John D 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 to put modern monopoly principles into practice. Rockefeller was a staunch supporter of the collusion of big corporations against the competition.
Through a secret alliance of railroads and refineries and corrupted elected officials, he amassed huge wealth and power. He ruthlessly blocked any competition from individual businesses through massive monopolies and cartels.
His company Standard Oil was eventually broken up, which gave birth to US antitrust law. But his thoughts have become an ideology, and he has become an ideal for many businessmen who think subverting laws into their favor is the easiest model for making money rather than focusing on innovation.
One businessman who is exactly following in the footsteps of Rockefeller is Mukesh Ambani.
In 2019, India added three new billionaires every month while most of the rest of the world was in an economic slowdown. The total number of billionaires reached 138, the highest after China and the US.
Without question, Mukesh Ambani is the richest person in India. And this year, he surpassed Europe’s wealthiest man, Benard Arnault, to become the fourth-richest man in the world, with a net worth of US$80.2 billion, only trailing Jeff Bezos ($187 billion), Bill Gates ($121 billion), and Mark Zuckerberg ($102 billion).
What’s interesting is that, in the top 10 list, he is the only businessman from BRICS (Brazil, Russia, India, China and South Africa) and from the developing world. Quite a feat. But in 2014 before the government of Prime Minister Narendra Modi came to power, he was only ranked by Forbes as the world’s 40th-richest man, with a net worth of $18.6 billion.
That’s a quantum leap in six years. What’s amazing is that he added $22 billion to his fortune this year, despite the country facing a serious slowdown. While there is no doubt that Ambani’s rise has been remarkable, the bigger question is, what’s fueling 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 due to a lack of innovation and productivity. In fact, India ranks poorly on the global innovation indices. According to a recent report from the World Intellectual Property Organization (WIPO), its current position is No 48 in the global innovation index.
While India had a natural advantage of an English-speaking population, it shielded itself from a manufacturing-based economy for a long time. Lack of innovation and little focus on indigenization has resulted in poor productivity. India’s share in the world economy is testimony to how much it lacks in terms of indigenization of technology and proper production lines compared with the US, China and Japan.
Inefficiencies in India’s infrastructure, logistics and supply chains, along with corrupt practices, also contribute significantly to low productivity.
But productivity is crucial for wealth creation. Productivity growth improves the overall quality of life for the whole country. An economy based on productivity results in strong, sustainable growth, which allows the country to prosper as a whole. Otherwise, the result is inequality and cronyism.
According to recent data from the World Inequality Database, in India, the share of the bottom half of the population in total wealth is 6.4%, while the share of the top 1% is 30%. Apart from that, India is ranked in ninth position in crony capitalism, with crony-sector wealth accounting for 3.4% of gross domestic product, according to a study by The Economist.
There was a consensus among Indian policymakers at the time of 1991 economic reforms that economic liberalization would eliminate the nexus between the business elites and the politicians and thus free people to open and run independent production lines of goods and services to provide more opportunities and well-being in society.
But on the contrary, the relationship between these two groups further strengthened. Large investors, attracted by the opening of the Indian market, paid huge bribes to political leaders, who often became businessmen themselves and forced public banks to lend to industrialists close to them.
Major fugitive businessmen like Vijay Mallya, Nirav Modi and Mehul Choksi and major scams are a few examples of the misuse of public authority. In the Modi era, this tradition continues, and he in turn is supported by Ambani (and Gautam Adani, another rising star).
The admiration and support for each other are quite visible, as most of the time Ambani has fully supported the government’s decisions publicly. He lauded Modi’s demonetization policy as a game-changer, yet it proved to be a disaster for the Indian economy.
Ambani’s and Adani’s wealth has multiplied almost five times and three times respectively in the last six years. The key to Ambani’s soaring wealth is not innovation but monopoly. He holds a monopoly in every sector, whereby his company Reliance has a presence whether it is telecoms, oil, retail or entertainment. There are many instances where he has used his political support within the ruling government to subvert laws into his favor.
The spectacular entry of Reliance Jio to the telecommunications sector was a case in point. He singlehandedly crushed data charges for customers to the lowest in the world, which led to a price war between the other operators.
The aftereffect was astonishing: Revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) for incumbent operators fell anywhere between 15% and 40%, and the debt-to-EBITDA ratio of one major operator, Idea reached a dangerous level of 9:1.
The COAI (Cellular Operators of India Association) called on the government to intervene urgently as Reliance Jio violated the Telecom Regulatory Authority of India’s order that all promotional traffic cannot exceed the 90-days upper limit. But TRAI amended its previous tariff order as well as changing the definition of significant market power (SMP), where an operator is deemed predatory with more than 30% market share. Today Jio’s market share is 34%.
Similarly, in January last year, the government of India revised e-commerce policy, which forbids e-commerce companies with foreign investment from selling more than 25% of their output via a single marketplace. It certainly hampers the growth prospects of foreign e-commerce players like Amazon and Flipkart, as they make up to 50% of their sales of smartphones from OnePlus, Samsung and Xiaomi by offering massive discounts during India’s festive shopping seasons.
It was a win-win situation for consumers and e-commerce players. The government claims that the new law will ensure a level playing field and promote fair competition for domestic players.
But the biggest beneficiary is India’s large retailers, and the largest of them all is Mukesh Ambani’s Reliance Retail. Now, According to a recent report on Goldman Sachs’ review of e-commerce markets globally, the Indian e-commerce industry is likely to reach $99 billion in value by 2024, and Reliance will capture half of the online grocery sales through its recently signed deal with Facebook.
The two companies have signed a commercial pact to cross-leverage e-commerce platforms JioMart and WhatsApp to ensure that consumers can access the nearest retail shops to their homes. This will give them access to India’s 30 million retailers. Within two months, the Competition Commission of India approved the $5.7 billion Facebook-Reliance deal, which was touted as the largest foreign direct investment in the Indian technology sector.
What is amazing is that regulators completely ignore the issue of net neutrality, as each of the platforms, whether it’s Jio (388 million users), Facebook (328 million users) or WhatsApp (400 million), has the private data of millions of Indians, which may give the combine undue advantage against their rivals, especially the possibility of preferential treatment by Jio (being a major telecom player) to Facebook and WhatsApp.
These are indirect references to the government protecting certain interests. But in 2018, Narendra Modi even allowed Reliance back-door entry to India’s largest public-sector bank, the State Bank of India, via its 30:70 joint venture with Jio Payments Bank, which had just gotten a license in 2015. So Reliance now has the enormous resources of the SBI at its disposal.
What’s interesting is that former SBI chairwoman Arundhati Bhattacharya, who closed the deal, had joined the board of Reliance Industries Ltd as a non-executive director for five years after serving the one-year cooling-off period following completion of her tenure in October 2017. So the SBI-RIL association under her tenure raises serious questions of conflict of interest.
There are many examples of national interests being undermined by the Modi government to protect certain elite interests. So if the farmers of India have concerns about the undermining of their interests in the new farm bills, those concerns look genuine judging from the past actions of the Modi government.
More so, it’s not rocket science to find why Reliance has the highest market capitalization and Ambani’s wealth has risen so much. Because if the government changes the very basic rules of the game for every sector and puts a serious question mark on the merit of regulatory laws, then it’s not tough to pick losers and winners.
One can speculate about the specific winners, but the real losers are certainly the Indian people and the Indian economy at large, whose fate is decided by a handful of billionaires.