Evolution of Modern India Rests on Governance of Industry
November 18, 2006

Sankarshan Acharya
Pro-Prosperity.Com and Citizens for Development

I bumped into an old but educative article entitled, "Business Rajahs" from Business Week. This article is a good reading about the striking similarity between the systems of governance of corporate and political India.

The common factor to corporate and political India is to use birth-right, not necessarily talent, to determine rulers. Such birth rights have led to inefficiency which had weakened and subjugated India in the past.

Owners of Indian businesses have sent their children abroad for MBA training to enhance corporate governance of their family businesses. But training is insufficient to breed the best talent. Competition is necessary to breed the best talent. Only the best talent must ultimately rule if a society has to remain strong, resilient and independent.

India chooses its entry-level civil officers based on competition. But after entry, these officers either vegetate or lose their independence under the diktat of their bosses. Competitive selection of staff at all levels of government based on their value addition to public welfare is needed to replace the deadwood and corrupt officials with more efficient and honest ones. India needs such competitive replacement more than other nations because it is still afflicted by the colonial legacy. Competitive replacement of government staff is vital to prevent mutual collusion of officials with their bosses from rendering public disservice.

Competition for replacement of top management in corporate India is also necessary and vital for the country to progress. This means government rules that prevent management takeover of inefficient corporate managements must be repealed. Indian democracy also needs more than other countries public funding of political parties based on votes polled to make politicians independent of industry to serve public interest.

Sankarshan Acharya     

Founder, Citizens for Development and Pro-Prosperity.Com

Pro-Prosperity.Com is rated as number one by Google based on search for information on (i) optimal governance, (ii) optimal prosperity, (iii) safe banking for prosperity and (iv) universal religion and god.

THE BUSINESS RAJAHS (int'l edition of Business Week, April 14, 1997)


They are the ruling families of India's great companies. How will they fare in the new economy?

The end of the British Raj in 1947 witnessed the creation of a new power in Indian business: the corporate dynasty. Aided by solid political and business connections, India's versions of the Vanderbilts and Rockefellers set up conglomerates that swelled and diversified without having to respond to consumer demand. With exclusive access to government licenses and plenty of regulations to keep competition at bay, businesses thrived. This arrangement suited a society used to the rule of maharajahs, where princes assumed divine right to rule and clung to a sense of entitlement whether deserved or not.

Empires were built. Names like Tata, Birla, and Bajaj became household words. Such companies grew to account for 15% of the Indian economy, and their products penetrated the lives of consumers in everything from cars to clothing. When the grand patriarchs died, they handed down their empires to their sons. And when the sons died, they handed down their empires to their sons. Yet now, with the second and third generations at the helm, it's a whole new India and a whole new ball game.

With India increasingly deregulating, the descendants of the founders of its blue-chip dynasties are faced with a huge challenge: transforming their companies into competitive dynamos that will prosper in the new global economy. The Indian government is moving toward eliminating tariffs that protect family monopolies. Competition from multinationals and Indian upstarts alike is coming on strong. ''The burden on this generation is unlike any other,'' says Gurcharan Das, a former CEO of Procter & Gamble India and now a consultant. ''They have to become competitive in their own right. This is reckoning time.''

SURVIVAL SKILLS. Such a moment can be exhilarating or terrifying, depending on how well you are prepared. Some of these families, like the Ambanis of Reliance Industries Ltd. or the Mahindras of Mahindra & Mahindra Ltd., seem energized by the challenge. Others have already stumbled as the government has slowly pried open the economy. Families like the Mafatlals, Thackerseys, Sarabhais, and Khataus--all once dominant in textiles--let their companies run into the ground. As more Indian dynasties professionalize management--and as others slide into inconsequence--the economic landscape will change dramatically.

In order to thrive and survive, these dynasties need to separate professional matters from family interests, focus on core businesses, and become more accountable to shareholders (table, page 25). The younger generation has inherited overstaffed, bureaucratic companies with little relation to each other. Often profits were not reinvested in new plants or products, but ended up in family coffers. Errant Indians have stashed away an estimated $100 billion in Swiss banks. And the families have an unusual vulnerability. Most of them own minority stakes in their companies, on average about 26%. With shareholders demanding more rights and foreign institutions demanding greater accountability, the families find themselves under pressure to perform for the first time. ''The old practices can survive for a while,'' says Francis Pike, chairman of Peregrine India. ''But gradually, gradually, the market will chip away at the system.''

The realities of the new India are forcing these dynasties to take measures unheard of in the old days. Six months after Anand Mahindra joined Mahindra & Mahindra, his family's tractor business in 1991, the young chief threatened to withhold bonuses from his workers unless they increased productivity. Outraged, the workers laid siege to Mahindra in his factory for three hours. Finally allowed out, the Harvard University MBA firmly explained that in liberalizing India, there would be no more free lunches. Amazingly, the workers backed down. ''Since then, from 1,100 workers making 72 engines a day, we now have 770 workers making 125 engines a day,'' says Mahindra, a thwarted filmmaker who is now managing director.

TIGHTER FOCUS. Mahindra & Mahindra is now the fifth-largest tractor maker in the world, and its passenger-car joint venture with Ford Motor Co. is widely considered the best managed in the country. Mahindra's market capitalization has grown from $145 million in 1993 to more than $1 billion today. ''That's not for being the most efficient or productive. It's for providing predictability and transparency,'' says Mahindra.

India's changing environment is also making it less profitable for conglomerates to be scattered in diverse industries. For example, Kumar Mangalam Birla, a 29-year-old London School of Economics MBA, inherited a $5 billion empire in 16 countries on the untimely death of his father Aditya in 1995. Birla Group's flagship Grasim Industries Ltd. makes everything from fabric to chemicals to cement and may find tough competition in these industries down the road. Group profits have been soft, and the consensus is that the company is stretched too thin.

Birla has had the foresight to put new projects--such as a paper pulp plant--on hold. But even if Birla wants to do things differently, he has to manage his group without antagonizing his father's old advisers. And despite his Western education, his empire remains closed and secretive. Birla declined to be interviewed.

In some cases, deregulation could give the large groups new businesses for the future. Birla's recent telecom joint venture with AT&T is one example. But for the most part, diversification is a drain on resources. ''The highly diversified empires must concentrate on businesses [where] the group already has a competitive advantage,'' says Sunny Oberoi of Capital Group, India's third-largest foreign institutional investor.

Corporate sprawl also afflicts Tata, a $9 billion empire of nearly 90 companies in such businesses as steel, truckmaking, power generation, hotels, computers, consulting, and consumer goods. Tata companies have a reputation for integrity, and of all India's family-run groups, they are the most professionalized. But more than 60% of group revenues come from just five companies--steelmaker Tisco, truckmaker Telco, Indian Hotels, Tata Electric, and Tata Chemicals--some of which are run like personal fiefdoms by fiercely independent managers.

Chairman Ratan Tata, 59, has had to fight bitter, public battles with these subordinates to establish himself as the unquestioned heir to the Tata crown and make the cultural changes Tata needs. Tata is slowly developing a strategy to shed unprofitable businesses such as textiles. He is also starting to make group companies grade their performance by comparing their divisions to international competitors.

More of India's dynasties are now trying to borrow the best practices from foreign companies. The brothers Ambani of Reliance Industries are an example of how to use liberalization to become globally competitive. Mukesh, 39, and Anil, 37, who both have MBAs respectively from Stanford University and the University of Pennsylvania's Wharton School, inherited the giant group from their father, Dhirubhai, who never went to college. ''My father worked from a common-sense approach,'' says Anil. Like their father, the brothers routinely work until well after midnight at their Bombay business-district offices.

Still, Reliance's greatest obstacle is its tarnished image. Dogged by controversy after years of aggressively trying to influence the government, the Ambani brothers are trying to improve their image. They know that greater transparency will bring more foreign investment, so they recently hired Deloitte & Touche to audit the books and bring them into line with international accounting standards. In February, Reliance became the first and only Indian company to raise $100 million in 100-year U.S. bonds--an indication, say the brothers, of the family's intention to be profitable for at least two more generations. ''People said it would be difficult for companies like Reliance to survive under the new economic reforms,'' says Anil. But the group had $400 million in profits last year on $2.4 billion in revenue.

WRITING ON THE WALL. For every successful transition, there are those unable to move beyond the maharajah mind-set. In February, after running into losses for four years, New Delhi-based Thapar Group, whose Ballarpur Industries Ltd. was one of India's largest paper and chemicals producers, pulled the plug on unrelated businesses like edible oils, construction, and publishing. Family patriarch Lalit Thapar also halved the astronomical salaries of his Western-educated spendthrift nephews to whom he had entrusted his business. In 1996, the cash-short group had to withdraw from a $200 million nylon-fiber project with DuPont Co.

In some cases, competition is serving to resurrect the entrepreneurial spirit of the founders. Twelve years ago, Sanjay Lalbhai saw the writing on the wall for his grandfather's 66-year-old textile business. Arvind Mills Ltd. made 250 different products, from handkerchiefs to saris, but competition was fierce. He yanked all 250 products, modernized his factories, and focused exclusively on denim. Arvind Mills is now the world's fifth-largest denim producer. Lalbhai, 43, and one of the few dynastic heirs with an MBA from an Indian university, understands the trade-off between keeping a close family business and being a professionalized global player. ''It means my son may not be the one running the company years from now,'' he says.

Another successful generational transition is South India's Ramco Group, which first prospered in cement. When P.R. Venkatrama Raja's father sent him to the University of Michigan to get his MBA in 1981, Venkat was given a mission: to identify a new business with global potential. Returning to India, an excited Venkat brought back an idea: a software system that integrates all aspects of a company's operations, from manufacturing to accounting to distribution. Only a handful of companies in the world made a similar product--including Germany's SAP and Oracle Corp. of the U.S. But by relying on cheaper Indian brainpower, Venkat could develop a system for less.

With his father's $30 million, Venkat hired 200 MBAs and 400 computer professionals--the largest private effort of its kind in India. Toiling for seven years, Venkat and his crew finally came up with Marshall 3.0, a Windows-based product, and set up offices in California, Switzerland, Malaysia, and Singapore to market it. Already, Ramco Systems has notched up revenues of $20 million. Microsoft Corp. founder William H. Gates III launched Marshall on his first visit to India in early March.

Other companies need new technology as well. Take Bajaj Auto Ltd., India's largest scooter maker. Chairman Rahul Bajaj, 59, built up a $1.2 billion empire, and his 30-year-old son Rajiv is being groomed to take over. But the Bajaj scooter is based on a high-pollution model that Italy's Piaggio Veicoli first made in 1960. Bajaj will need new technology to keep Honda Motor, Yamaha, and Suzuki from stealing its 68% market share.

In male-dominated India, only rarely do India's corporate dynasties turn to a daughter. Mallika Srinivasan decided she wanted to work in her father's Tractor & Farm Equipment. TAFE is India's second-largest tractor maker, the flagship of the $630 million Amalgamations Group of Madras, which is today controlled by Srinivasan's uncles and father. To make her way into an unusual domain, Srinivasan armed herself with credentials including an MBA from Wharton. ''You have to earn the right to manage,'' says Srinivasan, 37, now managing director. On her return, she was simply told to find ways to improve business. She took the revolutionary step of asking farmers what they wanted and decided to set up customer-service centers. As a result, TAFE's market share has soared from 9% to 20%.

As more of these young inheritors adapt their family companies to the modern era, the Indian stock market should benefit. That has not happened yet. Compared with other regional bourses such as Hong Kong's--which is dominated by family companies--Indian shares in the '90s have turned in a mediocre performance.

Family-run conglomerates all over Asia are thriving; India should be no exception. As India moves toward the free market and integrates into the global economy, the only way to perpetuate a business dynasty is for family interest to coincide with shareholder interest. The business maharajahs who understand this will be the success stories of the new India.

By Manjeet Kripalani in Bombay

Rural Min may take away monitor badge from MPs
Daily Pioneer, October 23, 2006
Akhilesh Suman | New Delhi

In a move that is likely to distress law makers of India, the Rural Development Ministry is mulling the removal of MPs from district committees meant for vigilance and monitoring of rural development programmes.

These committees were constituted in October 2004 with the purpose of overseeing the implementation of the ongoing rural development programmes. As per the Ministry guidelines, local MPs act as chairpersons of these district vigilance and monitoring committees.

A review of the performance of these committees by the Ministry revealed that after presiding over inaugural meetings, most MPs did not paid adequate attention to their assigned tasks.

"These committees are also to effectively liase and co-ordinate with the Ministry of Rural Development and the State Governments to ensure that all schemes are implemented," the guidelines say.

For the 604 districts in the country, there should have been 4,832 meetings of these committees, but only 656 meetings could take place till date - and that too in 384 districts. In many cases, only one introductory meeting was held and in only 178 of these 384 districts some follow up meetings were held.

Ironically, the decision to make MPs head the district committees was taken in response to complaints from the MPs themselves, who alleged that the district administration kept them out of planning and executing development programmes in their areas.

But consistent neglect by the public representatives of their duties as heads of these committees has forced a rethink in the Union Rural Development Ministry. "It is like a mini assembly at the district level, where an MP can ask how the flow of fund to the rural areas is being utilised," said a Ministry official. As heads, the MPs have to call meetings every three months and every official, including the district magistrates, has to comply with their directives.

As offshoot of the MPs lack of interest has been their reluctance to raise related issues in Parliament. "The number of questions on MORD has drastically come down as the MPs are themselves not doing what they are expected to do," an official complained.

"We are thinking of other ways to tone up the functioning of these committees. One of the suggestions under consideration is that chairing of these committees by MPs should not be mandatory but be by an appointee of the Ministry," the official added.

"Social auditing and strict vigilance by monitoring committees would act as a deterrent in committing irregularities. I have not been reported any political interference in rural development programmes till date, but what we are still awaiting is positive intervention by the public representatives and my colleagues in Parliament," Rural Development Minister Raghuvansh Prasad Singh told The Pioneer.

Sources say the Ministry may consider shifting the chairmanship of the vigilance and monitoring committees to some eminent personalities, while keeping the provision of the local MPs and MLAs being members of the committees intact.

However, before it modifies the present guidelines, the Minister wants to talk to the MPs directly. He has asked the Ministry officials to organise a conference of MPs on the specific issue of their involvement in the rural development activities. The proposal has been sent to the expenditure finance committee (EFC) to assess the expenditure involved in the exercise.

If the move doesn't take off, the Minister might demand a two-day discussion on the issue in the Winter session of Parliament.