THE WINNER TAKES ALL

THERE IS A NEW WAVE OF CONSOLIDATION ACROSS SECTORS IN THE ECONOMY. SHOULD INDIA BE WORRIED? OR, IS IT A RITE OF PASSAGE?

- Anshul Dhamija, Arnika Thakur, Ashish Gupta, Aveek Datta, Neha Bothra, And T. Surendar

The Rise of Oligopolies

Back in April 2011, in their seminal article ‘Monopoly and Competition in 21st Century Capitalism’, in the Monthly Review journal, authors John Bellamy Foster, Robert W. McChesney, and R. Jamil Jonna had posited a contrarian argument.

THEY HAD ARGUED THAT the economic defence of capitalism, as premised on the “ubiquity of competitive markets, providing for rational allocation of scarce resources and justifying existing distribution of incomes”, no longer holds true.

This line of thought is getting validation across the world. Capitalism is no longer seen to be promoting competition. Instead, it is pushing economies towards greater consolidation and creating oligopolies. India, a late entrant to this game, is experiencing this trend, particularly in the telecom, steel, cement, and e-commerce sectors where only three to four big players are still standing.

Those that have fallen by the wayside (either acquired or shut down) have been singed by one or many factors: Increased competition, entry of players with better technologies, changes in government policies, stringent regulations, new Supreme Court rulings or a slowing economy. Often, this can get compounded by internal issues such as operational inefficiencies, mismanagement and even siphoning off of funds by promoters.

The trend of consolidation is notable among state-owned banks. In 2019-20, the number of public sector banks is being brought down from 21 to 12, with the government hoping that stronger balance sheets and good governance would create sounder credit growth and command better valuations. Conglomerates, too, seem to have realised the futility of running multiple (non-core) businesses on a stretched balance sheet in these unforgiving conditions.