THE ANALYSIS OF BUSINESS GROUPSSome Observations with reference to India

December 2008

Working PaperNo : 2008/11

ISID

Surajit Mazumdar

Surajit Mazumdar

Institute for Studies in Industrial Development 4, Institutional Area, Vasant Kunj, New Delhi - 110 070 Phone: +91 11 2689 1111; Fax: +91 11 2612 2448

E-mail: Website:

December 2008

ISID Working Paper

2008/11

THE ANALYSIS OF BUSINESS GROUPS Some Observations with reference to India

Institute for Studies in Industrial Development, 2008

ISID Working Papers are meant to disseminate the tentative results and findings obtained from the ongoing research activities at the Institute and to attract comments and suggestions which may kindly be addressed to the author(s).

CONTENTS

Abstract 1

1.Introduction 12.ConceptualizingtheBusinessGroup 2 2.1TheMarket,theFirm,andtheGroup 4 2.2DiversificationandtheBusinessGroup 7 2.3BusinessGroups,ConcentrationandtheSeparationof OwnershipandControl 9 2.4TheStructureofBusinessGroupsinIndia 133.FactsversusFiction:ThreeIllustrativeCases 16 3.1TunnellingamongstIndianGroups 17 3.2Stability/InstabilityamongstLeadingGroups 18 3.3FinancialInstitutions,CapitalIssuesandtheRelianceGroup 214.BusinessGroupsasGapfillers:ACriticalView 225.Conclusion 27Reference 29

ListofFigures

Figure1 RatioofGrossCapitalFormationtoGrossSavingsofthePrivateCorporateSectorinIndia,195051to200506 11

ListofTables

Table1 IllustrativeListofCasesofMultipleGroupCompaniesintheSameIndustry,200506 8

Table2 SalesofITCLtd.200607and200708(Rs.crore) 8

Table3 ShareofExternalSourcesinTotalSourcesofFundsofNonGovernmentNonFinancialPublicLimitedCompanies(RBISamples) 12

Table4 PromotersShareinStandaloneCompaniesinIndia(ason30June2008) 15

Table5 MappingofGroups,1966and1997 20Table6 TheEfficiencyoftheManagingAgencySystem:SomeViews 23

THEANALYSISOFBUSINESSGROUPSSomeObservationswithreferencetoIndia

SurajitMazumdar*

[Abstract:ThispaperusessomeavailablebutnotnecessarilycommonlyknowninformationonIndianbusinessgroups as the basis for interrogating some of the recent analysis of the businessgroup indevelopingcountries,analysiswhichseekstoexplainwhysuchgroupsexistandtheirconsequences.Thepaperarguesthatmuchofthisanalysisisunsatisfactorybothintermsofthequestionsposedandalsotheresearchmethodsadopted.]

1. Introduction

Therearemanydifferentstrandsintheliteratureontheinstitutionofthebusinessgroup,eachconcentratingondifferentgroupingsofcountriesandexaminingdifferentspecificquestions (Smangs, 2006). One strand, on which there have been a number ofcontributions in recent years, focuses on business groups in developing countries oremergingmarkets. Its key concerns are to explain the prevalence of groups in suchcontextsand their implications for economicefficiency.Arecurrent themewithin it isthat the business group is as an efficiency enhancing or economizing response toconditionsofinstitutionalandinformationalimperfectionsandtherelatedhighlevelsofentrepreneurial scarcity. A reading of this literature on developing country businessgroups in the lightofavailableknowledgeaboutsuchgroups in Indiahowever leavesonewithagreatsenseofdissatisfactionwith theanalysisonoffer.Thisdissatisfactionrelates to both the collective product of the different contributions and in varyingdegreestoevensomeindividualones.

* TheauthorisProfessorattheInstitute.Email:surajit@vidur.delhi.nic.in;surajit@isid.org.in Acknowledgement:IamgratefultomycolleaguesattheISIDforthesuggestionsandcomments

theymadewhenthispaperwaspresentedattheInstitute.Foreditorialandtechnicalsupport,IalsoreceivedthegeneroushelpoftheISIDstaff,whothereforedeservemythanks.Theusualdisclaimerofcourseapplies.

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Firstly,letaloneprovidingtherightanswersaboutbusinessgroupsitisnotevencertainthat the rightquestions are alwaysbeing asked.Even thebasic requirementof clarityabouttheinstitutionbeingexplaineddoesnotappeartobemetintheformofarigorous,and preferably commonly agreed upon, specification of what precisely constitutes abusinessgroup.

Secondly,thereisatendencytosubstitutedetailedinvestigationofbusinessgroups,theirstructures andworking,and their evolutionover time,with aprioriassumptions andunwarrantedgeneralizationsabout thembasedon casual impressionisticobservations.These thenare reliedon for theoretical speculationanddatabased empiricalanalysis,whoseconclusionsareattheleastunjustifiedandmayevenbegrosslymistaken.

Thispaperattemptstosubstantiatetheabovetwoassertions,makinguseofavailablebutnot necessarily commonly known information on Indian business groups. But whilewhatwouldbeshownisthedisconnectbetweenpropositionsmadebothgenerallyandin relation to India and the reality of Indian business groups, the conclusionsconsequently emerging about how business groups should or should not be studiedmustbeconsideredashavingageneralvalidity.Theseconclusions,summarizedattheend, are developed in this paper over three sections. The first raises a set of issuesregardingtheconceptualizationofbusinessgroups.ThesecondaddstothatbyexplicitlyhighlightinghowavoidableignoranceofIndianrealitycandistortthestudyofbusinessgroupsbytakingthreeexamplesfromtheliteratureasillustrations.Thethirdsectionisabriefcriticaldiscussionoftherepresentativecontemporaryfunctionalexplanationofthebusinessgroupnamely that it isaresponse to institutionalvoidsandentrepreneurialscarcitywhich incidentally replicates what had once been a popular mode ofexplaining the dominance of the industrial sector in colonial India by Europeancontrolledmanagingagencyhouses.

2. Conceptualizing the Business Group

Thebusinessgrouphasbeendescribedasaprotoconcept that isunderstood inmanydifferentways(Smangs,2006).Thisappearstobenotonlyapplicabletotheconcept ingeneral, but also to its specific developing country variant. Conceptions of businessgroupsindevelopingcountriestypicallycentrearoundoneormoreofasetoffeaturesthatare supposed tobeassociatedwith them.The first is thatabusinessgrouphasamulticompany characterit consists of a number of companies which are legallyindependent entities butwhose activities are nevertheless coordinated. The second istheirsimultaneousengagementinadiversesetofbusinessesthatareoftenunrelatedtoeachother,which imparts to them a conglomerate character.A third that is sometimesderivedfromtheprevioustwoisthatitisassociatedwithconcentrationinownershipandcontrol.Finally,thereistherolethatsocialnetworksbasedonfamilyandothersocialties,

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between individualsowningorcontrollingandmanagingtheconstituentbusinessesorcompanies of the group, play in imparting cohesion to a group. Almost all of thesefeatures were simultaneously included in Leffs early conception of the developingcountry business group (Leff, 1978). Later formulations however have departed fromLeffintwodirections.

Insomecases,onlysomebutnotallthesefeatureshavebeenconsideredimportant.Forinstance, Amsden and Hikino (Amsden and Hikino, 1994) took conglomeratediversificationasthemostimportantfeatureofthebusinessgroupanddidnotmakeanyreference to themulticompany form.At theotherend,oneeven findsadmission thatbusiness groups may show a variety on this count and some groups may be morefocusedandothersdiversified(KhannaandYafeh,2007).Thereisnodoubthoweverthatthe conglomerate diversification is more or less universally considered one of theimportantfeaturesofabusinessgroup.Indeed,almosteveryexplanationofthebusinessgroup indeveloping countries (Leff, 1978;Amsden andHikino, 1994;Ghemawat andKhanna,1998,KhannaandPalepu,2000;Guillen,2000;KhannaandRivkin,2001; JeonandKim,2004) is ineffectanexplanationofconglomeratediversification.Ontheotherhand, the explicit connectionbetweenbusinessgroups and concentratedownership isdrawn only occasionally (Khanna and Palepu, 2005; Morck, Wolfenzon, and Yeung,2005)

TheotherdirectioninwhichconceptionsofthebusinessgrouphavemovedawayfromLeff is through subtle shifts in the specificmeaninggiven to aparticular feature.Themostimportantsuchmodificationrelatestothemeaningofthemulticompanynatureofthegroup. InLeffeachbusinessgroupwasan individualmulticompany firm. Itwasdifferentfromthefamilyfirm inthatmorethanonefamilywastypically involved,butthe different companieswere part of a single organizational structure. But followingGranovetter(Granovetter,1994and1995)thereisatendencytoviewbusinessgroupsascollectionsoffirmsthatoccupyasomewhatintermediatepositionbetweenthefirmandthemarket,with crosscountryvariations in thedegreeof cohesionand independencebetween firms within a group. In this conception of the group as a hybridorganizationalformbetweenthefirmandthemarket(KhannaandYafeh,2007,p.333),theindividualfirmisequatedwiththeindividualcompanyandthediversifiednatureofthegroupisaresultofdifferentfirmsbeingengagedindifferentbusinessactivities.

Leffhadnotmadeanyparticularmentionoftheownershippatternofgroupcompaniesandbyimplicationthereforebothnarrowlyandwidelyheldcompaniescouldbepartofagroup.Infactheactuallyemphasizedtherolethatparticipationofmanyfamiliesinagroup played in pooling capital because of the limited development of separation ofownershipandcontrol. Insomemore recent formulationshowever, themultiplicityofpublic companieswithin it isexplicitly statedas the characteristic featureof thegroup(KhannaandPalepu,2000).Butnoconceptionofthebusinessgroupspecifiesprecisely

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howmanycompaniesmustbepartofittoforittomakeupagroup,andwhetherthereareanyintermediatecategoriesbetweengroupsandpurestandalonecompanies.

2.1TheMarket,theFirm,andtheGroup

Thefirstquestionsarisingfromtheaboveisamulticompanygroupaparticularformthatthe individual firmmay assume or is it a structure founded on interfirm coordination?Thedifference between the two is not amatter of degrees of coordination. They are twoqualitativelydistinctthings,becausecoordinationwithinafirm isclearlydifferentfromcoordinationbetweenfirmsevenwhenbotharedistinguishedfrommarketcoordinationbya common exantenature.The formerpresumes the existenceofa firmasa singleentitywhile the latter brings different entities possessing theirdistinct individualitiesintoacommonstructure. Indeed, if these twokindsofcoordinationwerenotdifferenttherewould be no basis to talk of an intermediatedomain between the firm and themarket. But the possibility that a set of interrelated companies may occupy such anintermediatedomaindoes not automaticallymean that they always do, and themereindependentlegalstatusofthedifferentcompaniesofagroupisnotsufficientbasisforconcludingthattheyaredifferentfirmsratherthanconstituentsofasinglefirm.Whichoftheseisthecaseinsteadhastobedeterminedonthebasisoftheoriginsandnatureofthoseinterrelations.

As far as India is concerned,multicompany entities have existed here since the 19thcentury, first in the formofEuropeancontrolledmanagingagencyhousesand thenasthe Indianbusinessgroup. In either case, it is the conceptionof thegroupasa singlebusiness firm that fits thembetterwith the centralizationof controloveranumberofcompaniesbeingcharacteristicofboth.Hazaris seminal studyof the Indiancorporatesectordescribedthegroup,andnottheindividualcompaniesconstitutingit,astheunitofdecisionmaking.

A corporate group may be defined as consisting of units which are subject to thedecisionmaking power of a common authority The group functions as a singleorganisation, nevertheless, though each of the corporate units under its control is aseparatelegalentity.(Hazari,1966,p.5)

Indeed,behindthesetofcompaniesconstitutinganIndianbusinessgroupatanypointof time, their structure of connections, and the evolution of the group structure overtime,hasalwaysbeentheguidinghandofthecentralcontrollingauthorityofthegroup.Groupcompanieseitherincludecompaniesthegroupitselfhaspromoted,orthosethatit has acquired. Individual group companies can be amalgamatedwith each other orbroken up. Formal connections may be established between companies, for examplethrough intercorporate investments (discussed below), and even altered.The groups

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assetscanalsoberedistributedbetweenitscompaniesfromtimetotimeandbusinessesandcompaniesmaybe transferred toother firms.Funds raised throughonecompanymayberoutedtoothercompanies.Allsuchevents inthehistoryofanIndianbusinessgroup generally are consequences of the unilateral strategic choices of its commoncontrollingauthorityandnotaproductofmutualnegotiationbetweenthemanagementsofdifferentcompanies.Theroleofothershareholdersofthesecompaniesisalsousuallyapassiveone.Oneofthestrategicimperativesthatoftenliesbehindthestructuringandrestructuring of connections between group companies is actually themaintenance ofcontrol over each of them. In otherwords, the Indian business group is a deliberatecreation of its single controlling authority and not the forging of an alliance betweendifferentsuchauthorities.

BusinessgroupsinIndiadoofcoursealsobreakup.Thesehoweverarelikedivisionsofthe family firm rather than thebreakdownof a collusive arrangementbetween firms.Theyhappenwhenthecentralizedcontroloveragroupbecomesincompatiblewiththeindividualitiesofthememberswhoconstitutethatcontrollingauthority.Thenthegroupsplitsintodifferentparts,eachofwhichmayitselfhaveamulticompanygroupformormay subsequently spawnone.The linesof such adivisionmaynot coincidewith thelines originallydividing the group companies and restructuring of thedistribution ofassetsbetweencompaniesandevendivisionof individualcompaniesmayprecede thegroupbreakup1.

Divisionstakeplaceingroupswhosecontrollingauthoritiesarebusinessfamilies,mostlyfollowing a change in the generation in command. In fact, since family ties do notnecessarilyendwithadivision,somethinglikealoosefederationofthedifferentfirms,the intermediate domain case, that are its product may actually follow from such adivision (though it cannot be said that there is strong evidence that divisions arefollowedbyveryhigh levelsofcoordinationbetweentheseparatedentities).However,theuseofthemulticompanygroupformhasnotbeenlimitedtoIndianfamilybusiness.ApartfromtheEuropeancontrolledmanagingagencyhousesofthecolonialera,someofwhomsurvivedtillthe1970s,affiliatesofforeignmultinationalsoperatinginIndiahavealsooccasionallyhadagroupcharacter.Amongstthetop70odd groupsidentifiedbythe Monopolies Inquiry Commission (MIC) (Government of India, 1965) and theIndustrialLicensingPolicyInquiryCommittee(ILPIC)(GovernmentofIndia,1969)wereEuropeancontrolledoneslikeAndrewYuleandGillandersArbuthnot,andthoselikeICIandSwedishMatchwhichwereaffiliatedtomultinationals.Eitherasaresultoftakeover

1 Asignificantillustrationofthisisthecaseofthebreakingupin1990ofDCMLtd.,alargeand

diversifiedpubliccompanylistedonstockexchanges,intofourseparatecompaniessothateachfactionofthecontrollingShriRamfamilycouldhavetheirownshareofwhatwastheflagshipcompanyoftheunifiedgroup.

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ofsomeoftheseinterlinkedcompanies(e.g.theAndrewYulegroupafterthe1970s),orthroughdeliberate creation (e.g. theGujarat Fertilizers group),government controlledmultiplecompanygroupshavealsoexistedinIndia.

The participation of amultiplicity of closely linked families in providing capital andmanagementhasthusnotbeenanessentialfeatureofthebusinessgroup inIndia.Thefact of divisions within them indicates this is also applicable to business familycontrolledgroups.Beforeindependence,andforaperiodafterthat,groupsofdifferentIndianbusinessfamiliesdidexhibitahighdegreeofcollaborationandcohesionintheiractualbusinessoperations.Thisemergedoutofthecircumstancesoftheiroriginundercolonialismand theneed tochallenge theEuropeandominanceofcapitalistenterprise.Consequentlydifferentkindsofjointcontrolofcompaniesbydifferentbusinessfamiliescould be found in the initial period after independence. In some cases, individualcompanies were jointventures between two or more otherwise distinct groups, andHazaricreated thecategoryofoutercirclecompaniesofagroup toaccommodatesuchcases (Hazari, 1966). In the case of a few groups, for example SoorajmullNagarmull,more than one family constituted the single controlling entity (Government of India,1965).TheACCgroupofcompanieswasajointexampleofbothfeatures,beingagroupby itselfwhile being controlled jointly by four separate familieseach ofwhich alsoindependentlycontrolledotherlargegroupsofcompanies.Somefamilygroupsalsohadsubgroups controlled by other families but working in coordination with the maingroup(Hazari,1966;GovernmentofIndia,1969).

Afterindependencehowever,asthecontextwhichinitiallygaverisetoitbecamemoreof thepast, thecohesionprovidedby tieswithinandbetween familiesalsocame tobeincreasinglyundermined.Internecinesquabblesbetweencollaboratingfamilieswerethefirstexpressionofthis.ThiswasfollowedbydivisionswithinfirmscontrolledbysinglefamiliestotheextentthatthereishardlyanyIndianbusinessgroupofsignificancetodaywhichhasnotexperiencedoneormoredivision.Butthemulticompanygroupformhassurvived through all of these developments and does not therefore represent aninstitution that isexclusivelybuiltaround familyandothersocial ties. In fact, it is thishistorical background that is responsible for something that has been noted in theliterature.ThisisthatpresentlytheboundariesofgroupsarefoundtobeextremelyclearintheIndiancase,whichonlyreinforcestheviewthatthegroupisasinglefirm.

If thegroup isa firm rather thana coalitionof firms,as is the case in India, then thequestion(s)thatneedtobeaskedaboutthatinstitutionchangefromwhattheywouldbein the other case. Instead of asking why and how individual firms establish linksbetween their activities, we have to ask why and in what circumstances are firmsinduced to choose amulticompany form andmodify its structure andwhy do suchfirmssucceeddespitetheobviousextracostsamulticompanystructurewouldinvolveinrelationtoasinglecompanyone.Thelastgroupofquestionshasnotbeenaddressed

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intheliterature.Howcantheybeifthegroupasfirmiseliminatedbydefinitionratherthanaconcreteexamination,orexplainingthegroupisnarroweddowntoexplainingaparticularpatternofdiversification?

2.2DiversificationandtheBusinessGroup

Thesecondmajorissuerelatingtotheconceptualizationofbusinessgroupsconcernsthisfeatureofdiversification.Isthegroupagroupbecauseitinvolvescoordinationofanumberofcompaniesorbecauseitincludesanumberofdifferentbusinessesinitsfold?Whenagroupisacoalition of different individual firms engaged in different businesses, a relationshipbetween the multiplecompany structure and the diversification pattern can bereasonablypresumed.Ifhoweverthegroupisasinglefirm,thisisnolongertrueandtheagglomeration of multiple companies into a group and conglomerate patterns ofdiversificationdo not automatically imply each other.On apurely logicalplane, it ispossibleforasinglefirmtohavemorethanonecompanyoperatinginthesamebusiness,andforanindividualcompanytohaveadiversifiedrangeofbusinesses.Inotherwords,the only difference between a group and a standalone could lie in the fact that theformerhasamultiplecompanyformandthelatternoteachhowevercouldbeequallyfocusedordiversified.At the two extremesonemayhave a structurewheremultiplecompaniesundercommoncontrolareallinvolvedinthesameindustryandoroneofanindividual independentcompanywithmultiplebusinesses.Whichof these twowouldbetermedasabusinessgroupstructure?

In the Indian case, business groups have long been known to havemany companiesoperatinginthesameindustry(Lokanathan,1938;Mehta,1952;Kothari,1967).Thiswasperhapsmoreprevalent inanearlierera in theold textile industries.ThephenomenonhoweverhasnotentirelydisappearedbynowasillustratedbytheexamplesinTable1.

Ontheotherhand individuallydiversifiedstandaloneandevengroupcompanies,notnecessarilyfamilycontrolled,havebeenalsopresent.Forexample,GrasimIndustriesisone of the many AV Birla group companies. It alone has the following businesssegmentsFibre and Pulp (Viscose Staple Fibre and Rayon Grade Pulp); Chemicals(CausticSodaandAlliedChemicals);Cement;Sponge iron;Textiles(Fabricsandyarn);andOthers.Similarly,thesalesofITC,whichisnotafamilycontrolledcompanybutanaffiliateoftheBATgroupoftheUKwithaprofessionalIndianmanagement,hadinthelasttwoyearsthepatternshowninTable2.

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Table1IllustrativeListofCasesofMultipleGroupCompaniesintheSameIndustry,200506

Product/Industry Group NumberofCompaniesinthe

industry

MarketShareof:LargestSinglegroupco.

Allgroupcos.

Cement HolcimGujaratAmbuja

2 11.25 22.00

Cement BirlaAV 4 11.65 22.28AluminiumFoils BirlaAV 2 37.45 42.17AnimalFeeds Godrej 2 11.30 20.30AxleShafts Kalyani 2 32.03 51.37Beer UB 3 39.62 77.41Wines,SpiritsandLiquors

UB 2 35.78 53.01

EthyleneGlycol Reliance 2 45.80 74.13PolyesterFilamentYarn Reliance 3 36.30 47.14LinearAlkylBenzene Reliance 2 31.99 48.88PolyesterStapleFibre Reliance 2 59.36 69.35PolyVinylChloride Reliance 2 35.04 56.68Floor&Walltiles SomanyEnterprises 2 10.93 18.20GlassHollowares SomanyEnterprises 2 28.02 40.09PVCPipes&Fittings Kisan 3 5.10 12.80Source:DerivedfromCentreforMonitoringtheIndianEconomy(CMIE),MarketSizeandShares,2007.

Table2SalesofITCLtd.200607and200708(Rs.crores)

Product 2007 2008

Cigarettes 12824.42 13815.54

SmokingTobacco 9.09 9.74

PrintedMaterials 111.5 163.19AgriProducts(UnmanufacturedTobacco,SoyaExtraction,SoyaOil,SoyaSeeds,RiceCoffee,etc.) 2398.25 2369.28

MarineProducts 72.02 53.76

PaperboardsandPaper 1151.71 1255.33

PackagedFoodProducts 1083.42 1717.08

HotelSales/IncomefromServices 978.71 1093.48Others(BrandedGarments,Matches,StationeryProducts,PersonalCareproducts,etc.) 670.92 878.54

TOTAL 19300.04 21355.94Source:ITCReportandAccounts2008.

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Evenmorenotableisthefactthattheextentandnatureoftheirdiversificationhasvariedsignificantly across groups at any point of time and also across time in the case ofindividualgroups.ThedataavailablefromtheMICReport(GovernmentofIndia,1965)forexamplerevealsthatthereweremanygroupsinthe1960sthatweremainlytextilebasedgroupsevenasotherswerehighlydiversified.Groupsthatgrewintolargeonesata laterpointof time, likeOmPrakash Jindal,GujaratAmbuja, Ispat,Onida,andmanypharmaceutical based groups likeRanbaxy have also been relatively specialised ones.The Reliance group emerged as one of Indias largest groups before liberalizationthrough a growth sequence that remained focused on a set of related industries(synthetic textiles and fibres, and petrochemicals) and it diversified into unrelatedactivities(power,telecom,retail,financialbusinesses,construction,etc.)onlyinthe1990sandafter.

TheIndianevidencethusindicatesthatwhilesomemulticompanyfirmsatanypointoftimehaveahighlydiversifiedcharacter;itisnotalwaystrueofeveryfirmatallpointsoftime.Thereforeachoicehastobeexercisedregardingtheaxisalongwhichagroupistobedistinguished from a standalonethat of the number of companies or that of thenumberofbusinessesbecausethetwodonotcoincide.Theassumptionisneverthelessoftenmade that theydoand thereforebothcanbeconsideredsimultaneouslyessentialfeaturesofbusinessgroups.Ifsuchdualcriteriaweretobehoweverappliedtoidentifygroups,itcouldmeanthatsomeconglomeratebusinessfirmsandcertainlyanumberofmultiplecompanyfirmswouldhavetobekeptoutofthesetofbusinessgroupsbecausetheywouldstrictlyspeakingfitonlyonecriterion.Thiswouldalsoraisethequestioninwhichcategorycouldoneputsuchexcludedfirms?

Theadditionalproblemwithdualcriteriaisthattheexplanationsforthetwofeaturesofthegrouparenotthesame.Ithasbeenmentionedearlierthateveryexplanationofthebusiness group is in effect an explanation of conglomerate diversification. Sinceentrepreneurs or business families can always achieve such diversification through asinglemultimarket,multidivisional,andmultiplantcompany,theexplanationsfortheextentandnatureof thisdiversificationdonotexplainwhy they choose themultiplecompany form andhow theydistribute and redistribute their businesses between thedifferentcompanies in thegroup.Byexplainingconglomeratediversification therefore,the reasons for the existence of business groups are established only if such adiversificationpatternisconsideredtheirsoledefiningfeature.

2.3BusinessGroups,ConcentrationandtheSeparationofOwnershipandControl

In relation to the corporation or jointstock company, ownership has two distinctmeanings.One isownershipofcompanies,whicharevested in theirshareholders,and

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theother isownershipbycompaniesofcorporateassets.Correspondinglyconcentratedownershipmaydescribe two kinds of concentrationa) in thedistributionpattern ofequityownershipofcompanies;andb) in thedistributionofcorporateassetsbetweenfirms.Wheneverownership isdiscussed in thecontextofprincipalagent issuesor theworking of themarket for corporate control, it is the ownership of companies that isreferred to. Concentrated ownership of the second kind, aggregate concentration, isaboutthedegreetowhichcontrolovercorporateassets is inafewhands.InBerleandMeans description of it in relation to theUS economy (Berle andMeans, 1968), highlevels of aggregate concentration were achieved at the expense of concentratedownership of companies.Corporations became large by the pooling of the capital ofmanyowners,andtheconsequentdispersionoftheownershipoftheirsharesleadingtothe separation of ownership and control of companies. High levels of aggregateconcentrationhowever tend togohand inhandwith theseparationofownershipandcontrol,notnecessarilyofcompanies,butofcapital.Thisisdifferentfromtheseparationof ownership and control of companies because command by a company of anagglomerationofcapitalwithavarietyofultimateownersdoesnotnecessarilyrequireissueofthecompanysequitysharesdirectlytotheseowners.Itcanbeachievedthroughintermediary institutions or through other financial instruments, in which cases theownersofcapitalwouldnotbeacquiringownershiprightsinthecompanytowhichthiscapitalismadeavailable.

IncontrasttoLeffsconceptionofabusinessgroupstructureasoneenablingthepoolingofcapitalinacontextoflimiteddegreeofseparationofownershipandcontrolofcapital,themulticompanygroup formof the firm isactuallyeminently suited toprovidingamechanismforreconcilingtheseparationofownershipandcontrolofcorporatecapitalwith concentrated ownership of companies evenwhen equity issues are theprincipalinstrumentbywhichcompaniesreceive finance. Inthe internationalcontext, theuseofthismechanism through thecreationofownershippyramidsorcrossshareholdinghasbeen noted (LaPorta,LopezdeSilanes, and Shleifer, 1999;Khanna andPalepu, 2000;Morck, Wolfenszon and Yeung, 2005). In India, the more generic expression, intercorporate investments,hasbeenused to refer to it (Hazari,1966;Goyal,1979;Singhania,1980; Rao, 1985). Essentially, the mechanism allows the controlling individuals tocommandamuchlargerquantumoftheequityofcompaniesthanisdirectlyownedbythem.Controlbythemoverthemanagementofanyindividualcompanyenablesthemtouseitsresourcestopurchaseinitsnameequitysharesinothergroupcompaniesandalsotoeffectivelyexercisetheownershiprightsassociatedwiththeseshares.Controlthroughsuch means of a significant portion of the equity of the companies in which suchinvestmentisdoneinturnallowscontrolovertheirmanagement.

Intercorporate investments between group companies can be easily mistaken to bereflectionsoftheworkingof internalcapitalmarketswithingroupsorasaproductof

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groupsperformingthefunctionofventurecapitalists,whichareimportantcomponentsof the idea that groups are responses to institutional voids. They however representfictitioussharecapital thathasnoultimate individualowners.Whengroupcompaniesarecontrolledthroughsuchinvestmentsbetweenthemselves,individualcompaniesarebothrecipientsoffinancefromothercompaniesthroughissueofequityandalsousersoffinancetoacquireequity inothercompanies.Forthegroupasawhole, intercorporateinvestmentswouldonlybe financing themselves andnot the acquisitionof anyotherassets,andwoulddisappearifthegroupcompaniesweretobeconsolidatedintoasinglecompany2. It should consequently be viewed as a mechanism of control and not ofallocation of capital. Since the recourse to it is only possible with a multicompanystructureofthefirm,onepossiblerationaleforsuchastructurecouldliepreciselyintheneedormotivationofentrepreneursorbusinessfamiliestomaintainproprietarycontrolover the firmandyetenable it toassumeascale impossible toachievewith theirownresourcesbysecuringfinancesfromoutside.

AsfarastheIndiancorporatesectorisconcerned,directholdingsbycontrollingfamiliesaretypicallyverysmallinlargecompaniesandtendtobecomesmallerwithincreaseincompany size. Indian business groups have therefore controlled their companiesprimarily through intercorporate investments,which after independence replaced theeventually abolished managing agency system as the principal control mechanism.Additionally, the historical pattern in India has been one of private corporate sectorcompanies being generally heavily reliant on external funds whether raised throughcapital issues or from financial institutions.As Figure1 shows, the private corporatesector in India has been persistently a savingsdeficit sector,with the dependence onexternal savingsbeinggreater inmostperiodsof relativelyhigh corporate investment(mid1950stomid1960sandthe1980sthroughtothemid1990s).Itisonlyinthemostrecent phase of high corporate investment growth, since 200203, that the privatecorporate sectorsown savingshave financedonanaveragemore thanhalf its capitalformation.Eveninthisperiodhowever,thesavingsinvestmentdeficitofthesectorhasbeenincreasing.

2 The same also applies to any intercorporate borrowing/lending between group companies

where toomatching liabilities and assetswouldbe created.The implicationsof these is thatother thingsbeing thesame, theaggregateoperatingprofits toassetsratioassociatedwith thegroup form of the firmwould be lower than if the firm assumed the form of a standalonecompany while the aggregate dividend and interest payout would be higher and wouldcontribute to inflating aggregate nonoperating profits. These do not appear to be normallytakenintoaccountinempiricalanalysesdealingwiththesevariables.

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Figure1RatioofGrossCapitalFormationtoGrossSavingsofthePrivateCorporateSectorinIndia,

195051to200506

Source:CentralStatisticalOrganisation,NationalAccountsStatistics,2007andBackSeriesat1999

00prices.

The regular studiesof financesofnonfinancialpublic limited companiesdoneby theReserve Bank of India (RBI) also throw up a picture of substantial dependence onexternalsourcesoffinance,asshownfortheperiodsincetheinitiationofliberalizationinTable3.Ofcourse, somepartof these external funds for individualcompaniescouldcome fromothergroupcompanies.However, it isbanksand financial institutions thathavebeenthemainfillersofthefinancinggapforcompanies,accountingforoverthreefourthsofsuch funds forthe last threedecadesandmore (ReserveBankof India,2000and2007a).

Table3ShareofExternalSourcesinTotalSourcesofFundsofNonGovernmentNonFinancialPublic

LimitedCompanies(RBISamples)

199192 199293 199394 199495 199596 199697 199798 199899 199900

71.9 73.9 71.1 71.2 63.4 64.9 65.7 62.2 59.7

200001 200102 200203 200203 200304 200304 200405 200405 200506

40.4 34.7 35.1 30.2 49.1 46.6 44.5 44.5 56.4Source:Seriestill200203,ReserveBankofIndia(2005b),andthepairsofyearsafterthatfromReserveBankof

India(2005a,2006,and2007b).

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Thus, the separation of ownership and control of capital has been quite prevalent inIndia. Concentrated ownership of capital, unlike what sometimes appears to besuggested(KhannaandPalepu,2005)hasnotbeenprevalent.Aggregateconcentrationinthe Indianprivate corporate sectorhas ratherbeenbasedon the allocationprocessofcapitalthroughmarketsand intermediarieshavingaconcentratedcharacter.Moreover,withthecontrollingfamiliesofdominantgroupsprovidingsuchasmallfractionofthecapital that theycontroland theheavydependenceofcompaniesonexternal funds, itdoes not make much sense to relate business group structures in India to inhousesupplyofcapitalandinternalcapitalmarkets.

Theother relationshipdrawnbetween thebusinessgroup structureand concentrationhasbeenthroughasuggestionthatthecontrolbysomeovermanycompaniestendstomake for a higher level of aggregate concentration than would be the case if thecompanies were standalone (Morck, Wolfenszon and Yeung, 2005). This point mayappearobviousbutthatdoesnotmake itnecessarilycorrect.It isonethingtosaythataggregate concentration expresses itself through the controlby a few individualsof anumber of companies and quite another thing to say that the latter is a cause of theformer.Itcouldbeacauseonlyifitwasthecasethatthedifferentindividualcompaniesexisted as independent firms before a common controlwas established over them. Ifhowever the group is a form of the firm, then thedifferent companies in its fold areequivalent innaturetodifferentpartsofan independentcompany.Sincean individualcompanycanbelargerthanacollectionofcompanies,theprevalenceofthegroupformof the firm does not ipso facto mean that aggregate concentration is greater incomparison to a situation when standalone companies are prominent. Since anypotential entrepreneur can create a firm of either the standalone company or groupvariety,concentrationinthedistributionofcorporateassetsbetweenfirmshasnodirectrelationshipwiththeformofthefirm.Whycapitalisconcentratedinafewfirmsisthusadifferent question fromwhy these firmsdistribute, ordo notdistribute, the capitalcommandedbetweenmanycompanies.InIndia,themulticompanygroupstructurehasbeenassociatedwithtremendoussizeheterogeneityevenamongstgroupsdeemedlarge(Government of India, 1965) and no strict correlation has existed between size andnumberofcompanies.

2.4TheStructureofBusinessGroupsinIndia

So far ithasbeenemphasized that the Indianbusinessgroup isamulticompany firmbut nothing has been said with regard to the nature and numbers of companiesconstituting a group, and their placing in relation to each other within the groupstructure.Inreality,therehasbeentremendousheterogeneityamongstgroupsonthesecounts. Only some sense of this heterogeneity can be given here. It is nevertheless

14

important to appreciate this diversity because of the difficulties it poses for theconceptualizationofbusinessgroups.

A variety of different kinds of legal entities have been the objects of a commoncentralizedcontrol in the Indianbusinessworld.Thesehave includedcompanieswithshares publicly traded on stock exchanges, narrowly held companies not listed onexchanges, and even partnership and proprietary firms. One dimension of variationbetweenmulticompanyfirmshasbeenthenumbersofeachofthesedifferentkindsofentities. Ifwe consider theMICs identificationof companiesof75groupswithassetsmorethanRs.5croresin1964,wefindthatthetotalnumberofgroupcompaniesrangedfromamere4or5 insomecases toasmanyas151 in thecaseof theBirlagroup.Thenumberofcompanies in theBirlagroupwhichwerereasonably large individually (i.e.with assetsmore than Rs. 1 crore) were 54 while the other amongst the two largestgroups, Tata, had 27. On the other hand, as many as 5 groups had only one suchcompanyandanother11hadonlytwo.InthecaseoftheBirlagroup,lessthan8%ofitstotalassetswereaccountedforbythelargestcompanyinthegroup,buttherewerealsomanygroupswhereasinglecompanyaccountedforover90%ofthetotalgroupassets.

No comparable comprehensive listing of groups and their companies has been donesince the 1960s. But there is sufficient evidence to suggest that the kind of varietyamongst groups existing then has not disappeared subsequently. A contemporaryindicationisprovidedbythenumberofpubliclylistedcompaniesthatdifferentgroupshavewhichrangefromasingleonetonumbersindoubledigits.Ifthemultiplepubliccompanycriterionweretobestrictlyapplied,thenmanyofthoseclassifiedasgroupsinthestandarddatabasesusedby researchers, likeProwessof theCentre forMonitoringthe Indian Economy (CMIE) would not qualify as groups. On the other hand, if amultiplicity of public companies was not insisted upon, then many Indian privatecompaniesthatarenotclassifiedasgroupaffiliatedinthesamedatabasesandthereforeassumed by most to be standalone, would become group affiliated. This would berevealedbyasimpleexaminationofthecompositionofwhatistermedasthepromotersstake (what is admitted as thepart of the companys equity controlled by thosewhomanageit)inthesecompanies.Table4isbasedonsuchaninvestigationforasampleofIndiancompaniesnotclassifiedasbeingattachedtoanygroupintheProwessdatabase.Thesampleconsistsof171suchcompaniesincludedintheBSE500indexandadditionalstandalonecompanieswhichhadassetsexceedingRs.500crores in2006073.Dataonthepromoters stakeand its composition for these companieswasaccessed from theirfilings of shareholding pattern with the Bombay Stock Exchange(http://www.bseindia.com). 3 Itmaybenotedthatthoughtherearenearly5000companieslistedinit,thecompaniesincluded

intheBSE500accountforover93%ofthetransactionsontheBombayStockExchange.

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Asthetableshows,ahighlevelofthepromotersstakeisverycommon.Morethanhalfthesamplecompaniesalsoreportedothercompaniesamong theircontrollinggroupofshareholders, though theproportionof suchequityvaries from company to company.Butevenamongstcompanieswherethepromotersstakeisheldentirelybyindividuals,whichtooaretypicallylarge,therearecaseslikethethreeIndiaBullscompanieswherethepromotershareholdersarecommon.

Table4PromotersShareinStandaloneCompaniesinIndia(ason30June2008)

PromotersTotalHoldinginTotalEquity

PromoterGroupBodiesCorporateinTotalEquity

BodiesCorporateinTotalPromoterGroupEquity

Morethan50% 76 11 56

Morethan40% 101 17 65

Morethan30% 128 34 74

Morethan20% 154 55 84

Morethan10% 164 71 97

Morethan0% 171 111 111

0% 0 70 70Source:BombayStockExchange(http://www.bseindia.com),ShareholdingPatterns.

Theonethingthisevidencepointsto isthatthefirmasapurestandalonecompany isrelatively rare in the Indian private corporate sector.Reinforcing this is the fact suchcompanieseveniftheyexistdonotnecessarilyremainsoforever.TheMICaswellastheILPIChadinthe1960sidentifiedmanythatthelattercalledlargeindependentcompanies,whichwere largestandalonecompanies,manyofwhomwere larger thansomeof thegroupstheyhadidentified(GovernmentofIndia,1965and1969).Subsequently,becauseof the discovery of other companies affiliated to them or because of the floating ofadditional companies by their controlling authorities, these companies acquired thecharacter of groups. Examples of such groups areGodrej, Escorts, Larsen& Toubro,MohanMeakins,Rohit,andChowgule.

Theubiquityofthemulticompanyfirmhoweverdoesnotmeanthatallthecompaniesconstituting the firmplay thesame role.Thecasesdiscussedabovepoint towardsonekind of variant of the multicompany firm, where all the businesses of the firm areconcentrated inasinglecompany,withothercompaniesplayaperipheralrolesuchasservingmerelyasholdingcompaniesforsomepartoftheequityofthatcorecompany.Thisstructurerepresentsoneendofthespectrumandstandsclosesttothestandalonecompany.Othermulticompany firmsmay however have their businessesdistributedbetweenmanycompanies.The rolesofservingasholdingcompaniesorascompaniesthroughwhombusiness activities areundertakenmaybe clearlydemarcated in somecases between typically narrowly held investment companies and public companies

16

respectively. In others however, public companies may simultaneously perform bothfunctions4.

Thestructuresoffirms,asillustratedbythecaseofindependentcompaniesturningintogroups,arenotonlyvariableacrossspacebutalsotime.Aninterestingexampleofsuchvariations is provided by the Reliance group. Before the public listing of RelianceIndustriesin1977,thegrouphadincorporatedsixcompanies,noneofwhichwaslistedonanystockexchange,anditsmanufacturing/processingactivitieswerespreadbetweenfourofthem.Afterthattherewasarapidproliferationinthenumberofcompaniesofthegroupthoughmanufacturingactivitiesandproductiveassetscametobeconcentratedinthe1980sinwhatwasthesolepublicly listedcompanyofthegroupforoveradecade.Currently, the two factions of the group have about 10 companies listed on stockexchanges.Dependinguponthespecificdefinitionusedforabusinessgroup,onecouldarriveatdifferentconclusionsaboutwhenReliancewasagroupandwhennot.Did ittransform itself fromagroup intoastandalone in the1980sordid itbecomeagrouponlyinthelate1980swhenitcametoincludeasecondpubliccompany?

Anotherrelateddimensioninwhichwefindsignificantvariationsisthepatternofintercorporate investments between group companies, and the specifically pyramidalstructure has not been known to be very prevalent in India.A set of narrowly heldinvestmentcompaniessharingtheholdingofacontrollingstakeinonemajorcompanyisonesimpleform.Attheotherendcouldbeanextremelycomplexstructureofdifferentcompanies of different types being connected through chains of such investments, ofbothlinearandcircularvarieties,withanysinglecompanybeingsimultaneouslypartofmanyseparatechainsofbothtypes(Hazari,1966;Singhania,1980).Infact,atthetimeoftheirdivisions,manygroupshaveconfronteddifficulties indisentangling thecomplexwebofconnectionsbetweengroupcompanies.Suchcomplexityisproducedbythefactthat the structure of interconnections is not made at one time but rather evolveshistoricallythroughaseriesofgroupactionsspreadovertime.

3. Facts versus Fiction: Three Illustrative Cases

EachofthethreecasesfromtheliteraturereferredtointhissectioninvolveconclusionsbeingderivedaboutIndianbusinessgroupsfromsomedataorinformation.Fordifferentspecific reasons, which however share the common feature of reflecting inadequatefamiliaritywiththeIndiancontext,theseconclusionscannotbearrivedatinthemannerthey have been.The first case is of an empirical study of tunneling amongst Indianbusinessgroupswhere theproblem lieshiddenbehind the ingenuityandvirtuosity in

4 TheTatagroupisacaseinpoint(ChalapatiRaoandGuha,2006).

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theuseofempiricaltechniquesthatisondisplay.Thesecondexampleisdifferentfromthefirstinthattheconclusionportraysthebusinessgroupstructureinamorefavourablelight.Butitisarrivedatthroughacompletemisreadingoftheevidencethatispresented.Thethirdcaseisoneinvolvingtheuseofanecdotalevidenceofthekindthatistypicallyusedtocaricaturetheearlierplanningregimeorthesocalledlicensepermitraj.Inthisparticularcasehowever,thestoryisabitofamyth.

3.1TunnellingamongstIndianGroups

In a study available in more detailed as well as concise form (Bertrand, Mehta andMulainadhan,2000and2002),aquantitativeanalysiswasundertakentofindevidenceoftunnelingamongstIndiangroups,toquantify itsextent,andto identify itsmechanism.Therearemanymethodological issues that canbe raised in relation to this study.Wehoweverfocusononefundamentalonethatisrelatedtowhathasbeendiscussedintheprevioussection.Thepointofcourseisnotthatsiphoningoutofresourcesfrompubliccompanies by those who control them does not happen in India. The problem withBertrand et alsmethod instead lies in the fact that such siphoning outmay bemorecommonplacethantheypresumed.

The basic method relied on was a comparison of the responses, of group affiliatedcompaniesandstandalonesinasampledataset,toprofitshocksintheirownandotherindustriesbyexaminingtherespectivedeviationsoftheiractualfrompredicted(averageindustry) responses. The lower responsiveness of group affiliated companies to suchprofit shocks in their own industries and greater responsiveness to that in otherindustrieswastreatedastheevidenceoftunneling.Theappropriatenessofthismethodhoweverrestsabsolutelycriticallyonthecorrectnessoftheunderlyingassumptionthatthe siphoning out of resources from public companies by controlling families at theexpenseofothershareholdershappensinthecaseofgroupcompaniesbutnotinstandalones.Only then could therebedifferences in their responses toprofit shocks.But isthereanybasisforthisassumption?Bertrandetaldidnotprovideoneandinfactcouldnot have because it follows from the discussion in the previous part that there is nogroundfordistinguishingbetweenstandaloneandgroupcompaniesasfarasthisaspectisconcerned.

Wehaveseenthatthereisnocleardividinglinebetweengroupsandstandalonesandapparentlystandalonecompaniesalsohaveothergroupcompaniestowhichresourcescouldbepotentiallytransferred.Moreover,suchcompaniesaretypicallynarrowlyheldwherethecashflowrightsofabusinessfamilywouldinherentlybegreaterthaninanypubliccompanycontrolledbyitwherethereareothershareholders.Sincethegroupasafirm isadeliberatecreation,there isnothingtopreventbusinessfamiliesfromcreatingsuchcompanies.Sincethebusinessgroupstructureprovidesthemechanismandnotthe

18

motivationfortunneling,nocorrelationshouldinfactbeexpectedbetweentheextentofsiphoningoutofresources frompubliccompaniesby theircontrolling familiesand thenumber of public companies controlled by that family. If the incentive for tunnelingarisesfromthedifferencebetweencontrollingandcashflowrights,thensuchincentivewouldexistinallcasesofpubliccompaniescontrolledbyabusinessfamilyoragroupofindividualswherethereareothershareholders.Ifthemechanismnecessaryforthatisagroupstructure, itcanbeeasilycreated.If lawsandtheirenforcementcannotpreventsiphoningoutincaseofgroupaffiliatedcompanies,theywouldnotpreventtheminthiscaseeither.Insuchcircumstances,tunnelingshouldhappeninequalmeasureinallsuchpubliccompaniesandevidenceof tunnelingand itsquantificationcannotbearrivedatbycomparingcompaniesthatareapparentlyeitherstandalonesorgroupaffiliated.

Thedifferential responsesof these twokindsof companies toprofit shocks thatwereBertrand et als results may, at least partly, be explained by the likely nature of thesampleandtheexistenceofintercorporateinvestmentsbetweencompaniesinit.Intercorporate investments and the consequent flow of dividends between companiesconnected through them create anatural channel forprofitsof companies indifferentindustriestoreflectshocksineachotherevenwithoutanytunnelingactivity.SignificantinthisregardisthattheevidenceoftunnelingthatBertrandetalfindoperatesentirelythroughthenonoperatingprofits,inwhichwouldbeincludeddividendsreceivedfromequityholdingsinothercompanies.Sincethesampleofcompaniesinthedatasetusedpresumably included only public companies, they would have included some interconnected companies of companies classified as group affiliated so that companiesreceivingdividendswouldbepartofthesample.Inthecaseofthoseclassifiedasstandalone on the other hand, any such potential dividend recipient companies would beprivate limited companies outside the sample. Only the group companies wouldthereforeshowthisresponsivenesstoprofitsofothercompanies.

3.2Stability/InstabilityamongstLeadingGroups

KhannaandPalepu(KhannaandPalepu,2005)havearguedthatconcentrationinIndiahas been accompanied by substantial instability in the concentrated owners, andthereforeatleastintheIndiancasethefearsofentrenchmentappeartobeunwarranted.Theysoughttosubstantiatethisbypointingtowardsthesharpdifferencetheyfoundinthe composition of the top 50 business groups at two points of time, 1969 and 1997.According to their examinationof thedata theypresented, asmany as 43 of the top 50groups in1997werenot inthesame list in1969.Thisamazingresult,which iscompletelyillusoryandagrossexaggerationoftheelementofinstabilityinIndianbigbusiness,isaresultofanextremelycasuallookatthedatabecauseofwhichthefollowingfactswereignored:

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i) The1969 list (whichactuallypertains to1966) is from the ILPICreport.Asmentioned earlier, the ILPIC had also identified large independentcompanies.Of the groups in the top50 in1997,somewere fromamongstthese,andthereforewerenotnewconstituentsofIndianbigbusiness

ii) Betweenthe1960sandthe1990s,manyofthegroupshadsplitanditisoneormoreoftheirsplintersthatappearinthe1999listdespitethesizeeffectsof division Moreover, when groups split, their number increases so theycannotallofcourseremainwithinthetop50.Twocasehoweverareoftheoppositekindconsolidationintoonegroupin1999ofwhatweretreatedasseparategroupsinthe1966list.Forthese,andsometimesforotherreasons,somegroups simplyappearunderdifferentnames in the two lists thoughsometimes theyarestillsosimilar that it issurprising that theconnectionswereoverlooked.Inotherwords,theolddroppingoutfromthelistandthenewenteringintoitareinmanycasesactuallythesame.

iii) Amoreexcusableomissionliesinnottakingintoaccountthatsomegroupsthatwerelargeinthe1960sdidgetsomehowoverlookedwhentheILPICortheMICfinalizedtheirlistofgroupsandlargecompanies.Theirappearanceinthe1997listthereforedoesnotrepresentthenewelement.

Table5providesamappingbetweenthe1966and1997positionsofgroupsincludedineitherlistbyKhannaandPalepu.Itshowsthat31ofthetop50in1997,and21ofthosein1966,weresurvivorsovertheinterimperiod5.

5 Further, amongst those from the 1966 list that did not survive, a number were European

controlled.TheseweresubsequentlyIndianizedandincludecaseslikeAndrewYulewhichexisttothisdayinthepublicsector.

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Table5MappingofGroups,1966and1997

Group(s)/Companyin1966 MatchingGroup(s)in1997

TataTataACC

Rallis

Birla

BKKMBirlaKKBirlaCKBirlaSKBirla

ThaparLMThaparMMThapar

Mafatlal ArvindMafatlalWalchand VinodDoshiShriram SRF/ABharatRam

JKSinghaniaHariSSinghaniaVijaypatSinghania

GoenkaRPGEnterprises

GPGoenkaMacneillandBarry WilliamsonMagor

Lalbhai LalbhaiTVS TSSanthanam

KirloskarKirloskarKalyani

ParryMurugappaChettiar

MurugappaMahindra Mahindra

Bajaj BajajSimpson AmalgamationWadia Wadia

ShawWallace ManuChabria

Werelargein1966byILPICcriteriabutoverlookedwhenlistwasfinalized

MACUBGroup

AppearedaslargeindependentcompaniesinILPICList

GEShippingGodrejEscortsHinduja

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3.3FinancialInstitutions,CapitalIssuesandtheRelianceGroup

...DhirubhaiAmbani singlehandedlymobilized small investorsaround the country in1977 and listed on the Bombay andAhmedabad stock exchangeswhen the dominantpublicfinancialinstitutionswouldnotlendhimcapital.(KhannaandPalepu,2005,p.301)

This story about theReliancegroup isused to illustrate the importanceof innovativeabilitytothesuccessofbusinessgroups.ThestoryitselfhasbeentakenbyKhannaandPalepu from another apparently unimpeachable source and they cannot therefore beheldresponsiblefortheerrorsoffactinit6.Itsveracitycanhoweverbeeasilycheckedbyanexaminationofwhat iswritten in therelevantannualreportsofReliance Industries(thenknownasRelianceTextileIndustries).Whatemergesfromtheseisquiteadifferenttaleandonewonderswhethertheconclusionsderivedwouldbeamenabletothesamedegreeofchange.

Intheperiodbefore1977,RelianceTextileIndustrieswasaprivatelimitedcompanywhosegrowthwasmainlydebtfinanced.The outstandingdebt liabilities in 197576 show thatpublicsectorbanksandICICIwereitsmajorcreditors7.InfactevenbeforeRelianceTextileIndustriesbecameapubliccompany,ICICIbecameaminorityshareholderinit.In197677Reliance Textile Industries also made arrangements with financial institutions for termloans to finance a substantial part of its proposed expansion project. The financialcommitmentsmadebythe institutionsamountedtoRs.857 lakhs,nearly69%ofthe totalprojectcostofRs.1,250 lakhsandnearlyhalfofthevalueof thecompanysassetsat thattime,includingforeigncurrencyloansofRs239lakhs.AllthemajorpublicsectorfinancialinstitutionsIDBI,IFCI,ICICI,UTI,LICandGICanditssubsidiarieswereinvolvedinthisarrangement.Farfrombeingstarvedoffundsbythem,theReliancegroupappearstohavesucceededinsecuringsignificantsupportfrompublicsectorfinancialinstitutionsandbanksatafairlyearlystageinitshistory.

ButthereismoretothestoryofhowthepublicofferoftheequitysharesofRelianceTextilesat the end of 1977, and its subsequent listing on the Bombay and Ahmedabad StockExchangesinJanuary1978,cametobe.Accordingtotheofficialstatementbythecompanyin its Annual Report for 197677, this move of listing the company was immediatelypromptedbytheconditionforthesamelaiddownbyfinancialinstitutionswhilegranting

6 The source cited is India Unbound: From Independence to the Global Information Age by

GurcharanDas.7 ICICI is presently a private sector bank. It was originally however a publicly sponsored

industrialdevelopmentbankwhich thoughcreated in theprivatesector,withsharesheldbybanks, insurance companies, and international financial institutions, became effectively agovernmentcompanywiththenationalizationofbanksandinsurance.

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assistance for Reliance Textiles expansion projects (which reflected the normal practicefollowedby these institutions that time). Inorder tocomplywith thatconditionof stockexchangelisting,thethenexistingshareholdersofRelianceTextileIndustriesofferedapartoftheirholdingforsaletothepublic8.Thatfirstpublicofferandthesubscriptiontoitthusdidnot in fact bring any additional finance into the companybecause itonly amounted to achangeofownershipofexistingshares.Itssuccesshowevermayhavehelpedrevealtothegroupthepossibilitiesthatexisted,whichtheysubsequentlyexploitedsuccessfully.

4. Business Groups as Gap Fillers: A Critical View

The theoretical antecedents of the view that business groups are responses toinstitutional voids lie in the theory of the firm and the Leibensteinian theory ofentrepreneurship (Foss,LandoandThomsen,2000;Archibald,1987;Leibenstein,1968).The essence of this view may be outlined as follows. The successful undertaking ofindustrialventures requires the identificationofprofitableventures, securing financesand the necessary technical knowhow, organizing all the corresponding inputsincluding labour and managerial talent, and successful selling of output.Entrepreneurship enters the picture when all information, techniques, inputs, andmanagerialtalentarenotavailableinthemarketthroughroutinizedmarkettransactions.Thespecializedfunctionofentrepreneurshipistofilltheconsequentgapsandthedegreeof its scarceness increaseswith theextentof thesegaps. Indeveloping countries thesegapsareyawningbecausemarketsforinformation,risk,capital,labour,andproductsareeither completely absent, illdeveloped if not so, or at least highly imperfect. In suchcircumstances,businessgroupsacquireprominencebecausetheycancontributetomoreefficient allocation by utilizing their generic nonmarketable or nonmarketedstrengthslikeaccesstoprivilegedinternalinformationandinhousemanagerialtalent;access tocapitaleitherfrom internalsourcesorfromexternalsourcesby leveragingonthe reputations gained in other activities; or being able to similarly use their existingreputationsinnewproductmarkets,etc.

Likethebusinessgroup,themanagingagencysystemthatemergedincolonialIndiawasacontroversial institution,with someemphasizing itsvirtuesandothers itsdark side.What ishowever intriguing is that in a literaturenowmostlydecades old and rarelyread, the virtuous portrayal of the managing agency system and the associatedphenomenon of a handful of European managing agency houses dominating theindustrial sector, was also based on a strikingly similar gapfilling argument as thatcurrentlyused forexplainingbusinessgroups.Thesampleof theseviewspresented inTable6wouldmake this clear.The reason foramazementat this similarity lies in the 8 Thiswasprecededbysomeotherchangesinthecompanywhichhavenotbeendelineatedhere.

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following.Theeconomicand institutionalcontext inwhichthemanagingagencysystemfirstemergedhaschangedinmanyimportantwaysintheoveracenturylongperiodsincethen,particularly in relation to the sizeanddiversityof the industrial structureand therange and depth of supporting institutions and markets. The system itself and theEuropeancontrolledmanagingagencyhouseshavealsolongdisappearedfromtheIndianscene.Ifhowevertheexplanationsforthedominanceoftheforeigncontrolledmanagingagency firmcentredhouse thenandof the indigenousbusiness familycontrolledgrouptoday are both valid, it would mean that nothing much has changed and the sameinstitutionalvoidscontinuetocharacterizetheIndiancontextoftoday.Alternatively,onecan doubt the validity of these explanations, and there are good reasons for suchscepticism.

Table6TheEfficiencyoftheManagingAgencySystem:SomeViews

Lokanathan(1938) Thesystemofmanagingagentsmadeitpossibletoadministerandmanageindustrialventureswithafewableleaders,andthusitwaspossibletoeffectgreat economy in the labour of higher grade administrative staff.On theother hand the flow of British capital to Indian industry was greatlyfacilitated by a system which enabled control to be vested in Britishhands.The lack of indigenous capital and Indian industrial leadershipgave theBritishmerchants theiropportunity.The availableBritish capitalseekinginvestmentfoundamongtheseBritishmerchants justtherightsortofmenwhocouldsafelyentrustedwithit.(pp.2021)

Investorswhohadanymoney to invest in industrieswerewilling toputtheirmoney inanyenterprisepromotedorbackedbya reputable firmofmanagingagents.Theimprimaturofamanagingagentwasfoundessentialforthesuccessfulflotationofanypubliccompany.industrialfinancewasentirelyprovided eitherdirectly by the agents or indirectly through theirguaranteeingthebanks.Inshort,managingagentsbecamethepivotofthewholeindustrialsystem.(pp.2324)

Das(1938) Theriseofthemanagingagentswasduetothefactthatthattheyfulfilledthe role of promoters and pioneers in many of the newly establishedindustriesinIndia;theycameintoprominencebecauseitwastheyandtheyalonewhocouldsupplyaregularstreamoftrainedandefficientmanagers;and they gathered power as they found that the capital market wasnotoriously shy, and that industry looked to them for financial aid, bothdirectandindirect.(p.50)

Brimmer(1955) thesystemevolvedoutofattempts toovercome two limitationson theappropriation of business opportunities then prevailing in India: (1) ashortageofentrepreneurialabilityand(2)ashortageofventurecapital.(p.560)

Basu(1958) In the beginning of the nineteenth century, India offered plenty ofopportunitiestoenterprisingbusinessmen.Therewere,however,important

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obstaclesinthewayoftheexploitationofthesebusinessopportunities.First,therewasa shortageofentrepreneurship; secondly, therewasadearthofventurecapital;andlastbutnottheleast,therewasalackoftechnicalandparticularly managerial knowhow. The managing agency system wasevolvedtomeetthischallenge.(p.1)

The bone round which the flesh and sinews of Indian industry havegrown is thesystemofmanagingagency. Inacountrywhere thebankingsystemwasneitherverydevelopednorpervasive,whereawellorganisedcapital market did not exist and where the geographical factor of longdistancesfromportstothecentresofproductionandabsenceofmajorseaportsprovidingaccesstoworldmarketswerethecharacteristicfeatures,thecontactswhich enabled Indian trade and industry to take advantage of arapidlyexpandingworldtradeweresuppliedbythemanagingagents.Thebenefitsofgroupmanagementandorganization,ofspecialistandtechnicalserviceswhichasinglemill,ormineorteagardencouldnotaffordwerealsosecuredunderthesystem.(p.5)

Kling(1994)* Thustheagencyhousewastheonlysubsystem intheeconomywiththecapital, business experience and continuity toprovide the entrepreneurialandmanagerialtalent.(p.87)

*Originallypublishedin1966,JournalofAsianStudies,26(1),3747.

Thefirstsuchreasonisthatbotharenecessarilylogicallyincompleteforexplainingwhattheyaresupposedto.Thepossessionbyparticularmanagingagenciesorbusinessgroupsofgenericgapfillingabilitiesmayserveasanexplanationfortheirsuccessinadiversesetof industries. The scarceness of this ability may also be offered as the reason for thedominantroleoftheseagenciesorgroupsinperformingtheentrepreneurialfunction.Butasemphasizedearlier,thesedonotimplythemultiplecompanyformcharacteristicofboththemanaging agency houses and business groups in India, and in the latter case evenfound amongst relatively smaller firms. Neither can the other crucial feature of themanaging agency system, the contractual vesting of the responsibility of managingcompanies to a managing agency, be derived from the conception of entrepreneurialscarcity.Asinglecorporationwhichinherentlyhasacommonmanagementisassuitabletotheuse of generic entrepreneurial abilities in awide range of activities and centralizedcontroloverlargeamountsofcapital.Inotherwords,thereisnoobviouscausalconnectionbetween institutionalgapsand theemergenceof thespecificorganizational formsof themanagingagencyhouseorthebusinessgroup,andnoclearstatementisofferedonwhatthisconnectionis.

The explanations of business groups or the managing agency system as responses toinstitutional voids also share with the theory of the firm a combination of importantweaknesses.Theyareportrayedasefficientorganizationslikethefirmisinthetheoryofthe firm,and in either case it is their efficiency enhancing role that servesas the raisondtre for their existence. Both theories are however silent on how such efficient

25

organizationsspontaneouslyemergefromwithinthesystemtofillinstitutionalgaps,andacquireoptimalsizesandstructures.Evenifitisacceptedthatfirmsandbusinessgroupsactuallyperformanefficiencyenhancingfunction,thatdoesnotautomaticallyexplainwhytheyexistjustasthefactthatatreeservesthefunctionofprovidingshadedoesnotexplainitsexistence.Thesetheoriesdonothoweverevengouptothepointofestablishingthatthefirms or groups actually maximize efficiency. All that they say is that given a set ofconditionstheworkingofthemarketalonecannotbeefficientandfirmsorgroupsarealsonecessaryforthatpurpose,fromwhichitdoesnotfollowthatthefirms/groupsactuallyinexistencearethemostefficient.Forthattohappen,itmustalsobethecasethattheprocessbywhichfirms,groupsorentrepreneursgetpickedouttoplaytheserespectiverolescansiftout themostefficientones.Neither the theoryof the firmnor the theoryofbusinessgroupsas responses to institutionalvoidsoffersasatisfactoryargumentaboutwhy thatshouldbethecase.

Probingfurtheronthisquestionwouldalsorevealthatnotwithstandingthesimilaritiesoftheir questions and their approach towards answering them, the two theories incombination leave uswith a very ambivalent position on the relationship between thedevelopment of markets and institutions, efficiency, and aggregate concentration.Aggregateconcentrationasdiscussedearliercanbebasedontheseparationofownershipand control of capital. Historically, it is precisely the development of markets andinstitutions in capitalism, and specificallyof the financial system,which facilitated suchseparationand consequent concentrationof control ina fewhands. In the theoryof thefirm, thisconcentrationhasbeenexplainedonefficiencygrounds,with largesized firmsbeing seen as the product of the process of economizing transaction costs by theinternalizationoftransactions(Williamson,1981).Inotherwords,inthetheoryofthefirmconcentration is efficient and exists not despite but because of the development ofmarkets and institutions. In contrast, in the theory of business groups, concentration isefficientbecausemarketsandinstitutionsareunderdeveloped.Thelevelofentrepreneurialscarcityandtheabilityofthesystemtopickoutthemostefficiententrepreneursandfirmsitwouldseemarethereforebothindependentoftheextentofdevelopmentofmarketsandinstitutions!

Inreality,theefficiencyargumentofeitherkindbasicallyskirtsaroundthequestionofhowthispickingoutprocessactuallyhappens.Theyavoidrecognizingthattheinherentrelativeefficiencies of different potential entrepreneurs/firms are essentially unknowable andincomparableatthestageoftheallocationofresourcesbetweenthemwhentheresultsoftheuseofresourcescanonlyfollowintimefromtheirallocation.Thisisagapthatcannotbeovercomenomatterhowdevelopedmarketsbecome.They canonly factor this intotheirworkingastheydowhenreputationsandpastrecordenterintothedecisionmakingprocess ofmarketparticipants.Moreover, nomatter how skilful an entrepreneur or anorganizationmightbe,theycannotfillallpossiblegapsoutofthinairandsomecommand

26

overresourcesisapreconditionforevengapfilling.Bothofthesemeanthatthepossessionofsomerelativemonopolypower,basedeitheronthepriorownershipofsomeresourcesorsomeothercompetitiveadvantageinaccessingmarkets,playsacriticalroleateverypointof time in determining who or which firms are able to perform the entrepreneurialfunction9.Whetherbasedonownershiporadvantageousmarketaccess,onmarketornonmarket factors, this monopoly power is also cumulative in nature. For example, theownership of large amounts of capital strengthens the ability to raise capital from themarket.Similarly,monopolypowerinonespheretranslatesintomonopolypowerinotherspherestoomonopolyinthecommandoverresourcesconstitutethebasisformonopolyin output markets; monopoly in knowhow is translatable into monopoly in productmarketsandthetwotogetherintomonopolypowerincapitalmarkets.Thusmarketsmayrewardand reinforce rather thanpenalisemonopolypowerandnowherewould thisbetruer than in capitalmarkets because the greater is themonopoly power of a firm thegreaterwouldtendtobeitsreturnsandlowertheriskassociatedwiththem.

The fact that individual firms/entrepreneurs enjoy such monopoly power does notnecessarilymean that theyarenotsubject tocompetition.However, theextent towhichcommandover it is concentratedwouldmatter indetermining its economic, social andpolitical implications. This monopoly power is also something that requires constantreproduction.Someelementsofthismonopolypowerhaveagenericqualityforexampletheownershipoffinancialresourcesorreputationbasedcommandoverthemwhichaidsinsuchreproduction10.Otherslikepossessionofproductspecifictechnologicalknowhowormarketpowerare lessgeneric innatureand thereforearemorevulnerable toerosionover time.A few factors like proximitywith those in positions of political and publicauthoritymaybecontingentortransientinnature.Eachofthemwouldhowevermatterinshapingthecourseofdifferentfirms.

Entrepreneurialscarcityandconcentrationmaythusbecommoneffectsofthepresenceofsuchmonopolypower rather than theunderdevelopmentofmarkets,andconcentrationshould not be expected to simply disappear with the filling of the institutional voidsassociated with that underdevelopment. What is the nature of the monopoly powerunderlyingconcentrationinanyspecificcontext?Whatdoesitinducefirmstodoandwhatfactors determine their success or failure in reproducing it?What role do the business

9 The explanation of European dominance by recourse to the assumption that they alone

possessed the necessary expertise for initiating and running industrial ventures in the earlystages of industrial development has been effectively challenged on these lines, and thatdominance shown to have its roots in a monopoly power related to a specifically colonialcontext(Bagchi,1980and1994;Ray,1985and1994).

10 AmsdenandHikino(1994)basetheirexplanationforthesuccessofconglomerategroupsinlateindustrializationontheaccumulationbythemofgenericabilities.

27

group structures play in this process? What kind of interaction takes place betweenbusiness, society and the State? If business groups in developing countries are to beproperlyunderstood,thesearesomeofthemanyissuesworthinvestigating.Theportrayalof business groups as efficient organizational responses to underdeveloped marketconditionsdoesnotanswersuchquestions.Itonlyprecludestheirasking.

5. Conclusion

The literature on business groups indeveloping countries containsnot onebutmanydifferent conceptualizations of such groups. None however provides a clear cut andpreciseconceptionofabusinessgroupwhichisintunewiththerealityofsuchgroups.That theyareunable to identifyasetof features thatcanbesaid tobecommon toallgroupshasbeenillustratedhereinrelationtoIndiangroups.MulticompanystructuresareactuallyquitecommoninIndia,notasstablearrangementsofcoordinationbetweendifferentfirms,butastheformthat individualfirmsoftentakeandretainevenastheychangeandtransformthemselvesovertime.Yetsucharethediversitiesamongstgroupsalongmanydifferentdimensions that it ishard topindownasetofstylizedfacts thatcanbeusedtoseparatebusinessgroupsfromnongroups.Thisdoesraisedoubtsaboutwhetheritisatallpossibletoidentifyanythingbeyondthemulticompanyform,whichitselfconcretelycantakemanydifferentshapesthatiscommontoallgroups.Mightitnot be better to simply acknowledge the fact that there is a lack of identity betweencompaniesandfirmsbecausethemulticompanystructureservessomeusefulpurposesfor thosewhocreate it, tryanddiscoverwhat theseare,and take such structures intoaccountinstudyingwhatfirmsareandwhattheydo?

ThelackofcorrespondencebetweentherealityofIndiangroupsandgeneralconceptionsaboutgroupsmayofcoursebeattributedtothespecificitiesorpeculiaritiesoftheIndiancase.Thathowever ispreciselythepointthatneedsemphasizing,namelythatnotonlyintracountry but also intercountry differences could be associated with businessgroups.Speculatingaboutthereasonsfortheexistenceofbusinessgroupsindevelopingcountries in general,without first identifying preciselywhat features are general andwhat specific,maybe consequently apointless exercise.Particularly important in thisregardistheneedtofirstestablishwhethergroupsintheirspecificcontextsarefirmsorcoalitions of firms because of the fundamental differences between these two multicompanystructuresandthequestionstheythrowup.

Thedeficiencies in theconceptualizationandexplanationsof thebusinessgroup in theliterature do not however simply reflect the absence or dearth of information in thehandsof thoseattempting tocomprehend this institution.That informationgap isalsoproduced by a prevalent approach that does not attach value to the essential task ofputting togetherand siftingat least thebasic relevant informationonbusinessgroups

28

andiscontentwithproceedingfromextremelysuperficialobservationsoftherealworldtowardsconstructingexplanatorymodelsaboutit.Consequently,eveninformationthatcouldbe reasonablyeasilyharnessed isnotalwaysmadeuseofasexemplifiedby thenumerous instancesof lackof correspondencebetweenperceptions and Indian realitythathavebeenhighlightedhere.That thishaseven led togrosserrors in thestudyofspecifically Indian groups should serve, as a warning for those attempting to studybusiness groups anywhere in the world and as a caution for the consumers of theliteratureonthesubject.

Finally,theanalysisofbusinessgroupsneedstomoveawayfromtryingtoexplainthemas efficiency enhancing responses to institutional voids. Such an approach is firstlycompletelyahistoricalandstaticattaching littlesignificance toeither theshifts in theenvironmental and institutional context of groups or the fact that these groupsthemselvesareentitiesthatchangeandgettransformedovertime.Italsoassumes,asthetheoryofthefirmsimilarlydoes,preciselywhatitneedstoestablishthattheeconomic,social,andpoliticalmechanismsofdevelopingcountriesandtheirinternationalcontextwork towardscreating in the formofagroupanefficientorganizationalstructureandalsoensureanefficientdistributionofeconomicactivitybetweendifferentsuchgroups.In the process of making these assumptions of how the system works in relation tobusiness groups, however, itdevalues the importance of an examination of its actualworking. It is an objective examination of this working, unhindered by any priorconceptionthatthehistoricalfunctionofbusinessenterprisesistodeliverefficiencyandtheproofofthatliesintheirsuccess,whichisnecessary.

29

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List of ISID Working Papers

WP2008/10: OutwardFDIandKnowledgeFlows:AStudyoftheIndianAutomotiveSector,JayaPrakashPradhan.

WP2008/09: SouthSouth Investment in Infrastructure: The Operation of Indian Firms inDevelopingCountries,JayaPrakashPradhan.

WP2008/08 Indian Direct Investment in Developing Countries: Emerging Trends andDevelopmentImpacts,JayaPrakashPradhan.

WP2008/07 Investment and Growth in India under Liberalization: Asymmetries andInstabilities,SurajitMazumdar.

WP2008/06 Media the Key Driver of Consumerism: MacroMicro Linkage and PolicyDimensionACaseStudyofFMRadio,AbhilashaKumari.

WP2008/05 Structural Change in Employment in India since 1980s: How Lewisian is it?SatyakiRoy.

WP2008/04 CronyCapitalismandContemporaryIndiaIICronyCapitalismandIndia:BeforeandAfterLiberalization,SurajitMazumdar.

WP2008/03 ExchangeRateMovementofDevelopingCountries:AnAlternativeTheoreticalFramework,AtulanGuha.

WP2008/02 CronyCapitalismandContemporaryIndiaICronyCapitalism:CaricatureorCategory?SurajitMazumdar.

WP2008/01 IronFoundriesinDuress:IdentifyingImpedimentsinOrganisationsandInstitutions,SatyakiRoy.

WP2007/10 TrendsandPatternsofOverseasAcquisitionsbyIndianMultinationals,JayaPrakashPradhan.

WP2007/09 NationalInnovationSystemandtheEmergenceofIndianInformationandSoftwareTechnologyMultinationals,JayaPrakashPradhan.

WP2007/08 EstimatesofImportIntensityinIndiasManufacturingSector:RecentTrendsandDimensions,TPBhat,AtulanGuha,MahuaPaulandParthaPratimSahu.

WP2007/07 HowdoIndianMultinationalsAffectExportsfromHomeCountry?,JayaPrakashPradhan.

WP2007/06 FiveyearsofChinainWTO:AnAssessment,TPBhat.

WP2007/05 ExpandingProductiveEmploymentOpportunities:RoleandPotentialoftheMicroandSmallEnterprisesSector,ParthaPratimSahu.

WP2007/04 GrowthofIndianMultinationalsintheWorldEconomy:ImplicationsforDevelopment,JayaPrakashPradhan.

WP2007/03 TataSteelsRomancewithOrissa:MineralsbasedUnderdevelopmentandFederalPoliticsinIndia,JayaPrakashPradhan.

34

WP2007/02 NewPolicyRegimeandSmallPharmaceuticalFirmsinIndia,JayaPrakashPradhan.

WP2007/01 SubcontractinginIndiasSmallManufacturingEnterprises:ProblemsandProspects,ParthaPratimSahu.

WP2006/11 QualityofForeignDirectInvestment,KnowledgeSpilloversandHostCountryProductivity:AFrameworkofAnalysis,JayaPrakashPradhan.

WP2006/10 TheIndianStockMarketin200506:AnExaminationofTwoMajorEvents,KSChalapatiRaoandKVKRanganathan.

WP2006/09 OwnershipPatternoftheIndianCorporateSector:ImplicationsforCorporateGovernance,KSChalapatiRaoandAtulanGuha.

WP2006/08 Exportorientation of Foreign Manufacturing affiliates in India: Factors,Tendencies and Implications, Jaya Prakash Pradhan, KeshabDas andMahuaPaul.

WP2006/07 OverseasAcquisitionVersusGreenfieldForeignInvestment:WhichInternationalizationStrategyisbetterforIndianPharmaceuticalEnterprises?JayaPrakashPradhanandAbhinavAlakshendra.

WP2006/06 SomefeaturesofMigrationandLabourMobilityintheLeatherAccessoriesManufactureinIndia:AStudyoftheInformalSectorIndustryinDharavi,Mumbai,JesimPais.

WP2006/05 GlobalCompetitivenessofIndianPharmaceuticalIndustry:TrendsandStrategies,JayaPrakashPradhan.

WP2006/04 TourismEmployment:AnAnalysisofForeignTourisminIndia,JesimPais.

WP2006/03 AdoptionofImprovedTechnologyinIndiasSmallscaleIndustries:EvidencesfromaFieldSurvey,ParthaPratimSahu.

WP2006/02 StrengtheningIntellectualPropertyRightsGlobally:ImpactonIndiasPharmaceuticalExports,JayaPrakashPradhan.

WP2006/01 TowardsUnderstandingtheStatewiseDistributionofForeignDirectInvestmentsinthePostLiberalisationPeriod,KSChalapatiRaoandMRMurthy.

WP2005/03* IndianStockMarket:200405SomeIssues,KSChalapatiRaoandKVKRanganathan.

WP2005/02* WorkersinaGlobalisingWorld:SomePerspectivesfromIndia,TSPapola.

WP2005/01 EmergingStructureofIndianEconomy:ImplicationsofGrowingIntersectoralImbalances,TSPapola.

WP2004/13 EconomicHistoryofTobaccoProductioninIndia,SKGoyal,PratapCBiswalandKVKRanganathan.

* Already Published. Most of the working papers are downloadable from the institutes website:or

Institute for Studies in Industrial Development4, Institutional Area, Vasant Kunj, New Delhi - 110 070, India

Phone: +91 11 2689 1111; Fax: +91 11 2612 2448E-mail: info@isid.org.in; Website:

About the ISIDThe Institute for Studies in Industrial Development (ISID), successor to the Corporate StudiesGroup (CSG), is a national-level policy research organization in the public domain and is affiliatedto the Indian Council of Social Science Research (ICSSR). Developing on the initial strength ofstudying Indias industrial regulations, ISID has gained varied expertise in the analysis of theissues thrown up by the changing policy environment. The Institutes research and academicactivities are organized under the following broad thematic areas:

Industrial Development: Complementarity and performance of different sectors (public, private,FDI, cooperative, SMEs, etc.); trends, structures and performance of Indian industries in thecontext of globalisation; locational aspects of industry in the context of balanced regionaldevelopment.

Corporate Sector: Ownership structures; finance; mergers and acquisitions; efficacy of regulatorysystems and other means of policy intervention; trends and changes in the Indian corporatesector in the background of global developments in corporate governance, integration andcompetitiveness.

Trade, Investment and Technology: Trade policy reforms, WTO, composition and direction oftrade, import intensity of exports, regional and bilateral trade, foreign investment, technologyimports, R&D and patents.

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Media Studies: Use of modern multimedia techniques for effective, wider and focused disseminationof social science research and promote public debates.

ISID has developed databases on various aspects of the Indian economy, particularly concerningindustry and the corporate sector. It has created On-line Indexes of Indian Social ScienceJournals (OLI) and Press Clippings on diverse social science subjects. These have been widelyacclaimed as valuable sources of information for researchers studying Indias socio-economicdevelopment.

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