During the 26th meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), one of the MPC members — Jayant R. Varma, Professor, Finance and Accounting, IIM Ahmedabad — made an interesting observation, which many in government institutions would barely admit to.
“Anecdotal evidence suggests that in several sectors which are characterised by an oligopolistic core and a competitive periphery, the oligopolistic core has weathered the pandemic well and it is the competitive periphery that has been debilitated. Rising profits and profit margins, improving capacity utilisation and lack of new capacity additions create ripe conditions for the oligopolistic core to start exercising pricing power,” he had said. An oligopoly is a form of market form where a sector/industry is dominated by a small group of large companies.
Professor Varma refused to comment on the issue and name the companies when Business Today contacted him, saying “there were some constraints on MPC members commenting on MPC matters.”
In the last couple of years, many large businesses fell by the wayside as mounting debt forced them to distress-sell or sell their assets after being put through the insolvency process. Reliance Communications, Reliance Infratel, Essar Steel, Bhushan Steel, Future Retail and Videocon Industries were sold off either through merger & acquisition (M&A) deals or the insolvency process.
So, whether it’s Future Retail selling out to Reliance Retail, Adani Port and SEZ acquiring a controlling stake in Krishnapatnam Port from the CVR Group, Adani Group picking up 74 per cent stake in Mumbai International Airport from GVK, or JSW buying out Bhushan Power and Steel and Monnet Ispat or Vedanta buying out 13 group companies of Videocon and Electrosteel — the deals saw old sectoral giants giving way to new business leaders, and creating a more concentrated market.
Business Today tried to reach out to the companies, but did not get a response.
As consolidation picks up pace and few firms get bigger, India Inc. is seeing market share, revenue and profit concentrating among a handful. According to Saurabh Mukherjea, Founder and Chief Investment Officer of Marcellus Investment Managers, large swathes of the Indian economy are controlled by 20-25 families. “The top 20 companies in India generated 70 per cent of profits of the corporate sector (in 2019/20), compared to only 15 per cent in 1992/93.” Mukherjea thinks this will only increase over time.
CMIE data over the last 20 years corroborates Mukherjea’s claim. In 2000-01, Sensex 30 companies accounted for 35 per cent of the profit of all the listed companies. In 2019-20, it rose sharply to 75 per cent.
So, are Indian markets becoming more concentrated and less competitive? Is the balance tilting in favour of a few companies in certain sectors?
Globally, companies including technology giants such as Google, Facebook and Amazon, have been criticised for too much market power. How grave is the situation in India? Are these concerns genuine and is such market dominance always bad?
Much of this debate was triggered by a few of the following developments — a flurry of investments received by Reliance Industries and its subsidiaries, and its subsequent acquisition of Future Retail; Adani group’s acquisition of a 74 per cent stake in Mumbai International Airport, after it had won the rights to manage six other airports also fuelled the talks. Sectors, including cigarettes, non-banking finance companies (NBFCs), small cars, paints, adhesives, baby milk powder, hair oil, pharma APIs and health diagnostics, also throw up such examples.
Nestle, for example, has an 85 per cent share in the baby foods market. ITC has a 77 per cent share in cigarettes, Pidilite has 70 per cent in the adhesive segment, Bajaj Corp has 60 per cent in hair oil, and Asian Paints around 40 per cent in the paints market.
But, how genuine are these concerns? The Reliance-Future deal will put Reliance Retail beyond the reach of most players. Reliance Retail will add 1,500-1,700 more stores to its existing network of 13,000 stores across more than 7,000 cities and towns across India. The distant second will be D’Mart with close to 250 stores.
Besides consolidation in the brick-and-mortar segment, the Jio platform gives Reliance Retail an edge over others for its online retail play. And even if it only controls 20-25 per cent of the modern retail market (the largest market share in the sector), experts see it growing much bigger, thanks to its revenues increasing over nine times — from ₹17,640 crore in 2014/15 to ₹1,63,000 crore in 2019/20 — and the leverage that Jio offers.
Says Arvind Singhal, Chairman, Technopak Advisors, a management consulting firm, “Reliance (Retail) will become bigger and bigger for multiple reasons — its strategy is fundamentally sound, it offers multiple products and services on the same platform. You have services through Jio platforms, and as far as physical retail is concerned, they are trying to partner with independent retail outlets for cash and carry. The numbers show that it is working.”
Even rivals agree. Govind Shrikhande, former Managing Director, Shoppers Stop, says none of Reliance Retail’s competitors have 400 million mobile subscribers like Jio has. “A telecom customer interacts with the network every second. He is on the network and that’s one advantage which none of the (other) players have. Reliance has tied up with Facebook to get the WhatsApp tie-up in. Now, WhatsApp is ready for payments. It will give Reliance an upper hand, as India is WhatsApp’s single-largest market globally with over 400 million users. It will give them a large base of customers who are interacting with them every day, every second.”
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WE NEED TO REACH OUT TO MILLENNIALS GLOBALLY
Bata shoes are an integral part of almost every school-goer’s life in India. That is why most Indians believe that the brand — founded in what is now the Czech Republic in 1894 and headquartered in Lausanne, Switzerland — is local, despite operating in over 70 countries. The company, which does a ₹3,500 crore business in the country, recently appointed India CEO Sanjiv Kataria as its global head. Kataria, who had taken over as India head in 2017 and under whom Bata India’s profits rose 46 per cent, tells Ajita Shashidhar how India’s diverse footwear consumption habits have given him a unique understanding of customer needs across the globe. Edited excerpts:
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Giving More, Taking Less
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Moringa – Cook With Color
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GAP YEAR ADVENTURES in the Age of CV19
Welcome to 2021, where it seems that masks are no longer just for Halloween. Few would dispute that 2020 was a year of major ups and downs. And, for many, the conditions sparked the question, “What am I doing with my life?”
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YOGA & PEACE
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