The challenges Ratan Tata faced when he took over were numerous. One of those was the question: will the group survive the onslaught of competition in a newly liberalizing economy?
Thirty years later, even as India’s economy has grown about 13-fold and numerous other business groups that dominated the Indian corporate landscape in the 1990s have fallen behind, the Tata Group is still a behemoth. In 2023, based on data from the CMIE’s ProwessIQ database, Tata Group companies accounted for 6% of corporate India’s assets—about a percentage point lower than 30 years earlier.
Even as the Tata Group held on to its share, other groups surged ahead. Mukesh Ambani’s Reliance companies now account for 9.6% of corporate assets, well ahead of the group they played second fiddle to 30 years earlier. In revenue terms, the gap is much closer, with the Reliance Group accounting for 6.3% of overall private corporate sector revenue, as compared with the Tata Group’s 5.2%.
View Full Image
Other groups have not been as successful at growing, at least in relative terms. The Lalbhai Group, for instance, was ranked 10th in terms of assets in 1995. By 2007, it had fallen out of the top 50 corporate groups in assets terms. Videocon and its group companies were 13th in terms of assets in 1995, but by 2023, it was ranked 50th.
The ProwessIQ database used in this piece excludes banks (both public and private), government companies and public sector units, and corporate groups dominated by finance companies (e.g. Peerless or Sahara). The data was adjusted for changes in corporate ownership, acquisitions and divestments; it does not reflect adjustments for intra-group investments, which ideally should be netted out to get a better picture. Data for 2023-24 was excluded, too.
Beyond the dynamics of individual groups, and the rise and fall of family businesses spanning multiple industries, what’s the bigger picture? How have the ‘traditional’ business groups fared in an era when the Indian economy, and the global economy, saw massive upheavals?
Families of Dominance
Even as business groups have risen and fallen relative to each other, many of the biggest groups in 1995 are still very much recognizable today—Aditya Birla, RPG, Bajaj, Larsen & Toubro (L&T) among others. In 2023, the top five business groups in terms of assets were Reliance, Tata, Aditya Birla, Adani and L&T. The top 10 business groups accounted for 31% of assets in 2023, up from 22% in 1995. Of the top 10 groups, only L&T could conceivably be described as being a non-family controlled business (See chart).
What about the turnover within the top 50 corporate groups? A study in 2007 looking at family businesses around the world compiled data of the top 50 corporate groups in India by assets, stretching back to 1939. According to this study, 32 new groups entered the top 50 list between 1939 and 1969, and 43 groups in 1997 were not on the list 30 years earlier.
If liberalization had indeed succeeded in overturning existing incumbents, introducing competition and easing barriers to entry across a range of industries, the rate of turnover should be as high as it was in 1997, if not higher. But according to the ProwessIQ data, only around 30 of the top 50 groups by assets in 2023 were not in the list in 1997.
The picture changes when we look at revenue rather than assets, and we add in ‘unaffiliated’ companies. These are companies like Infosys, which are not part of any corporate group in the Prowess database. Such companies accounted for close to 40% share of revenue of the non-financial corporate sector in 2023, up from just 18% in 1995. Further, interestingly, the share of foreign corporations in total revenue rose to 14% around 2014 and then levelled off after that. Even in terms of assets, the share of unaffiliated domestic companies rises from 17% in 1995 to 28% in 2023.
But from 2015 onwards, while the share of unaffiliated domestic companies in total revenue continued to grow, there was a levelling-off. And from around 2017, the share of top 10 business groups in total revenue rose by about 4-5 percentage points to around 21%—about the same level it was in 1995.
Group Strength
What are we to make of the increasing importance of unaffiliated firms since the 1990s, as opposed to the dominance of corporate groups in the pre-liberalization era? One part of the story is that during the licence raj, established business groups had an advantage, due to their political connections, in accessing credit and industrial licences from the government and government-owned banks. Thus, a major reason why business groups became so dominant was simply rent-seeking. They were, on the whole, just better at managing it.
View Full Image
Further, in a controlled economy, such groups could allocate scarce credit and capital, and manpower and technical capabilities, to promote businesses in sectors where they saw strong growth. As a 2007 paper by Tarun Khanna and Yishay Yafeh points out: “Diversified groups may be efficient if they make up for missing institutions related to the process of entrepreneurship: new ventures initiated by business groups rely not only on capital infusion from the group, but often also on the group brand name and implicitly on its reputation, providing a guarantee that is scarce in emerging markets. There is also an internal (within-group) market for talent. In this sense, some business groups are perhaps closer to private equity firms than to conglomerates.”
The difference is that, in general, business groups can have a much longer time horizon than the average private equity firm. Ironically, for a long time, many analysts were critical of precisely this attribute of large business groups—that they tended to spread themselves out into many, unrelated lines of business, and had no ‘focus’.
After 1991, as markets became relatively more accessible, talent, skills and capital found it easier to establish profitable standalone firms rather than ones affiliated with a business group, where the benefits might be captured by the family running the group rather than the managers or workers actually running it. Sources of funding, such as foreign investment, became much more diverse and widely available, as did technical and managerial talent. Graduates from the top management schools no longer opted by default for the established business groups.
In a controlled economy, large business groups could allocate scarce credit and capital to promote businesses in sectors where they saw strong growth.
There were limits to this of course. A possible reason why big business groups saw a resurgence of sorts in the latter half of the 2010s was because the Indian industry faced a credit crunch. Banks, hurt by serious levels of non-performing assets, grew lukewarm toward the corporate sector. In such an environment, large groups with established businesses had a natural advantage in accessing the credit that banks were willing to give. But overall, to survive, traditional corporate groups had to be much nimbler and faster on their feet to stay in the race.
Sectoral Picks
In the longer term, the groups that succeeded were foresighted or lucky enough to be in businesses that would take off after the 1990s. The most dramatic example of this is the Tata Group’s decision to set up Tata Consultancy Services (TCS) in the 1960s. By 2023, TCS was the crown jewel of the group. Reliance’s entry into the oil refinery business has proved hugely profitable over the last few decades, providing the group with the cash to expand into new businesses, from retail to telecom to media.
View Full Image
Other groups did not expand into newer, ‘growth’ sectors at the same pace. Take the Lalbhai Group, for instance. In 1995, 45% of the group’s revenue came from textiles. In 2023, that sector, a highly competitive one globally, remained the biggest cash cow for the group by a significant margin. A study in contrast is the Tata Group. In 1995, steel and commercial vehicles were the major sources of revenue for the Tata Group. By 2023, both those sectors, while still significant, played second fiddle to software.
Interestingly, while for individual groups—such as the Tatas or Reliance—a single industry, refinery or software, may account for a substantial chunk of revenue, for the top 10 groups as a whole, revenue by sector is not particularly highly concentrated. This indicates that these groups are, even today, highly diversified (See chart).
What about unaffiliated companies? The bulk of such companies’ revenue was from ‘wholesale trading’ in 1995. This remained unchanged in 2023. But by 2023, sectors that were not important for such companies in 1995 were dominant—software and IT services, retail and auto ancillaries.
The business groups that maintained their ranking were also much more aggressive in acquiring new businesses and divesting themselves of old ones. The CMIE database records the changes in ownership of companies and tracks the movement of companies across groups or to ‘unaffiliated’ status.
While not all such changes in ownership are necessarily acquisitions or divestments, it’s striking that the largest groups have also seen high levels of turnover of companies, both into and out of the group. For instance, since 1993, 99 companies moved out of the Tata Group, while 140 entered it.
In the case of Adani, 11 companies left the group, while 84 entered it.And post the separation of the Ambani Group companies between the brothers, 28 companies left the Mukesh Ambani Reliance Group, while 183 entered it (a substantial number being in the cable business in 2020, following the acquisition of DEN Networks in 2018).
Ultimately, if the last 30 years of churn in the Indian industry are any guide, the largest business groups will not go away anytime soon; they are likely to continue their domination. It’s the ones that are a bit smaller that will face the pressure to evolve—or stagnate.
howindialives.com is a search engine for public data.
