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India’s wealth gap impedes growth

India needs to curb a concentration of wealth or risk becoming hostage to a corporate oligarchy that will depress its rapid economic growth.

A study funded by the Asian Development Bank found that, by early last year, India had 50 billionaires who together controlled wealth equivalent to 20 per cent of gross domestic product and, reportedly, 80 per cent of stock market capitalization.

The report warned that this concentration of wealth and influence could be a hidden time bomb under India’s social fabric.

India’s corporate sector is hailed as one of the most dynamic within emerging markets, with groups such as Reliance Industries leading the expansion of the country’s oil and gas sector and Tata Group acquiring overseas companies.

But critics say the greater prosperity from market-driven policies introduced since 1991 is also leading to glaring wealth disparities in India.

Per capita income is about $1,000 (€715, £625), but many in its population of 1.1bn scrape by on much less.

In Mumbai, where more than half of the population lives in slums, Mukesh Ambani, India’s richest man and chairman of Reliance, who is ranked seventh on the Forbes global rich list, is building a 27-floor family home at a reported cost of $1bn.

The report warned that the creation of oligarchies was a common trap in developing countries that often prevented them from realising their potential.

It said India needed to develop an effective competition commission and strengthen regulation to prevent crony capitalism as well as foster greater transparency in the allocation of land and infrastructure projects.

Indian retail needs more liberalization

Among the 30 emerging markets, India has become the number one hotspot for global retailers for the fourth time in five years. Global consulting firm A T Kearney's eighth Annual Global Retail Development index has ranked India first in terms of attractiveness as a retail destination followed by Russia and China. India wrested back the top honors from Vietnam, thanks to factors like low inflation and a fall in rents especially in 2 and 3 tier cities. Since GDRI is geared to helping retailers take investment decisions on the basis of criteria like economic and political risks, the report also suggests a broder interest in the Indian economy.

In a recession-hit world, Asian giants like India are being viewed as key to a global recovery. India continues to notch impressive quarterly growth rates. Its domestic demand driven economy has a competitive edge over export led economies. It has a growing and brand conscious middle class, along with an expanding luxury goods clientele. All this has been water off the back of a parliamentary standing committee that's asked for a ban on retail FDI. The committee also objects to large domestic corporates doing business related to grocery, fruits and vegetables. Foreign-Indian partnerships, seen as allowing 'outsiders' backdoor entry , are opposed. The old bogeys are raised: the supposed death of mandis and corner shops as well as job loss.

The fact is that Indian firms not only survived the challenge of foreign specialty in retail, they became more competitive. Nor did the shops around the corner of unorganized retail die out. Big retailers, foreign or domestic, are wrongly projected as bad for farmers and consumers. Supermarket chains can augment farmer's earnings many times over through direct purchase of their produce. Today, it is middle men who gain at the cost of farmers and consumers. Moreover, post-harvest infrastructure in India related to warehousing and processing operations needs improvement. Thanks to poor cold chain management and distribution networks, an estimated 40 per cent of the country's fruit and vegetables are annually wasted. So, in both farm and rural non-farm sectors, the need to increase investment can hardly be overstated.

Go native arguments make little sense in the face of global interest in setting up shop in India. If anything, India's $400 billion retail industry is underdeveloped, with organized retail comprising only 5 per cent of the market. Given that the Manmohan Singh led government seems to recognize the need for big-ticket private investment, the retail roadmap should include further liberalization in single brand retail as well as opening up the foreign multi-brand retail. Mom 'n' pop stores coexist with malls and supermarkets the world over. Why should it be any different for India?

News: India Inc buys 143 US cos in 2 yrs

The greater engagement of US with India seems to have benefited the former during the economic downturn as thousands of Americans managed to save their jobs when Indian corporates went on a major acquisition drive in the US.

During the last two years, Indian companies acquired 143 US firms across various sectors. While 94 deals were concluded in 2007-08, in the following year when the economy was on the downturn, Indians bought as many as 50 US entities that were on the verge of closure, saving thousands of jobs.

A study, jointly conducted by Indian industry association FICCI and Ernst & Young, said Tata Chemicals, Wipro, Reliance Communications and Firstsource Solutions were some of the top Indian entities that were involved in bailing out US companies in the red.

The report released on Thursday said IT & ITeS, manufacturing and pharmaceuticals were the prime sectors in which most of the deals were formalised. Indian companies from the IT sector have over the years been aggressively expanding in the US market.

The deals were predominantly debt financed with cash being a popular mode of payment. "This trend probably extends from India Inc's traditional preference for cash transactions in the domestic merger and acquisition space," the report observed.

The Ernst & Young report says the boom in the Indian economy in the last three to four years made the domestic companies cash-rich which provided them with access to more capital than in the past.

Interestingly, one of the key factors, as the report cites, behind more acquisitions has been the liberal policies introduced by the government and RBI for overseas investments.

According to RBI data, in 2007-08 the total outbound investments of Indian companies amounted to $18 billion. In the first half of 2008-09, at least 2,000 proposals valued at $9 billion were cleared for overseas investments in joint ventures and wholly owned subsidiaries.

Source: ToI