Why family empires dominate business in India

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Why family empires dominate business in India

The Economist | September 12, 2024

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Big family companies play a strikingly large role in Indian commerce. Its ten most valuable family-business groups are worth nearly $900bn. The top 100 are worth $1.4trn. First-generation groups account for just a fifth of that. According to a study co-authored by Kavil Ramachandran of the Indian School of Business, nine-tenths of India’s listed firms are family-controlled, far higher than in the West. Few corporate giants in America are controlled by families; there is no Gates at Microsoft, nor a Jobs at Apple.

In India the outsize role of families changes the character of commerce. Succession feuds such as the one between Mr Ambani and his brother are common, and often lead to conglomerates being split into multiple businesses. Corporate empires intermingle through marriages. Foreign companies such as Disney, a media giant, have realised that doing business in the country is easier with the help of a well-connected family.

Dominance of India’s economy by a few families is an outcome its post-independence government overtly sought to avoid. Various laws passed between 1947 and 1969 sought to curtail the growth of large companies. Many firms were nationalised and various industries, such as mining and telecoms, were reserved for the state.

In practice, the vast regulatory burden of doing business in the country continued to benefit large family enterprises with strong connections—an advantage that persists today. In a country with weak institutions, these firms are better placed to attract capital, negotiate with workers and sway government policy in their favour. A focus on leaving a legacy may also encourage family-run businesses to invest more in their long-term success. It helps that, unlike many rich countries, India has not imposed an inheritance tax since 1985, making it easier to maintain family control across generations.

There are signs, however, that change is underway, and not just at Reliance. There are very few Tatas left at Tata, another conglomerate. The last member of the family to run it, Ratan Tata, stepped down in 2012 (albeit with a brief cameo in 2016). When Anand Mahindra retired in 2020 as head of the Mahindra Group, yet another Indian conglomerate, he handed the reins to an employee. So did Harsh Mariwala when in 2014 he stepped down as the boss of Marico, a family firm he had grown into a consumer-products giant.

In time, the growing dynamism of India’s economy may further loosen the grip of corporate dynasties. New-business registrations have picked up as the process has become simpler. Despite a recent slump in venture-capital investment, India has a vibrant tech scene full of entrepreneurs eager to disrupt stodgy incumbents.  But change will be slow. 

3 key takeaways from the article

1. Big family companies play a strikingly large role in Indian commerce. Its ten most valuable family-business groups are worth nearly $900bn. The top 100 are worth $1.4trn. First-generation groups account for just a fifth of that. Nine-tenths of India’s listed firms are family-controlled, far higher than in the West. Few corporate giants in America are controlled by families; there is no Gates at Microsoft, nor a Jobs at Apple.
2. Despite India government’s efforts to curtain, in practice, the vast regulatory burden of doing business in the country continued to benefit large family enterprises with strong connections—an advantage that persists today.
3. There are signs, however, that change is underway, and not just at Reliance. There are very few Tatas left at Tata, another conglomerate. When Anand Mahindra retired in 2020 as head of the Mahindra Group, yet another Indian conglomerate, he handed the reins to an employee.  In time, the growing dynamism of India’s economy may further loosen the grip of corporate dynasties. But change will be slow. 

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Topics:  Indian Family Business, Succession Planning, Corporate India