Crony Capitalism in India

Look at the Forbes list of 50 richest Indians and ask yourself three questions:

  1. Are they rich because of government connects, concessions in licenses, political/mafia connects?
  2. What is the share of their wealth generated from regulated markets vs competitive markets
  3. Are they rich because they were born rich?
  4. Do they operate/do business from India?
  5. What is their R&D spending, market research (not ad/promotion spending) as a % of revenue.

You will be surprised to find strong parallels between Indian rich & famous and Chaebol of South Korea of robber barons of America. Talk to any Indian businessman, bulk of his time would be in getting the approvals, compliance certificates/NOC, collecting receivables and resolving union, banks, transport & supplier problems. There is little time left for strategy, innovation, consumer research and all the 100 reasons that gets you excited in the first place.
The first thing most business do after they become profitable is to buy the real estate. Which is odd, if someone after years of struggle has found a winning formulae to reap profit, all their focus & attention should be in going all in, expanding & making the most before completion catches up. Rentals are 2-4% annually of the real estate cost, so locking your precious equity capital in there is counter intuitive. However it just proves my hypothesis that even though India is a market of 1.2 billion souls, the small business don’t have what it takes to compete in the big leagues because of the crony capitalism

Leave a Reply

Your email address will not be published. Required fields are marked *