How a Weak Competition Commission of India Is Facilitating Media Oligarchies

Nowhere is this more evident in the case of Reliance Industries Limited.

There is massive concentration and conglomeration taking place in the converged media landscape of India.

The Competition Commission of India’s (CCI) decision-making is largely opaque and falls short of being evidence-informed. This risks it being seen as a facilitator of media oligarchies.

Nowhere is this more evident in the case of Reliance Industries Limited (RIL), an industrial group which has a major presence in multiple markets of broadcast audience, broadcast advertising and online video.

Successive governments’ response to RIL’s incremental expansion in the media economy shows the weaknesses in the existing regulatory framework.

This is evident in the recent coming together of RIL and the Indian arm of one of the largest global media conglomerates, Disney.

A decade of expansion

News reports portrayed this variously as an acquisition, a joint venture and a merger.

The principal actors – RIL, Viacom 18 and Disney – called it a joint venture, since they respectively held around 16%, 46% and 36% in the new entity. But in effect, it is owned by RIL, since it has majority control in Viacom18.

The deal follows a decade of RIL’s expansion into the media and communication industries.

In 2012, RIL waded into TV broadcasting by taking over two established multi-lingual networks, TV-18 and ETV.

This also gave it ownership of Viacom18, then an ascendent player in the TV entertainment segment.

These acquisitions, while achieved in unorthodox ways, did not carry threats of market dominance. There existed rival networks with larger audience share in the news and entertainment segments, across linguistic markets.

But the scenario heralded by this recent deal is totally different.

Among the top 10 broadcasters in 2023, those owned by Viacom18 and Disney were together estimated to harvest a viewership share upwards of 40%.

In 2016, RIL entered mobile telecommunications with the launch of Jio. It profited from a state falling short on enforcing corporate disclosures, retrospectively revising policies and overlooking procedural violations.

Having gained a licence for mobile telecommunications, Jio weaned away subscribers from incumbent telcos by “predatory pricing” – a  commercial strategy that also benefited from the CCI’s regulatory magnanimity.

Regulatory response

Given the new combine’s scale, and its implications for media, the CCI was expected to be precise and transparent in the queries sought from the companies involved.

News reports claimed CCI posed around 100 questions to Reliance and Disney. Neither the questions nor the responses are publicly available.

CCI’s summary order was quick to infer that this arrangement “will not cause any appreciable adverse effect on competition in India”. It also felt that “the exact relevant market definitions for evaluating the proposed transaction may be left open”.

The concept of relevant market, central to competition regulation, delineates the specific “product market” where substitutable offerings compete, such as news outlets in a particular language or subscription-based online video; and the “geographic market”, the territory where comparable services are traded.

In refusing to flesh this out in the RIL-Disney case, the CCI lost an opportunity to clarify a longstanding grey area in India’s complex, competitive and converging media economy.

This may be due to the time-consuming nature of this exercise, lobbies impeding such efforts, lack of internal capacity in the regulator and/or its inability to access requisite data from companies.

Multiple spheres of dominance

The combine heralds a high degree of concentration in two of the most lucrative TV segments, entertainment and news.

This will enhance its leverage over cable operators and direct to home operators.

Consequently, the new combine would wield market power in the wholesale business of TV distribution. It is unlikely that such a scenario will not impact the monthly tariffs paid by TV viewers.

Moreover, three online video platforms – Jio’s Jio Cinema, Viacom18’s Voot, and Disney’s Hotstar – will be owned by the combine, who will garner more than 30% of the existing user base.

This paves the way for RIL’s telecom arm, Jio, to bundle broadcast and native-online video content produced by Viacom18 and Disney for its subscribers.

It will not be surprising if Disney’s broadcast and/or HotStar’s online offerings are offered by the combine at a premium to subscribers of Jio’s rivals; or, some offerings are made exclusive to Jio’s subscribers.

Facilitating the oligarchy?

Following CCI’s queries to the parties constituting the joint venture, feedback from others in the business, and comments by the Ministry of Information and Broadcasting – details of which are not public – the combine proposed to modify aspects of the joint venture.

This was to ensure CCI does not initiate a detailed and lengthy investigation into the implications of this combine on the competitive milieu.

The ensuing detailed report by CCI, dated end-August but made public in late-October, approved the joint venture with the modifications proposed. However, this order falls short on procedural, substantive and empirical counts.

Astonishingly, it contains numerous redactions of words, numbers and even complete sentences – without any explanations whatsoever.

At places these seem to mask details of the internal shareholding and/or indirectly owned subsidiaries of the companies involved; at other places, revenues of individual entities are masked. Sometimes the names of entities and subsidiaries involved are blacked out.

This does not augur well on the institutional transparency and empirical accountability expected in an order from a regulatory body.

One of the proposals by the combine is to divest its presence in four TV segments (Marathi and Kanada entertainment, Bengali films, and Children) where the combined market share of its constituent broadcasters is more than 40%.

Magnanimous as this sounds, there still remains TV segments in at least two markets (Hindi entertainment and Hindi films) where the combine enjoys over 33% market share – the nearest rival having 15% share. CCI’s report is unconvincing why this will not cause appreciable adverse effect on competition.

Significantly, these voluntary divestments to offset market dominance were based on viewership share. This ignores evidence on the advertising share garnered by the combine.

In recent years, Viacom18 and Disney together gathered, by conservative estimates, a hefty 45% share of total TV advertising. The extent this may adversely impact the competitive milieu is not compellingly argued in CCI’s rudimentary analysis.

For instance, such a large market share will endow the combine with dis-proportionate power in dealings with relevant actors: it could extract higher rates from advertisers and/or goad advertising agencies to reduce their commissions.

That the new entity will wield a large degree of market share is starkly visible in the online video market. The report estimates three video streaming platforms under the combine to garner about 40% of advertising revenues in this market – with each of the nearest rivals accruing, on an average, less than 10%.

RIL’s entry and conduct in telecommunications had precipitated numerous dislocations in that business. Its recent consolidation across broadcasting and online video will cause dislocations in the converged media landscape.

This raises questions about equitable opportunities and constraints to innovation in the competitive milieu of one of the most dynamic media economies.

Vibodh Parthasarathi is an Associate Professor teaching media policy in the Centre for Culture, Media and Governance at Jamia Millia Islamia in New Delhi. 

Originally published under Creative Commons by 360info™.

The Commercial Vehicle Downcycle Is Impelling Productivity Concerns

For MHCV manufacturers, the recent contraction in sales could imply that the disproportionate gains in operating profits from selling premium large size trucks will start receding fast as they counter large-size fleet operators running excess capacity.

The tepid post-COVID recovery in commercial vehicles (CVs) is ironic to the claims of private capex revival along with a strong economy and the large government spending on highways.

In the second quarter of the financial year (FY) 2025, the leading players have reported 16.2% year-over-year (YoY) contraction in medium and heavy CV (MHCV) sales at 63,057 units. The declines are widespread spanning light and small CVs too. Companies attribute recent contraction to seasonal factors.

But the slackness has structural dimensions; the overall CV sales are 8.3% lower than the recent peak in the first quarter of FY19 and over the past 12 years it has remained flat (1% compound annual growth rate or CAGR, low growth period) following a robust 15% CAGR during the FY00-FY12 high growth period.  

The elasticity of MHCV sales to real GDP growth has fallen precipitously from 2.3x during FY00-FY12 to 0.2x during FY12-FY24, implying that every 100-basis point rise in real GDP now requires a tenth of CV sale growth than it did during the high growth period.

In fact, during the past five years the CAGR for LCVs and MHCVs – at -0.4% and -0.9% – corresponds to real GDP CAGR of 4.4%, implying negative elasticity. 

These are startling trends and deserve serious assessment. 

Substitution effect: Commercial vehicles versus railways

For MHCV (trucks), post-pandemic recovery has been sub-optimal with the current levels at 11.6% lower than the 2019 peak. Comparatively, over the past five years, the freight movement on railways expanded by 5.5% CAGR on total tonnage basis and 7.4% on net ton kilometres (NTKm). 

The superior performance of railway freight can be attributed to cheaper freight rate; while road freight rate increased by 5% CAGR over the past five years, rail freight remained nearly stagnant with 0.9% CAGR. 

In recent months all the three modes of cargo freight i.e road, port and rail have been slowing. Railway freight contracted by 6.9% YoY in August 24 after a decline of 3.9% in FY24. The combined freight handled by major and minor ports at 126.3 million tonnes has decelerated to 2.1% in August 24. 

Thus, while post-pandemic recovery resulted in stronger rebound in rail freight volume compared to roads, the recent contraction in truck sales appears to be on the back of the reinforcement of the substitution effect with the economic slowdown. 

This substitution headwind for MHCVs will likely persist as the freight moving capacity of the railway has expanded much greater than actual rail freight utilisation. 

Representational image: Trains on railways tracks. Photo: X/@EasternRailway

Diminishing profitability favoured larger tonnage truck operators

We measure the pricing power of fleet operators as a ratio of freight rate to diesel cost using the average for Delhi-Mumbai, Delhi-Kolkata and Delhi-Chennai. The pricing power index has recovered from the COVID lows (December 2021) by about 30% but they are still 20-35% lower than the 2015 levels. For less busy routes the erosion of pricing power may have been greater. 

Consequently, small fleet operators, owning trucks till 25 tonnes were pushed out of business even as larger fleet operators who could afford 25-50 tonners could run viable business, backed by lenders. But considering even the higher tonnage sales, the average CAGR during FY12-FY24 stands at 1.4% versus 0.3% for the number of trucks sold. 

It is untenable to assume that faster growth in 25-50 tonne trucks has been due to upgradations of highways. Had it been the case, it would have reflected in a larger number of LCVs sold that subserve the freight hubs, which is not actually the case. 

The contraction in small-size trucks has led to job losses in transportation. RBI’s KLEMS and PLFS reports show that the proportion of salaried jobs in the sector has declined to 35% in FY24 from 43.3% in FY19. There has also been a drop in the proportion of casual work jobs (11.9% versus 14.3%). These have forced a rise in dependence on low quality self-employment (53.1% versus 42.4%) implying a rise of 1.5 million between FY19-FY24 to 13 million. Consequently, the real wage in the sector has contracted.

All factors considered, the key factors behind the deceleration in trucks sold are the structural slowdown in economic activities, private capex and global trade. 

On global comparison, the post-2012 CAGR growth of truck sales for the US (3.7%) has been higher than emerging economies like India (1.1%) and China (0.7%). This is a reversal compared to 2000-2012 when EMs (China 8.7%, India 14.8%) outpaced AEs (US 0.1% and Europe 0.8%). 

Low truck sales growth amid rise in govt capex on highways

Highway road length grew at 5.8% 12-year CAGR (FY24, 150k KM), higher than 3.3% CAGR during the preceding 12 years. The real spending by the Union government on road construction has catapulted by 27% CAGR to Rs 3.5 trillion (FY24) from the earlier phase at 1.2%. 

We measure the productivity of highways as ratio of MHCV (trucks) sales to highway length. Indexed to FY12, productivity in the low growth period declined to 0.5x in FY24. Comparatively, in the high growth period (FY00-FY12) it increased to 2.6x. 

Increase in road construction without increase in CV sales is symptomatic of the fact that the multiplier effects in the form of employment commensurate, household income generation and private capex have been inconsequential. 

The fall in toll collections (Rs 5.8 billion in the first quarter of FY25, -22% YoY) along with the decline in truck sales imply erosion of return ratios and debt service capabilities of road toll projects. Given that most of the recent road project expansions have been on Hybrid Annuity Model (HAM), a significant portion of the risk will fall on the governments, states or centre. For the non-tollable portion, the lack of positive economic externalities to the public at large is overwhelmed by the financial burden of such large capex. 

The 12 times rise in outstanding debt of NHAI (Rs 3.4 trillion in FY24) since FY15, its minuscule revenue (Rs 340 million) and large debt servicing (Rs 600 billion) are emblematic of diminishing productivity. 

Overall, the structural aspects of low pace of freight availability symbolising a weak economy, the substitution effects favouring rail over road transportation and large trucks over small trucks are likely to weigh on the productivity of large-scale highway construction. While highway construction is an important enabler, it appears to have become an end in itself, thereby creating large financial and economic drag. While reports suggest that the government is planning to make NHAI debt free by FY28, the shift in allocation to the Union Budget since FY22 amounts only to a shift in the accounting of billowing public debt, which will eventually fall on the tax-payers. 

For MHCV manufacturers, the recent contraction in sales could imply that the disproportionate gains in operating profits from selling premium large size trucks will start receding fast as they counter large-size fleet operators running excess capacity and who will demand greater discounts. 

Dhananjay Sinha is co-head of Equities and head of Research of Strategy and Economics at Systematix Group.

‘Philanthropy Must Strengthen Self-Help’: Why Ratan Tata’s Words in 1996 Are Relevant Today

‘For instance, a company may donate a large sum for charity and yet discharge toxic effluents into a river or stream near its unit, putting the health of the local community at risk.’

A lot has been said about Ratan Tata after his recent death. He has been described as a man with keen business acumen, a humane person and a great philanthropist. But nowhere have his views on philanthropy been referenced, though he had definite ideas on how the rich and their trusts or foundations should use their money.

I had the privilege of interviewing him soon after he took over the reins of the Tata Trusts, for Sampradaan of which I was a founder director. The interview was published on July 2, 1996 in the first issue of Sampradaan’s newsletter. I believe it has abiding relevance even today.

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The name ‘Tata’ is synonymous with modern philanthropy in India. Sir Jamshedji, his two sons Sir Dorab and Sir Ratan, and JRD have pioneered and exemplified the concept of constructive philanthropy, of using private wealth to strike at the root of human suffering and poverty. Hence as the present head of the Tata group and as the doyen of the business community, Mr. Ratan Tata’s views on philanthropy are of particular interest. Some excerpts from an interview with him…

Mr. Tata, what is your vision of philanthropy in general, and Tata philanthropy in particular? Is it in any way different from that of your predecessors?

Our business philosophy remains very much the same as that articulated by my illustrious forebears, i.e., to create wealth for the nation and to create more employment for people so that they have better access to education and health. But we think more about being good corporate citizens – about participating in the development of the communities where we are located.

When did the concept of good corporate citizenship become important to the Tatas?

The concept is not new to the Tatas. Our ancestors and companies, besides undertaking important projects, were also working for the betterment of the community where they were located. The ideals were those of corporate citizenship, but the terminology was different. As for how we differ… Earlier there was more of charity in its elemental form of helping individuals facing a crisis. I tend to lay emphasis on self-help. While we always have a niche for individuals in distress (and while we could always be  human on that ground), I am keen to channel more meaningful amounts towards programs which have an element of self-help to put people on their feet. I want to discourage the sort of practice that existed in the past, of making handouts which were a glorified form of alms, because for some, the kind of money we used to give is no longer meaningful in the context of today’s prices and costs. We want people to know that money will only be available if they are willing to use that money for gainful activity to help them stand on their own feet.

Is there any field or cause in which you have a special interest, just as JRD had in population control?

JRD was very right in championing the cause of population control… But my own particular interest is in education, not so much formal and conventional education as vocational education and skills creation.

What would you say is your own particular contribution to the Tata philanthropy?

I don’t know that I have made any particular contribution, other than to bring about the self-help focus to our work. I have also tried to streamline the working of our Trusts to make for bigger impact. We are giving more meaningful amounts to a smaller number of grantees, rather than frittering away our resources in several small grants for unconnected purposes. We are also developing a better programme focus. We are simultaneously trying to bring the professional approach of our companies into our Trust. I think we have a responsibility to see that the funds are well utilised.

Also read: Ratan Tata Had the Curiosity of a Child and the Catholicity of a Researcher Committed to the Nation

Do you think there is a role for private philanthropy even where government is the dominant actor on the socio-economic front?

I believe philanthropy is not about giving money only—it means giving yourself, your time, talent, anything. To be philanthropic you have to care, and you have to want to make a contribution with no expectations of a quid pro quo, in terms of profits, business returns, image or whatever. It is more a question of saying you wish to give and not to take, or to give more than you take. It has to be embodied in a feeling that since you have enough for yourself you have an additional responsibility to uplift the levels of living of those that are less privileged around you, or to make a contribution to the development of a particular region or class of people… In this sense of doing something for others there is always a role for private philanthropy, whatever the government does or does not do.

Do you think the younger generation of businessmen and industrialists are as philanthropically minded as the older generation, or do you think there is less interest in philanthropy today, perhaps because religion, which prompted charitable giving in the past, has become less influential in action?

It is difficult to generalise in this regard; some are very motivated and others are indifferent. Those who are interested are probably still very motivated by religion or at least some secular ethic.

What is your own motivation? What prompts you to give time for your Trusts and other charitable organisations?

I don’t give as much time as I should or would like to. As to what drives me…I am already living a comfortable life and feel making more money or building a larger empire is less satisfying than the thought that one has brought happiness to someone or made a difference to the life of a community or generation. This desire to make a difference is not necessarily limited to one’s own community or country. Recently I was in Namibia and I felt the Tatas should do something for the people of that region in Africa, who have been exploited for hundreds of years, though the Tatas will gain nothing from a business venture there.

Can government do anything to motivate the corporate world to be more philanthropic? Will  more tax incentives help?

It is true that many Trusts are formed because of tax breaks. But to be motivated by tax breaks would be philanthropy for the wrong reasons. It would amount to hypocrisy. Either one cares or one does not. Just giving money is not enough. One has to interpret philanthropy in the widest sense. Being a good corporate citizen means more than giving money or charity as in times past. One must also consider it  in the light of what is morally right or wrong.  For instance, a company may donate a large sum for charity and yet discharge toxic effluents into a river or stream near its unit, putting the health of the local community at risk. That is like the mafia donating money to a philanthropic cause and thinking it absolves them of their guilt or responsibility.

Such people either do not understand fully the implications of their actions or if they do, they don’t care. Some try to buy the authorities so that they can carry on. I find this totally objectionable. If it happened in a Tata company, I would ask them to stop operations until the issue was resolved.

I am of the view that philanthropy has to come from within; no government can tell you what to do. A law may institutionalize philanthropy, choose whichever model you want to create, but it should be done for the right reasons. Otherwise, the money is just money; it may go for the right causes, but I would be concerned about such philanthropy.

Pushpa Sundar is an ex-IAS officer, and a writer.

What Make in India Has Brought to India

Ten years after the launch of the Make in India programme, India’s industry problem has deepened.

Last month, Narendra Modi celebrated the 10th anniversary of the Make in India programme by mobilising data which are contradicted by all statistical sources – Indian as well as non-Indian. By creating such a misleading impression, the prime minister of India makes course correction even more complicated, while the industry of the country has become more dependent of China than ever.

 In 2014, with ‘Make in India’, Modi’s aim was to achieve four objectives:

(1) to increase the growth rate of Indian industry to 12-14% per year;

(2) to create 100 million industrial jobs by 2022;

(3) to increase the share of the manufacturing sector to 25% of GDP by 2022 (a deadline shifted to 2025 a few years later); and

(4) to make India the ‘new factory of the world’, taking over from China by moving up the value chain.

Over 25 sectors of Indian industry were involved in this project.

Ten years later, not only have these objectives not been reached, but the situation has deteriorated.

Illustration: Pariplab Chakraborty.

The growth rate for industry is far from double figures: since 2014 it has averaged around 4%, with manufacturing even below this level. So much so that the share of manufacturing in GDP, far from having increased, has continued to erode, falling from 18.3% to 14.72% of India’s Gross Added Value between 2010-11 and 2019-20, before the COVID-19 crisis.

Two years after the crisis, this proportion had fallen to 14.70% in 2022-23, the lowest figure since 1968-69. And far from creating the 100 million jobs expected, industry has lost many jobs, with the number of manufacturing workers falling from 51.31 million in 2017 to 35.65 million in 2022-23, a fall partly linked to the COVID-19 crisis, which caused the number of manufacturing workers to fall to less than 30 million in 2021. Between 2016-17 and 2022-23, the manufacturing sector lost almost 1 million workers. 

This failure is partly due to foreign direct investment (FDI). The Modi government hoped to attract enough FDI to replicate China’s development strategy and become a manufacturing base for the rest of the world, given India’s low labour costs. Indeed, FDI has risen from $36 billion a year in 2014 to almost $85 billion by 2022. But this success needs to be put into perspective from two points of view. 

First, only a fraction of them – smaller and smaller since 2018-19 – can be considered as productive investments: out of more than $ 80 billion in FDI in 2020-21, only $ 21 billion fell into this category, or 3.1% of the countries gross capital formation. In 2018-19, the peak-year, productive FDI accounted for no more than 6.5% of gross capital formation. 

Secondly, to measure the real weight of FDI, we need to relate it to GDP. From this angle, the picture is different: as a percentage of GDP, FDI will account for an average of just 1.76% of Indian GDP over the period from 2014-15 to 2022-23, compared with an average of 2.14% of GDP over the previous decade, from 2007-08 to 2014-15. 

Thirdly, FDI has been declining significantly since 2022. It fell to just over $71 billion in 2022-23 to just over $10 billion in 2023-24, a fall of 60%. This is the lowest figure since 2007, when FDI accounted for just 0.7% of GDP, a record in independent India. These figures are counter-intuitive, as a series of massive, well-publicised investments created the impression that India was benefiting from a process known as ‘decoupling’ in the US and ‘de-risking’ in Europe, whereby Western firms that had invested heavily in China were partly withdrawing from that country for both economic and political reasons in order to diversify their FDI. But India does not benefit as much as other countries in the Indo-Pacific region – starting with Vietnam – from these flows. 

Fourthly, the majority of FDI since 2017 has been concentrated in some nine sectors, starting with services (especially IT), while 53 other sectors – mainly manufacturing – have received just 30% of total FDI.

Finally, the Make in India programme has failed to increase India’s merchandise exports, which have fallen steadily over the last 10 years, from 10.2% of GDP in 2013-14 to 8.2% in 2022-23. If the Indian industry fails to export more – in relative terms – it imports more, mostly from China.

To supplement the Make in India programme, the Modi government, since 2020, promotes production-linked incentives (PLI). The aim is to help investors operating in key sectors and to promote cutting-edge technologies to improve the international competitiveness of Indian firms. 

The cost of these PLIs to the state raises the question of both the sustainability of such an effort and its relevance, since such expenditure naturally comes at the expense of other items in the state budget. The issue is particularly sensitive when the government comes to the aid of large firms. The microprocessor factory that the American manufacturer Micron set up in Gujarat – which made the headlines in the media – represented an investment of $ 2.75 billion, of which Micron only covered a small part ($ 825 million), the ‘rest’ financed by the governments of New Delhi and Gandhinagar. More importantly, so far industrial investments remain rather low.  

Industrial investment at a standstill   

The rate of productive investment (Gross Capital Formation), after growing significantly in the 1990s and 2000s, has tended to weaken structurally: it fell from almost 42% in 2007 to 29% in 2020. It has risen to 34% by 2023, but this is still far from the what it was.

This curve is all the more worrying in that it is largely explained by the slump in private investment. The rate of private investment fell from 31% in 2011 to 23% in 2020, and although it has since recovered, it remained at 27% in 2022. Investment in the manufacturing sector has fallen particularly sharply, from 6.1% of GDP to 4.2% between 2011-12 and 2021-22. 

How can we explain the relative collapse in private investment?

Weak demand is a major factor here. Companies in the manufacturing sector are often faced with unused production capacity, making it unnecessary to expand their industrial facilities. Between 2011 and 2021, in 10 years the production capacity of Indian factories remaining idle rose from 18% to 40%, an extreme situation linked to the COVID-19 crisis. From 2022 onwards, this percentage stabilised to an average of around 25%, a far cry from the 2011 figure. The weakness of demand here stems from the thinness – or even the shrinking – of the middle class, whose consumption had, briefly, been one of the engines of growth in the years 1990-2000. 

What’s more, a closer look at the 2000s, the decade during which Indian growth flirted with double-digit rates, shows that investment was boosted not only by attractive real interest rates, but also by expectations that ultimately failed to materialise: the development model that India adopted in the 1990s encouraged the growth of inequality so radically that only a small minority of Indians really benefited. Since the turn of the century, there has been a spectacular increase in inequality, with the share of national income held by the richest 10% rising from 34.4% in 1990 to 57.1% in 2018. At the same time, the share of the same national income held by the poorest 50% fell from 20.3% to 13.1%. Admittedly, the national income has increased significantly in the meantime, but part of the middle class has nonetheless been impoverished, making certain consumer goods inaccessible. In fact, in 2017-18, for the first time since the 1970s, the National Sample Survey Office recorded an increase – albeit very slight – in the number of people living below the poverty line, from 21.9%  in 2011-12 to 22.8 % in 2017-18.  

The rich India cannot offer a sufficiently large and stable market to convince industrialists that they should invest. Nearly 800 million Indians are now eligible for food aid, a tangible indication of the narrowness of the market of solvent consumers. 

The low purchasing power of Indian consumers can be seen in the fall in the savings rate, which in 2024 was 5.3% of GDP, the lowest level since the 1970s. At the same time, households are taking on more debt, with loans taken out in 2023 representing 5.8% of the GDP, another near-record since the 1970s.

The low level of household savings is depriving banks of the resources they could use to lend to businesses, which are therefore seeing their potential investment projects thwarted even further. But if banks are not lending easily to businesses, it is also because their balance sheets have been burdened by Non Performing Assets, bad debts – those held with companies that cannot repay because they have not been able to make their investments profitable in the 2000s. At that time, unreasonable confidence in the future led to massive investments that were not paid for, leaving the banks very vulnerable. As a result, banks were very reluctant to lend to potential investors.

A final reason why Indian industry is currently struggling is its lack of competitiveness in relation to its Chinese competitors. As India has opened up its market as part of its liberalisation policy, it has allowed Chinese manufacturers to penetrate entire sectors of its economy.

Depending on China’s industry

In 2024, with $118 billion in merchandise trade, China once again became India’s leading trading partner, supplanting the United States, which had overtaken it for two fiscal years. At the same time, India’s trade deficit with China has widened from $ 46 billion in 2019-20 to $ 85 billion in 2023-24. India’s exports – worth just under $17 billion, less than in 2018-19 – consist mainly of raw materials (including iron ore) and refined oil, while China’s exports to India, worth over $101 billion (compared with $70.3 billion in 2019), consist mainly of manufactured goods, including machine tools, computers, organic chemicals, integrated circuits and plastics. 

While India produces almost half its electricity from coal, the country is relying heavily on solar energy to achieve its energy transition – but it is not producing enough panels to meet its needs, far from it. As a result, two-thirds of photovoltaic cells and 100% of wafers (the essential components of these cells) are imported. Overall, China supplies India with between 57% and 1000% of the components it needs for its solar panels. In the first half of the 2024 fiscal year, Indian imports of Chinese solar panels amounted to more than $ 500 million, to which must be added 121 million in imports from Hong Kong and $ 455 million in imports from Vietnam. In addition, during the same period, China sold 500 million photovoltaic cells for assembly – while Malaysia sold India $ 264 million and Thailand $ 138 million, figures that testify to India’s dependence on its foreign suppliers in this field. Although Indian companies are entering the market, they are not developing their own technology, but importing 70% of their equipment from China. India is increasingly resorting to non-tariff barriers to limit Chinese exports, but these are likely to be in vain if Indian manufacturers do not acquire the appropriate technologies.

The same problem can be found in the pharmaceutical sector, one of the flagships of the Indian economy thanks to the boom in generic drugs. A world leader, India accounts for 20% of the sector’s global exports, worth over $ 25 billion. However, the sector’s Achilles heel is once again a lack of research and development – not only have Indian companies often contented themselves with copying molecules, but they have also failed to invest in the development of active ingredients. Before the COVID-19 pandemic, two-thirds of the volume of active ingredients came from China. The government tried to encourage manufacturers to innovate in this field by subsidising their research and development to the tune of $ 2 billion. A few years later, despite this government stimulus, the situation remains largely unchanged, with Chinese inputs enjoying unbeatable competitiveness.     

Ten years after the launch of the Make in India programme, India’s industry problem has deepened. Not only does this setback pose a threat to national sovereignty of the country vis-à-vis China, but without a proper industrialisation process, the country will not be in a position to give any work either to the 10 million young men and women who enter the job market every year, or to those who would like to leave agriculture. The stakes are very high indeed.

Christophe Jaffrelot is research director at CERI-Sciences Po/CNRS, Professor of Politics and Sociology at King’s College London and Non Resident Fellow at the Carnegie Endowment for International Peace. His publications include Modi’s India: Hindu Nationalism and the Rise of Ethnic Democracy, Princeton University Press, 2021, and Gujarat under Modi: Laboratory of today’s India, Hurst, 2024, both of which are published in India by Westland.

Ratan Tata Had the Curiosity of a Child and the Catholicity of a Researcher Committed to the Nation

His legacy of generosity and purpose must continue in the times to come.

Ratan N. Tata took over as chairman, Tata Sons, in 1991, the year that saw the most transformative economic reforms in India led by the then finance minister, Dr Manmohan Singh. Leveraging these changes in the newly unshackled Indian economy, Tata’s resolve right from the beginning was to propel the Tata group to a truly global entity. When the group later acquired Tetley (2000), Corus (2007) and Jaguar Land Rover (2008) to emerge as the largest industrial employer in the United Kingdom, I remember my British clients saying jokingly that it is ‘East India Company happening in the reverse direction’. Little wonder, the group revenue which was around US $ 5 billion when he took charge soared 20 times to over US $ 100 billion by the time he left.

It was not easy for Ratan Tata to step into the big shoes of J.R.D. Tata who had successfully steered the group’s fortunes as its iconic chairman for more than five decades. Their leadership styles were different, yet Ratan Tata remained  deeply committed to JRD’s focus on philanthropy wherein two thirds of Tata group’s profits were channelised through charitable trusts and focused on education, skill development, healthcare, and rural development in India. Like JRD, he, too, internalised the belief that profits which come from the people must go back to them.

When he took over, many of major companies, namely Tata Steel, Tata Chemicals and Indian Hotels were run by veterans like Russi Modi, Darbari Seth and Ajit Kerkar who initially found it difficult to give up control. But Ratan Tata gradually paved way for the transition to new generation of leaders to take these companies to their next phase of growth. He could also visualise TCS’s emergence as a jewel in the Tata crown and the company saw a seamless transition from its founder CEO F.C. Kohli to S. Ramadorai. He gave complete freedom to TCS to manage its affairs that led to it going public in 2004 in what was then India’s largest ever IPO – which got oversubscribed many times. TCS remains what many call the group’s cash cow and one of India’s most valuable companies. Later TCS, with its vast resources, gave Ratan Tata the leeway to think big in taking the group global.

Tata knew what focus was all about. When he took over, there were over 100 companies in the group. With active inputs from consultants, the group exited from businesses like Lakme, Tata Oil Mills, ACC, Tata Textiles and a few others. Disinvestment from non-core and acquisitions in strategic sectors almost went hand-in-hand. The acquisition of VSNL in 2002 too helped enhance Tata Communications’ capabilities in the telecom sector. Corus and Jaguar Land Rover acquisitions are well known but the buying of Daewoo Motor’s truck manufacturing operations in 2004 was also quite strategic.

It is said that the sight of a family of four travelling on a two wheeler, all drenched in rain, led Ratan Tata to steer the design and manufacture of the affordable Tata Nano car for the masses at a price of just Rs one lakh. At that time, it was considered to be a marvel in value engineering by Tata Motors. Despite the initial success, the car did not do well in later years but Tata Motors could deploy those learnings to introduce many more exciting car models crafted indigenously. Realising the relevance of electronic vehicles amidst the challenge of climate change, Tata Motors has now become India’s highest selling car manufacturer in that segment.

When I was deputed by the Tata’s in 2015 to join the government of India as the CEO of the National Skill Development Corporation which played a pivotal role in the Skill India Mission, he was quite happy and said that the nation must come first in whatever we do in life. This fact is also reflected in the Tata Code of Conduct which is signed by each employee as an article of faith.

The Tata group’s values got so deeply embedded in me that it changed my career’s trajectory towards government, thinks-tanks and nonprofits. Ratan Tata once asked me about the specific steps which the government was contemplating to transform the skill development sector from being supply-driven to industry-demand centric. He also showed keen interest in second generation reforms which could trigger growth in India’s job market. I had a few answers but not all, because generating adequate jobs has remained a complex issue.

Also read: Skilling Alone Won’t Save Us: The Alarming Rise of Unsecured Jobs in India

However, his queries reflected the curiosity of a child and yet the catholicity of a researcher committed to the national priorities.

I remember my first visit to Bombay House and I was surprised to see stray street dogs loitering in the reception area and the corridor, instead of any visible opulence expected in most corporate headquarters. In a short while, I saw Ratan Tata walking in and gently cajoling the dogs who used to be fed by Bombay House. I later learnt about his deep commitment to causes like animal welfare and cancer care. Other than generosity, I learnt from Ratan Tata that simplicity and austerity are cherished values and not something that one should be ashamed of.

The acquisition of Air India was another feather in Ratan Tata’s  cap. It was a dream come true as it came a full circle since Air India was Tata Airlines before it was nationalised. Ratan Tata himself was a licensed pilot as well. He would have loved to live to see the turnaround of the airline and its emergence as a truly world-class carrier. Not many people know that Ratan Tata gave wings to many start-ups as well by funding them from his personal wealth whenever he saw promise in an idea which could be leveraged for breakthrough in business, community development or nation building.

His legacy of generosity and purpose must continue in the times to come, just as the philanthropic legacy continued after J.R.D. Tata left the scene and handed the baton to Ratan Tata. Providentially, Tatas as India’s largest business conglomerate happen to be controlled by two trusts (Dorabjee Tata Trust and Ratan Tata Trust) which own over 60% of Tata Sons, which acts as a holding company owning stakes in all Tata group companies.

The two Tata Trusts, which are the main shareholders of Tata Sons, typically receive substantial dividends from their ownership stake in Tata Sons, and a significant portion of these funds is directed toward philanthropic activities across India. Although the exact annual spending on philanthropy varies, Tata Trusts typically allocate between 60% to 80% of the dividends they receive to charitable projects each year.

For a general sense of scale, Tata Trusts has historically allocated between Rs 1,500 crore to Rs 2,500 crore (approximately $200 million to $350 million) annually to philanthropy. These funds support various initiatives, including healthcare, education, rural development, and arts and culture. These numbers can vary year-to-year based on the dividends received, Tata Trusts’ financial strategies, and the current focus areas of their philanthropic efforts, but the value of the philanthropy persists.

Jayant Krishna is former global capability centre head, TATA Consultancy Services (TCS). Krishna is also former CEO of the National Skill Development Corporation, PM’s Skill India Mission, ex-group CEO, UK India Business Council, founding CEO, Foundation for Advancing Science and Technology, and senior fellow, Center for Strategic and International Studies (CSIS).

Bengal’s Economy Has Always Relied on the Durga Puja – Will This Prove Much Too Dear This Time?

Protests and the lack of opportunities has led to thinning excitement for the busiest time for retail business in the state.

Kolkata: The usually bustling footpaths of Gariahat, known for their crowds of last-minute shoppers, are unusually quiet this year except for the weekends. Just days before the start of Durga Puja festivities, Kolkata’s signature festive energy feels subdued. The typical hustle and bustle in popular shopping hubs like Gariahat in south Kolkata and Hatibagan in the north, is noticeably lacking. Footpaths that are usually packed with eager shoppers seem sparse, and even the vendors’ calls for discounts have lost their usual vigour.

Though thousands have already taken to the streets for pandal hopping, ongoing protests and economic uncertainties have cast a shadow over the shopping season, leaving many businesses concerned about their sales.

“Who would believe Durga Puja is not even a week away? People aren’t coming out in numbers for their last-minute shopping this time,” said Panchu Saha, a roadside shopkeeper in Gariahat. 

In anticipation of large crowds during Durga Puja, the police had set up barricades and ropes at the Gariahat crossing. However, with the turnout lower than expected, these preparations went unused for large parts of the day. A police officer on duty noted, “Managing the parking of cars here before the Durga Puja used to be a nightmare. This year, it’s the same story, except this time we are managing protest rallies.”

Also read: A Durga Puja Like No Other: R.G. Kar Protests Cast Shadow over Festivities in Kolkata

Protests

Protests against the R.G. Kar rape and murder, and the state government’s reaction to it, continue unabated.

New Market, in central Kolkata, has presented a slightly different scene. By the afternoon of the last weekend before Durga Puja, the crowds of shoppers had begun to swell. 

Asmita Sengupta, carrying shopping bags as she hurried through New Market Square, shared, “Normally, the festive mood kicks off a month before Puja, with shopping. But given the current circumstances, the festivities don’t feel right. Children don’t understand much about what’s going on, so I bought something for them.”

Preparations begin for another protest against the R.G. Kar incident in central Kolkata. Photo: Joydeep Sarkar

Mausum Khan, a vendor selling goods on the footpath at New Market, gestured to a protest march on her phone and said, “Many people aren’t thinking about the Puja now. It’s only the fire of protest that’s burning in their minds.”

Durga Puja is the busiest season for retail business in West Bengal. Many blue-collar workers and state government employees receive bonuses during this time, stimulating a surge in consumer spending. For small retailers, especially in mass markets like Gariahat and Hatibagan, Puja sales are crucial for boosting their annual income.

Gupta Enterprises, a wholesale garment supplier to the entire state from Kolkata’s Burrabazar, painted a gloomy picture. Nilom Gupta, one of the directors, said, “It’s a long-standing tradition in this state to buy new clothes and household items for the next twelve months with this extra money. This time too, we have sent goods as per orders from various districts. We have not received any new orders in the the past two weeks, I’m a little surprised.”

What the numbers say

“This year, the market has been sluggish. A month was lost to protests. So, this year, we’ve had only 11 months of business. Compared to last year, our sales have decreased by 35% one week before Puja. Our average sales, which are typically higher in Kolkata, are much lower this time,” remarked Ramesh Pandey, an official running a shopping mall in Kolkata. 

According to the Kolkata Street Hawkers’ Union, the number of hawkers in Kolkata has increased steadily from 191,000 in 2011, with an annual growth rate of 0.8-0.9%. The pandemic further fuelled this growth as some unemployed individuals turned to street vending. With approximately 210,000 hawkers in Kolkata, the decline in sales during this year’s Puja season has come as a shock.

“Our estimates indicate a 45-50% drop in pre-Puja sales compared to previous years. We’ve spoken to regular customers and identified three main factors contributing to this decline. Despite rising prices, low-income buyers have experienced a decrease in income. This, coupled with job losses, has negatively impacted the market. Additionally, the eviction of hawkers has further worsened the situation,” said Asitanga Ganguly, a leader of the Left-affiliated Hawkers’ Union.

Sidewalk hawkers’ stores at Kolkata. Photo: Joydeep Sarkar

A dismal picture

Beyond the cultural spectacle, Durga Puja provides employment for nearly 3 lakh individuals in West Bengal. The surge in consumer spending during the festival has a multiplier effect, positively impacting the state’s overall economy. 

A 2019 study by the British Council estimated the economic value of creative industries associated with Durga Puja in West Bengal at Rs 32,377 crores (2.6% of the state’s GDP). With government support and incentives, this figure has reportedly risen to Rs 50,000 crores in recent years. To put this in perspective, renowned global festivals like Rio Carnival, Hanami, Oktoberfest, San Fermín, and Mardi Gras contribute between 1.35%-2.25% of their respective economies. However, many economists caution about the state’s over-reliance on a single festival. 

“The state’s reliance on subsidies and incentives to stimulate demand had proven ineffective. By neglecting investment, the strategy worsened supply-side constraints. Consequently, Bengal, historically a low-inflation state, experienced consistently higher inflation rates than the national average,” said economist Indranil Dasgupta. 

Adding to the challenges, mid-September floods devastated six districts, leaving many unable to participate in the usual Puja shopping frenzy.

“This Puja market has been declining since 2016, first with demonetisation, then GST, COVID, and now the protests,” said Sekh Azizur Rahman, a long-time roadside vendor in South Kolkata’s Gariahat. “Last year, I made Rs 1,700-2,600 daily. Today, I’ve sold goods worth only Rs 700. Can you imagine how bad the market is?”

Translated from the Bengali original by Aparna Bhattacharya.

How Flower Drying Transformed Nagaland’s Women into Entrepreneurs

Nagaland’s women entrepreneurs have turned their flower drying tradition into a sustainable source of livelihoods. However, they still struggle for government support.

In Nagaland, dried flowers are a common sight in markets and stores. Many locals believe that the practice started in the 1990s in a bid to prevent fresh flowers from decaying and to prepare for the seasons during which certain flower varieties do not bloom. While Nagaland’s geography and climate supports many seasonal flowers, they are not available throughout the year, and this prompted the development of preservation techniques to extend their aesthetic value.

Zuchano Kithan, a flower aficionado who currently works at a financial institution, says, “Growing up in Wokha [a town near Kohima] in the 1990s, my sisters and I cultivated seasonal flowers, especially ornithogalum [grass lily]. We would plant them in our houses. Once the season got over, we would notice that potted flowers would dry up, their white hues transformed into an elegant off-white shade. We started hanging the flowers upside down to preserve their beauty. My father is also quite fond of wildflowers and during his outings in the forest, he would bring them home and dry them.”

However, the flower drying tradition that began as a necessity has become a livelihood option for many women. These women sell bouquets, bookmarks, and all kinds of flower decorations at shops, pavements, and markets. This photo essay documents the florists’ experiences, their journeys of entrepreneurship, challenges, and opportunities. It also offers a glimpse into the gradual changes that the popularity of dry flowers has brought to Nagaland’s society.

A bouquet of dried wildflowers being sold at the farmers’ market in PWD Colony, Kohima. Photo: India Development Review

Why dry the flowers?

In recent years, there’s been a notable shift in consumer behaviour in Nagaland. Multiple local florists have reported that people now place a higher value on flowers, which has led to an increase in flower purchases and their use as a popular gifting option. Different flowers and their colours symbolise various sentiments, such as friendship, love, peace, and gratitude; sometimes, flowers simply represent the joy of giving. While many adore fresh flowers, they have a fleeting lifespan. Ceremonies and parties often feature fresh floral decorations that are discarded afterwards. In recent years, dry flowers have emerged as a symbol of eco-friendly living, offering an attractive option to those seeking to make a difference with their gift choices.

According to Zuchano, dried flowers, with their extended lifespan, have become an ideal gifting choice. Many people also opt to dry the fresh flowers they receive to preserve the memory of the gift and cherish it for a longer period.

There are additional reasons behind the popularity of dry flowers in the state. Local florists opine that majority of the fresh flowers sold in Nagaland are sourced from outside the state, whereas all the dry flowers are locally produced. Vendors rely on external sources because only seasonal flowers—such as orchids, statice, and lilies—thrive in Nagaland; even though they bloom in certain areas, perennial flowers such as cosmos and chrysanthemum are unsuitable for the general climate. When the flowering season ends, some unsold flowers are dried and prepared for sale.

Dried statice, a common gift in Nagaland. Photo: India Development Review

Flower preservation is a delicate and lengthy process that varies depending on seasonal patterns, market demands, and other factors. One such popular dried flower impacted by these is statice, commonly found in markets and flower shops. In the hilly regions, it is grown during the spring season (March-April), whereas in the plains, it is planted in October and November. After the harvest, florists dry these flowers by hanging them upside down to prevent drooping and preserve their beauty.

While some flowers are naturally dried, others are painted to enhance their vibrancy and meet market demands. In Kohima, florists often paint their dry flowers to protect them from mould, especially during the intense rainy season.

Flowers hung upside down to dry. Photo: India Development Review

A blooming business for women entrepreneurs

The flower business in Nagaland has provided many women with a stable livelihood. Dzuvinu Tetso is one such woman. Dzuvinu runs a successful stall in the Bamboo Market at BOC, a neighbourhood in Kohima. After selling vegetables for a few years, she transitioned fully into the flower business in 2021. She is well known for her dry flowers, which she hangs above her shed to dry. “I also sell fresh flowers, but they often bring losses if left unsold because they rot quickly. With dry flowers, there is no loss as they can be kept year-round. It is also the dry flowers that attract tourists and customers to my store,” she says. Through her business, Dzuvinu is able to support her family. However, she hopes for a larger space as her current stall is congested, making it difficult for customers to move around and for her flowers to be displayed properly.

Like Dzuvinu, Temsuyangla Pongen too has been a florist for many years, supporting her family through her business, which focuses mainly on indoor plants—a high-demand market. Temsuyangla, who is also the vice president at Nagaland Flower Growers Society (a nonprofit that supports the entrepreneurs), explains, “Indoor plants and dry flowers have a longer lifespan if cared for properly. Their longevity also makes them very profitable. I made a bouquet out of dry flowers for a politician five years ago, and it still looks just as new today.”

The prospect of being an entrepreneur and the freedom that it brings is pushing many people to choose the flower business over jobs that are traditionally considered aspirational. Rukunu Kennao, owns a flower shop at the Kohima Trade Centre, where she sells both dry and fresh flowers. Before starting her business in November 2023, she practised as a private advocate at Kohima District Court for four years. Many florists in Nagaland have gone digital and use Instagram to showcase and sell their products; often, they also receive orders from outside the state. Rukunu too runs an Instagram account (peta_lparadise) where she showcases and sells flowers, though she finds it challenging to post daily due to her full-time commitment to the store. Her passion for fresh flowers has also inspired her to start growing them locally, but she is currently unable to construct a polyhouse—a polyethylene or glass structure that allows plants to grow in a controlled climate—due to its high cost.

Dry flowers painted and arranged in bouquets to add a vibrant touch and meet market demands. Photo: India Development Review

The first-mover’s disadvantage

The dry flower business has come a long way since the early 1990s, when entrepreneurs struggled for exposure and access to larger markets. For example, Kevimese-ii, who began preserving flowers in 1994 in her early 20s, recounts, “In the past, dried flowers would normally appear in markets during the winter season, but now they are available throughout the year.” For her, it was more of a hobby. She used the flowers to make bookmarks and framed decorations that she gifted to her friends and displayed as personal home decor.

Kevimese-ii once dreamed of turning her vocation into an entrepreneurial venture but without success. She explains, “Around 1994–95, I was introduced to a businessman who mentioned that he would be participating in an exhibition at Dilli Haat [an open-air craft bazaar in Delhi with stalls from several Indian states]. I prepared several framed dried flowers pieces and sent them for the event, hoping to earn some money and kickstart my venture. But once he left, I never received any communication or updates from him.”

However, the current landscape is different: there are no middlemen and nowadays, many flower entrepreneurs have embraced mobile phones and social media. Kevimese-ii credits the success of this new generation of flower sellers to their entrepreneurial spirit and creativity, support from the government and locals, as well as the extensive reach of the internet.

Florists and customers at the farmers’ market on the second Friday of August 2024. Photo: India Development Review

A stall decorated with dry flowers at the farmers’ market. Photo: India Development Review

Flower together

The change can also be attributed to the various attempts at collectivising the florists in the state. The Nagaland Flower Growers Society, founded in 2006, provides a platform for flower growers to support each other and expand their market presence. Meyievino, the society’s general secretary, explains that the platform was initiated by the Nagaland government’s horticulture department when they started working on floriculture. Although the initiative began with the aid of the state government, the society now operates as a registered non-governmental organisation. On the second Friday of each month, the society organises a sale at the farmers’ market in PWD Colony, Kohima. Groups of home-based and aspiring florists are given the space to sell their products on a rotational basis, as the market cannot accommodate all members at once.

When asked about the supply of fresh flowers from outside the state, Meyievino says, “We encourage our members to grow fresh flowers, but starting such an operation requires significant capital, which many of our members lack. It’s also challenging to secure investments for a flower business. Last year, some of us took out a small loan to construct a low-cost polyhouse, but unfortunately, this year’s winds destroyed it.” She highlights the struggles that many society members face due to the lack of such polyhouses, which forces them to depend on external sources for fresh flowers. The state’s horticulture department provides polyhouses to applicants each year, but due to the high demand, the benefits don’t reach everyone. An official from the department remarked that the selection is carried out by the district horticulture officer and the (flower) crops along with the materials for polyhouses are allocated as per the central funds received by them.

The female members of the Nagaland Flower Growers Society have been in the business for more than a decade. An interesting change they’ve noticed is the increasing number of men buying flowers, a rare sight in the past. Many vendors say that earlier, whenever men were asked to buy flowers for their partners, they would brush it off saying they feel embarrassed. This shift is empowering for the florists, as it signifies a growing appreciation for flowers among all demographics. Men and women—both young and old—and institutions such as churches are the primary customers for flowers in Nagaland. Many churches have a separate budget for decorations, which is mainly spent on fresh as well as dry flowers. Weddings also see a mix of fresh, dry, and artificial flowers. Artificial flowers are particularly in demand for funerals due to their durability and climate resistance.

However, both Temsuyangla and Meyievino emphasise the need for mass production to meet demand, which the society struggles with due to a lack of funds and support. “We Nagas have land, abundant water, and fertile soil in many regions—all of which is suitable for growing flowers. If we can connect these resources, we can become a stronger society.” She suggests that a greater number of women residing in various districts can be mobilised, trained, and equipped with materials to cultivate fresh seasonal flowers. This approach aims to supply Kohima and Dimapur with local flowers, thereby decreasing the need to fulfil flower orders from outside the state, as well as generating employment opportunities. She adds, “By bridging the gap and building a strong network, we could also confidently supply flowers daily to customers from other states.”

The Nagaland Flower Growers Society remains hopeful that organisations will step in to help them organise groups of entrepreneurs across all districts and provide the tools necessary to start growing, preserving, and supplying flowers for a thriving floriculture industry.

Keletsino Mejura is IDR Northeast Media Fellow 2024-25. Thejavor Kintso is a freelance photographer based in Nagaland with more than six years of experience.

This article is republished from India Development Review under a Creative Commons license. Read the original article.

The RBI’s Move Towards a Principle-Based Approach to Regulating Fintechs is Laudable

Generally, principle-based regulation spurs more innovation in the market and limits ‘clever’ interpretations of regulation, making it harder for businesses to devise workarounds that sometimes deceive or mislead consumers.

There are broadly two ways to frame regulations:

  1. Regulations that tell you ‘what’ to do (technically, these are principle-based regulations); or
  2. Regulations that tell you not just ‘what’ to do, but also ‘how’ to do it (technically, these are rule-based regulations).

Principle-based regulation uses general statements that may apply to a wide range of situations (like ‘lenders must treat customers fairly’). It focuses on ‘what’ to achieve instead of ‘how’ to get there. In contrast, rule-based regulations lay down the specific requirements that market players must meet (like ‘lenders must notify customers 24 hours before an auto-debit for an EMI’).

Regulators across the world have trouble deciding which of these two approaches they must adopt for the regulation of fintechs. So, which approach to regulation has India’s much-feared and little-appreciated banking and payments regulator adopted so far? And how has that impacted India’s fintechs and consumers? Let’s dive in and look at a few examples.

Know your customer (KYC) and anti-money laundering: KYC serves an important function – that of identifying who is actually undertaking a transaction or engaging in a financial activity; and preventing the usage and movement of tainted funds.

In the master directions on KYC (KYC MD), the RBI has followed a rule-based approach. The RBI has prescribed in granular detail how financial institutions (FIs) must perform each mode of KYC, thus offering certainty. For KYC of individuals, the regulator has attempted to ease the KYC process with newer modes like video KYC (where identification happens via a video call) or downloading records from a central KYC registry.

However, the RBI’s decision to follow rule-based regulation mars the scalability and ease of adoption of these KYC modes. For example, the RBI’s KYC MD insists that FI officials must perform video KYC on a live call. This not just adds to the cost of video KYC, but also restricts fintechs from coming up with newer modes of video KYC (like AI-driven video KYC) that eliminate the need for a human presence on call.

So, would a  principle-based (and risk-based) approach  for KYC work better? The industry and India’s finance minister think so.

Elsewhere, KYC regulations are already moving towards a principle-based approach. Like under Bank Negara Malaysia’s (the Malaysian central bank) latest policy document on e-KYC, FIs are not bound to use any specific modes of KYC. They’re free to adopt KYC methods so long as they adopt authentication requirements commensurate with the risks (for instance, high-risk products like savings accounts need higher diligence).

The policy document does lay down the modes through which FIs may authenticate and identify a customer, but these are indicative and not prescriptive.

While this may not exactly be the solution that works for India, both customers and FIs will benefit from a principle-based regulation of KYC.

Peer-to-peer lending (P2P): The RBI introduced the master directions on P2P lending platforms (P2P Directions) to regulate the disbursal of loans through online platforms that connect lenders with borrowers. The RBI proactively notified the P2P Directions when the industry was still developing. Perhaps this was done to avoid the fate incurred by Chinese regulators whose ‘wait-and-see’ approach failed to catch undercover miscreants running Ponzi schemes under the guise of P2P platforms.

In the P2P Directions, the RBI has stipulated certain principles that need to be adopted by P2P players. For instance, P2P platforms can only act as intermediaries connecting lenders and borrowers – they cannot lend on their own, hold any funds received for loan disbursal or repayment on their books or provide assured returns.

However, the RBI has also taken a prescriptive approach by setting out granular requirements on the operation of P2P platforms. Case in point: Under the P2P Directions, an individual lender needs to approve the borrower before the disbursal of each loan.

This is cumbersome. It is unsurprising that contracts executed between lenders and P2P platforms include an auto-invest clause – through which lenders authorise P2P platforms to invest and re-lend their monies as per a lending criteria without any manual intervention. However, the RBI deputy governor recently warned that some creative approaches and interpretations (including the structuring of transactions) adopted by P2P players could be non-compliant.

The Association of P2P Lending Platforms is engaging with the RBI and seeking clarifications on the regulatory viability of key features (like the auto-invest feature) offered by the P2P industry players.

What happens when there is regulatory uncertainty? The increased regulatory scrutiny of P2P players coupled with regulatory uncertainty about certain business practices have slowed down P2P partnerships and growth.

The RBI recently barred P2P platforms from offering investment-like offerings with assured returns and instant withdrawals and from deploying lenders’ funds other than as provided under the P2P Directions. However, the jury is still out on auto-invest features.

We believe that there should also be room for P2P players to innovate and make P2P lending and borrowing flows simple, user-friendly and easy while meeting the principles set out in the P2P Directions.

As we can see, rule-based regulations offer certainty. But the downside is that they can be rigid and are much less adaptable to change. Besides, businesses might push the envelope and find creative ways to get around specific, rule-based regulations.

On the other hand, as the RBI deputy governor put it, the principle-based approach focuses on the desired outcome and gives entities the room to adapt and innovate within the broad contours. Businesses are held responsible for complying with the principles and there is little room for clever workarounds.

For example, it is an established principle that the RBI’s authorisation is needed to operate a payment system, i.e., to enable a payment transaction between a payer and a beneficiary by offering services like clearing or settlement. The RBI recently asked a card network to stop facilitating card-based business payments to businesses that do not accept credit card payments, through certain intermediaries, because this principle was violated.

Let us break this down. There are no roadblocks in making payments via cards to vendors with facilities to accept card-based payments – like to vendors that are onboarded as merchants by payment aggregators (say, payments to software vendors). The difficulty is in making card-based payments to small-scale vendors that do not have such facilities (say, payments to office canteen operators).

To solve this, a few fintech entities stepped in – they collected card-based payments from businesses (on behalf of the vendors), pooled monies in their escrow account and settled it to the vendors subsequently through IMPS/RTGS/NEFT, after deducting a commission.

The RBI flagged this as an unauthorised payment system, stressing on the principle that the pooling and settlement of money is a regulated activity.

Where a layer of third-party unregulated entities exist in the fund flow, there could be KYC lapses and tracking the end-use of funds becomes tougher, thereby exacerbating money laundering risks. Similar payment flows facilitating peer-to-peer credit card payments – like rent and tuition fees – via intermediaries are being scrutinised by the RBI as well.

Broadly, the reasons we’ve discussed above also explain the reasons why principle-based regulation generally works better for consumers. Since it spurs more innovation in the market, it gives consumers more choices. And since it limits ‘clever’ interpretations of regulation, it makes it harder for businesses to devise workarounds that sometimes deceive or mislead consumers.

Given this, it is laudable that the RBI is increasingly moving towards a risk and principle-based approach to regulation. Recently, it issued a draft framework on alternative authentication mechanisms for digital payments; the draft framework gives issuers the discretion to choose the appropriate additional factor of authentication based on their risk assessment of the customer and the transaction.

The RBI is not alone; the growing consensus amongst regulators globally is that principle-based regulation works better.

On the road ahead to regulation, we share the RBI deputy governor’s enthusiasm to take the route of a principle-based regulatory approach.

Priyam Jhudele and Priyanka Sunjay are fintech lawyers.

Watch | ‘No Major Problem With SEBI’s Response to Hindenburg,’ Says Ex-Chair

M. Damodaran said that he cannot say SEBI did a bad job.

In what will be widely viewed as a strong defence of the way SEBI as regulator and Madhabi Puri Buch as its chairperson have responded to the Hindenburg allegations, both those of January 2023 and the more recent ones of August 2024, a highly regarded former chairman of SEBI, M. Damodaran, has said “on the basis of the information I have, I have no major problem” with the way SEBI or Madhabi Buch have responded to these allegations.

Speaking specifically to a question whether SEBI did a good job investigating the price ramping of Adani stock before Hindenburg, Damodaran said: “I cannot say SEBI did a bad job”.

In this 32-minute interview to Karan Thapar for The Wire, Damodaran is questioned, at some length, about a range of issues connected with Hindenburg as well as Madhabi Puri Buch.

How SEBI, RBI and IRDAI Turned a Blind Eye for Years as Reliance Capital Crumbled

Three years ago, before SEBI barred Anil Ambani from the securities market, the RBI superseded the Anil Dhirubhai Ambani Group’s board. The chronology of the group’s financial troubles is a good indication of how reluctant the RBI had been to act against the powerful Anil Ambani.

New Delhi: Yesterday (August 23), the Security and Exchange Board of India (SEBI) barred Anil Ambani and 24 other entities, including former key officials of Reliance Home Finance Ltd, from the securities market for five years for diversion of funds from the companies.

According to SEBI, its investigation had revealed that significant amounts of funds were misused under the watch of Anil Ambani and other key figures of the companies.

The following article, written in December 2021 by Sucheta Dalal, managing editor of Moneylife and commentator on capital markets, provides important context behind SEBI’s much-delayed action against the industrialist.

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On 29th November, when the Reserve Bank of India (RBI) superseded the board of Anil Ambani-run Reliance Capital Ltd (RCL) and placed it under an administrator, the overwhelming reaction was that, finally, the regulator has bestirred itself to act! Or, as our columnist V. Ranganathan says, the RBI has moved with glacial speed.

RCL and the Anil Dhirubhai Ambani Group (ADAG) have been in deep trouble for a long time, certainly as long as Infrastructure Leasing & Financial Services (IL&FS), at least. Yet, while the government and the RBI superseded the board of IL&FS in September 2018 and initiated similar action in Dewan Housing Finance Ltd (DHFL), Yes Bank, Punjab and Maharashtra Cooperative (PMC) Bank and the two SREI companies since then, RCL was given a very long rope.

A report in Business Standard suggests that the RBI waited until RCL had a negative net worth of Rs 7,610 crore and a negative capital ratio of 45% (at the end of March 31, 2021) before summoning up the courage to act. Ranganathan, in his article mentioned above, puts RCL’s negative net worth at Rs 15,912 crore!

A chronology of ADAG’s financial troubles is a good indication of how reluctant the regulator has been to act against the powerful Anil Ambani. RCL’s consolidated debt was estimated to be Rs 26,887 crore at the end of March 2021; ADAG’s financial liabilities are significantly higher. RCL had over 20 subsidiaries and continues to have some valuable assets such as Reliance General Insurance (100% held by it) and Reliance Nippon Life Insurance (51% holding), even after many sell-offs.

• At the end of April 2019, credit rating agencies had downgraded ADAG companies, viz., Reliance Commercial Finance and Reliance Home Finance, to default category. ADAG’s spokespersons were quick to issue statements to paper over these financial problems. Both entities were on the verge of insolvency resolution, with Authum Investment and Infrastructure emerging a possible acquirer at a steep haircut to lenders. The fate of the deal remains uncertain after the RBI’s latest move.

• A major red flag was thrown up in June 2019 when Price Waterhouse & Co (PWC) resigned as the statutory auditor of Reliance Capital as well as Reliance Home Finance, citing unsatisfactory response to certain observations. The management, under Anil Ambani, responded with typical aggression and publicly disagreed with PWC’s findings; but, instead of waking up, the RBI continued to sleep for another 2.5 years! PWC was under tremendous pressure from ADAG at that time and would certainly have conveyed its misgivings to the RBI. Why was it ignored?

• In the same month (June 2019), a report by Risk Event-Driven and Distressed Intelligence (REDD) exposed how RCL and DHFL, among others, used ‘box companies’ to fudge accounts and obfuscate lending to related entities. REDD specifically pointed out that Reliance Capital and its two affiliates, Reliance Home Finance and Reliance Commercial Finance, had engaged in funding through box companies. The report said loan outstanding to these box companies was Rs 137 billion (Rs 13,700 crore) then.

Photo: Moneylife.

• To evade recovery action to collect over US$700 million (around Rs 5,000 crore) lent to Reliance Communications by three Chinese lenders against personal guarantees by Anil Ambani, he declared himself bankrupt in 2019 in a London court. The telecom company’s outstanding was then estimated at nearly Rs 76,000 crore (or US$10 billion). Reliance Naval & Engineering Ltd, which was to build patrolling vessels for the Indian Navy, was already under bankruptcy proceedings.

Yet, Indian regulators pretended like it was business as usual. IRDAI (Insurance Regulatory and Development Authority of India), the insurance regulator, in violation of its own ‘fit & proper’ criteria, allowed Anil Ambani to remain chairman of the two insurance subsidiaries of RCL. More pertinently, Anil Ambani’s holding in RCL had then dwindled to the single digits; but even this did not matter to the regulator.

• In December 2020, the Securities and Exchange Board of India (SEBI) set up its corporation finance investigation department to probe the diversion of funds from listed entities, but there is no action on Reliance Home Finance, despite the forensic audit having revealed a diversion of nearly Rs 8,000 crore to repay loans, statutory dues, corporate expenses, etc of related entities (Brahmayya & Co report of May 7. 2020).

Earlier, a forensic audit by Grant Thornton had also found a diversion of Rs 12,000 crore (Reliance Home Finance gave Rs 12,000 crore loans to ‘indirectly linked’ borrowers: Forensic audit) by the company as well as several anomalies in the credit appraisal and disbursal process. The company had aggressively denied this and claimed that the forensic audit “found no fraud, embezzlement or diversion and siphoning of funds in the company.” Such aggression and defamation notices have been effectively used by ADAG to shut up the media, investigators and whistle-blowers over the years.

• In September 2020, Indian Bank had classified its loan exposure to Reliance Home Finance as fraud. Even that did not trigger stringent action by any financial regulator.

• Even before the RBI’s decision to appoint an administrator, RCL’s debenture trustee had initiated recovery action which was mired in litigation. Several banks have already sold their loans to an asset recovery company and debenture-holders are now stuck with over 95% of RCL’s outstanding debt. Ironically, Reliance Capital, in a statement, blames these multiple litigations for stalling the resolution of its payment issues.

• In October 2021, The Indian Express, as part of the Pandora Papers investigation, revealed how the Anil Ambani group, which had declared itself bankrupt, had borrowed and invested US$1.8 billion through 18 offshore entities between 2007 and 2010. So far, those implementing the draconian Prevention of Money Laundering Act appear not to have noticed this.

• Soon after the IL&FS board was thrown out, the media had reported that Anil Ambani had begun to reduce his stake in RCL from 52%; some of it may have been the sale of pledged shares. But, by March 2020, he held less than 2% of the capital and the public sector insurer, the Life Insurance Corporation (LIC), was the single largest shareholder with a 2.98% stake.

The RBI action raises several questions, many of which suggest that strong political support may have prevented regulators and public sector entities from doing their job. Similar questions were raised about the founder-CEO and, later, chairman of IL&FS Ravi Parthasarathy’s politically powerful connections.

In 2018, the Serious Frauds Investigation Office (SFIO) had asked the RBI to investigate (SFIO Suspects RBI Top Official’s Collusion with IL&FS) the possible role of a senior official in turning a blind eye to the serious financial problems at IL&FS. There has been no development on this. The SFIO’s aggressive investigation petered out by 2020, when it ought to have been asking similar questions about the RBI’s lack of action in RCL as well.

Like the insurance regulator, SEBI also forgot its ‘fit & proper’ rules for bankrupt directors, which have been aggressively applied when the founders are less powerful. LIC, a public sector insurer, also ought to explain why it has hung on to more shares in RCL than Anil Ambani – if the answer is poor investment skills and research, it would be a bigger worry for all Indians. The State Bank of India added to the confusion by withdrawing the ‘fraud’ tag against Reliance Infratel Ltd in June 2010 without explanation.

These actions, along with Reliance Infrastructure’s Rs 2,800 crore arbitration award in September 2021 against Delhi Metro Rail Corporation, combined with its political clout, created the impression that ADAG would be allowed to slither out of its problems once again, even after Anil Ambani had declared himself bankrupt in a London court. Indeed, despite all his financial troubles, his family announced an investment of Rs 400 crore in Reliance Infrastructure with plans to invest another Rs 500 crore via creeping acquisition.

The long history of inaction by all three regulators with regard to Anil Ambani and his companies is scandalous. The only reason our regulators acted like the proverbial three monkeys is, probably, political pressure. This, again, exemplifies a simple principle of regulatory action in India: Show me the person and I will show you the rule. Investors and lenders suffer the losses.

This article first appeared on moneylife.in. It has been lightly edited for style.