The rise of monopolies in ‘New India’

John D Rockefeller Sr (1839-1937) was an American business magnate and philanthropist. He is widely considered the wealthiest American of all time. Rockefeller founded the Standard Oil Company in 1870, at age 31.His wealth soared as kerosene and gasoline grew in importance, and he became the richest person in America, controlling 90% of all oil in the US at his peak. Further, Rockefeller gained enormous influence over the railroad industry which transported his oil around the country. The US Supreme Court ruled in 1911 that Standard Oil had to be dismantled for violation of federal anti-trust laws. It was broken up into 34 separate entities, which became companies such as ExxonMobil, Chevron and others. Rockefeller once said, “own nothing, control everything.” This was the philosophy behind one of the richest men of the 19th century. He was the first businessman to put modern monopoly principles into practice. He ruthlessly blocked any competition from individual businesses through massive monopolies and cartels.

Mukesh Ambani's Reliance Industries Ltd (RIL), in present-day India, comes closest to Rockefeller's Standard Oil Company of the early 20th century. Ambani holds a near monopoly, or at least the highest ability to influence markets and policy, in every sector in which RIL has a presence -- telecom, oil, petrochemicals, retail. Many industry experts believe that Ambani has used his political clout to twist the regulatory framework in his favour.

The spectacular entry of Reliance Jio into the telecom sector was a case in point. The Telecom Regulatory Authority of India (TRAI) defied conventional wisdom by allowing Jio to offer about 200 days of promotional free services. The COAI (Cellular Operators of India Association) had called on the government to intervene as Jio was breaching TRAI’s order that promotional offers cannot exceed the 90-day upper limit. TRAI said in a letter to operators that, “on examination” they have found out that the Happy New Year offer launched by Jio “is distinct from their earlier Welcome offer and cannot be treated as an extension of the earlier promotional offer as the benefits under both sets of promotional offers differ.”

The after-effect of Jio's entry into the telecom industry was astonishing -- revenue and EBITDA margin for incumbent operators fell by 15-40%. Idea's debt-equity ratio has reached a dangerous level. The predatory entry of Jio has thrown the telecom industry into a near-irreversible, long-term damage.

In 2018, the government allowed RIL's backdoor entry into India’s largest public sector bank, SBI. Jio Payments Bank (JPB) was launched as a 30:70 joint venture between SBI and Reliance Jio in April 2018. The payments services of JPB are provided through SBI’s 'You Only Need One’ or YONO platform, a digital banking application launched by SBI in 2017. Reliance now has the enormous resources of the SBI at its disposal. Former SBI chairperson Arundhati Bhattacharya, who closed the deal, joined the board of RIL as an independent director after serving the one-year cooling-off period after retirement from SBI.

Equally worrisome is the concentration of economic power in aviation infrastructure in a few hands. The Adani Group bagged the 50-year concession to operate all the six Airports Authority of India-operated airports – Lucknow, Jaipur, Guwahati, Ahmedabad, Trivandrum, and Mangaluru – which were put up for auction. The ports-to-energy conglomerate has also acquired a controlling stake in Mumbai airport from GVK Airports. Adani Group will also construct the Navi Mumbai International Airport. Airports are natural monopolies. To have one private owner controlling eight or more airports can't possibly be great news for airlines or fliers. Adani Group is also a formidable monopoly in sea ports and green energy. The group is also eyeing to grab a slice of Indian Railways during privatisation.

Mukesh Ambani has been ranked as the richest person in India for the 13th consecutive year by Forbes Magazine. As per Forbes India Rich List 2020, his net worth stands at $88.7 billion, making him the fourth-richest man in the world. In the top 10 richest list, he is the only businessman from the BRICS countries and from the developing world. A giant leap, indeed. In 2014, before the Narendra Modi government came to power, Ambani was ranked by Forbes only as the world’s 40th-richest man, with a net worth of $18.6 billion. Since 2014, Ambani's wealth has grown by nearly five times. So has the wealth of Gautam Adani, now at No 2 on the India rich list. He has a net worth of $25.2 billion for the year 2020. In 2014, Forbes had estimated Adani’s net worth at only $7.1 billion.

While there is no doubt that Ambani’s rise has been remarkable, the larger question is, what’s fuelling his skyrocketing fortune? Innovation or crony capitalism? Over the past decades, if India’s economy was not able to grow as fast as China’s, it was mainly because of a lack of innovation and productivity. In fact, India ranks poorly on the global innovation indices. India's current ranking is 48 in the Global Innovation Index. China is at 14. Disrupting the marketplace through innovation is capitalism at its best, but doing so piggybacking on regulatory support is crony capitalism.

There was a consensus among Indian policymakers at the time of the 1991 economic reforms that economic liberalisation would eliminate the nexus between the business elites and the policymakers. On the contrary, the relationship between these two groups got further strengthened.

The key to Mukesh Ambani’s soaring wealth is not innovation but monopoly and policies that suit his businesses. If the government changes the rules of the game in every sector and puts a serious question mark on the basic focus of regulatory laws, then it’s not difficult to pick winners and losers. One can guess the winners, but the real losers are certainly the Indian public and the Indian economy at large, whose fate is being decided by a handful of billionaires.

(The writer is an alumnus of IIM, Ahmedabad, and a retired corporate professional)