymakers should support markets, not champions

- 

It has long been understood that one of the malign consequences of tariff walls, combined with domestic subsidies for industry through focused "industrial policy," is the growth of entrenched industrial conglomerates. Indian policymakers should have understood this better than most, given that this was part of the country's economic history after independence. It was not until the 1990s that liberalization created some churning in the economy. There are worrying signs, however, that in the most recent phase of the Indian economy, aspects of this post-liberalization trend have begun to be reversed. As economist Ajay Chhibber has pointed out in these pages, some recent research has shown that industrial concentration—the dominance of sectoral output by a small set of bigger firms—has grown over the past decade. This has been accompanied by an increase in these companies' pricing power—their ability to generate revenue over their variable costs. There are also problematic findings about the salience of competition for such sectors, with faster-growing sectors paradoxically having higher barriers