Are there two sides to the 1% that Thomas Piketty and Oxfam have blamed for cornering the largest share of global wealth creation? This is the wafer thin minority at the top of the pyramid, which according to a survey by international rights group Oxfam accounted for 73% of the wealth generated in India last year, even as 670 million Indians comprising its poorest half saw their wealth rise by a mere 1%.
More simply put is there a good 1% and a, well, not so good 1%?
The fresh revelations related to the activities of Malvinder Singh and Shivinder Singh of Fortis Healthcare and Religare fame would seem to suggest so. The two brothers, at one time among India’s richest, have not been the best custodians of either their own billions or the ones entrusted to them by investors and lenders.
As if the warts in the Ranbaxy deal, which netted them a cool $2.4 billion were not enough, it now appears that the two have also been messing around with the finances of Fortis Healthcare and Religare Enterprises, companies in which they have substantial holdings.
Bloomberg reported that a New York-based investor in a lawsuit filed in the high court of Delhi had claimed “diversion, siphoning and digression of assets" in Religare and last week, Securities and Exchange Board of India (Sebi) chief Ajay Tyagi confirmed that the regulator was looking into related party transactions and alleged corporate governance lapses in Fortis group companies.
A bit of history is in order here. The two brothers inherited a true blue chip in Ranbaxy when their father, the late Parvinder Singh, passed away in 2000. Ranbaxy had been the pacesetter for the generic pharma business out of India which is today the world’s largest exporter of generic drugs, with sales of $16.4 billion in 2016. Riding on the tailwind built largely by the senior Singh through the 1990s, the sons concluded a highly successful sale of Ranbaxy to Japanese pharma firm Daiichi Sankyo in 2008 and this should have been enough to secure their financial future. Except that the deal had enough holes in it for the Delhi court last week to uphold an earlier international arbitration award whereby Daiichi Sankyo could recover $550 million (Rs3,500 crore) from Malvinder and Shivinder Singh, the former Ranbaxy owners, on the grounds that the two had concealed material information related to misdemeanours at Ranbaxy.
That caps a truly sorry sequence of lapses. With Ranbaxy gone, the brothers could have turned their attention to investing wisely in Fortis and Religare, and building the two sunrise businesses. Instead, over the last 10 years the profits of the group are down even as debts have climbed. Through mismanagement if not downright fraud, three companies have been brought to their knees.
It is enough to give the 1% a bad name. Except that the problem isn’t the 1%. It is those in this 1% that are destroyers of capital and value. The Singh brothers are perfect examples of that. They inherited a fortune and turned it into a failure. The fault though lies with them, not their inheritance.
Parvinder Singh was an inheritor too, as are Pawan Munjal and Mukesh Ambani and Ratan Tata, and many others.
India has 101 billionaires and 37 of them have inherited family wealth. Many of them inherited successful family businesses. But more than that, they inherited the opportunity that this presented them with. They went on to build successfully on these foundations and created huge assets of their own.
We need this 1%. Yes they own a disproportionate part of the country’s wealth and the privileges that come with this. But they also pay a major share of the taxes and in a country where only 1.7% of the total population paid income tax in 2015-16, that’s not insignificant. They also set up the factories and the plants that bring badly needed jobs, and in general provide the fuel that keeps the economy running.
Although the 1% may not be a club of virtuous men and women, we still need them to keep the wheels of India’s nascent capitalism turning.
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.