The global drive to reimagine capitalism

India Inc is now at the crossroads. The challenges on the road ahead will need it to assume a much larger social role.  (Photo: iStock)
India Inc is now at the crossroads. The challenges on the road ahead will need it to assume a much larger social role. (Photo: iStock)


  • The pandemic has intensified calls for business to change its role in society. What will India Inc do?
  • This is an opportunity for India Inc to do the right thing, put in place a template that resonates with the highest standards of corporate governance, and India’s civilizational ethos.

MUMBAI : Earlier this month, Pope Francis took a break from his routine pre-Christmas papal duties to align the Vatican with a coalition of leading firms (Allianz, Merck, Bank of America, CalPERS, MasterCard, DuPont, Johnson & Johnson), foundations (Ford Foundation, Rockefeller Foundation) and multilateral institutions (Organisation for Economic Co-operation and Development).

He even offered his benedictions to this alliance between big business and the church. The objective: to reform capitalism, make companies do the right thing, and put the economy on a more inclusive and sustainable footing. These corporate leaders have all pledged quantifiable, measurable action on a host of issues, including meeting sustainable development goals. The Pope’s cosying up to big business in the midst of a pandemic might seem odd, but he has clearly sensed a need for change.

This alliance is not an isolated example. A groundswell of diverse voices seeking to reform capitalism, and radically alter how companies do business, has been growing over the past few years. The pandemic has lent it a new-found intensity.

The focus has sharpened as 2020 also happens to be the 50th anniversary of a famous op-ed that economist and Nobel Laureate Milton Friedman wrote for The New York Times. It became the corporate world’s default lodestar. The article’s contention—that corporations exist to only maximise shareholder value—is now being questioned widely. Writing about it in the Financial Times, Martin Wolf commented: “After 50 years, the doctrine needs re-evaluation."

It is also the 75th anniversary of the famous Bombay Plan which laid down Indian industry’s road map for the economic development of a post-war, post-colonial independent India. The document forged a symbiotic, yet turbulent, partnership with government and, even though the association has waxed and waned over the past 75 years with ties periodically reset, the pandemic has now brought it to an interesting intersection.

India Inc is being asked to lead the economic revival process as the government continues to provide a suboptimal response to the economic shock from the pandemic. This is a unique and rare opportunity for India Inc to do the right thing, instal a template that resonates with the highest standards of corporate governance, and India’s civilizational ethos.

Disparate voices within India Inc have also been speaking up, asking for systems overhaul. Anand Mahindra, chairman of the Mahindra Group, wrote an October op-ed in The Times of India, and followed it up with a survey and interview to the newspaper in November, redefining what it meant to be a “good business". In general, Indian industry has so far been circumspect and hesitant. The Indian corporate sector’s default mode remains embedded in the past, sheltered by a semi-capitalist-semi-feudal scaffolding and nourished by a patron-agent network.

The pandemic has already created enough asymmetries and opportunities for exploitation. Numerous media reports have described how hospitals have used the pandemic to earn super-profits by over-charging for almost everything, including loading final bills with costs for personal protective equipment (PPE) used to treat other patients.

Many companies and retail outlets had to legitimately increase prices to meet the elevated costs arising from broken supply chains. But there were equally many others which used this opportunity to extort usurious margins. There have also been disturbing reports of how large companies, in aggressive pursuit of market share, have used the pandemic and lockdown to elbow out small and medium competitors, and used the resulting dominant position for pricing power.

Presenting the October 2020 monetary policy, Reserve Bank of India governor, Shaktikanta Das, said: “Our analysis suggests that supply disruptions and associated margins/mark-ups are the major factors driving up inflation." Das repeated this—excessive margins charged by firms contributing to rising inflation— while presenting the December policy.

There is also the questionable morality of companies donating large sums of money to the PM Cares Fund (PMCF) while simultaneously laying off employees on grounds of revenue loss and inability to pay wages. Apart from some of India’s largest companies, multiple public sector units have also made large donations, often in multiples of their annual expenditure on corporate social responsibility.

This is questionable use of public money, especially when these donations could have been better used. Inflows into the Fund have come primarily from large companies, which had either free cash to spare, or freed up finances to make the contributions, instead of paying employees or ensuring the health and safety of migrant workers.

There is therefore an unmistakable, and unconscionable, lurch towards crony capitalism at a time when the pandemic has presented an opportunity to change course, set new operational coordinates or forge a new moral code.

Part of the responsibility for achieving that actually lies with either Confederation of Indian Industries (CII) or the Federation of Indian Chambers of Commerce and Industry (Ficci). But there’s complete radio silence in those two industry lobbies. CII published its code in February 2020, but we don’t know if members are following it, or if there is any monitoring.

An alternative model

Business associations have been globally thrashing about to craft an alternative model that is compatible with the triple bottom-line framework, equally responsive towards people, planet and profits.

The Business Roundtable, a New York-based association of CEOs from leading US companies, issued a statement in August 2019 on the purpose of a corporation: to deliver value to customers, invest in employees, deal ethically and fairly with suppliers, support the communities in which they work and generate long-term value for shareholders who provide capital. Predictably, the statement elicited a diverse range of reactions, both supportive and snarky.

Washington DC-based Council of Institutional Investors, which calls itself the voice of corporate governance, said the BRT statement, “undercuts notions of managerial accountability to shareholders." Writing in the Washington Post, economist Larry Summers said that if BRT is serious about stakeholder capitalism, it should push for enabling legislation and rules. “These might include minimum-wage and benefits requirements and broader mandates to protect companies that want to do right by their workers from those competing companies that are ruthlessly pursuing shareholder interests."

Even though BRT issued a statement saying that it was doing its bit to help all stakeholders, there were reports of how some BRT members were found wanting in the pursuit of stakeholder capitalism. For example, Salesforce CEO Marc Benioff sacked 1,000 employees in August, a day after crediting higher Q2 sales to stakeholder capitalism.

Admittedly, BRT will take years to achieve true stakeholder capitalism, provided it’s serious and does not view this as a public relations opportunity. In the meantime, people are watching; there is pressure, but equally there is movement.

In contrast, there is very little action in India. Pushed by the healthcare crisis, many large Indian companies issued banal press releases about their contribution to the PM Cares Fund, or donations of sanitiser bottles/masks/PPEs. The large donations to PMCF (which is not answerable to any government authority or audit) were made to help the government combat the pandemic, but also comes with the collateral benefit of improving proximity to political leadership.

This is the new entente between government and India Inc, especially with industry now being called to deliver output, income and economic growth. Historically, government and business have often come together to combat crises.

Old-new deal

The Bombay Plan—drafted and signed off by leading Indian industrialists of the day—had two remarkable aspects. One, industry wanted the state to assume primacy in economic development, which even included ownership, control and management of economic enterprises. Two, it viewed itself as the state’s partner in the development process.

In a paper for Business History Review, business historian Medha Kudaisya writes that the Bombay Plan marked a turning point for Indian business because, “…it marked the institutionalization of a long relationship between business and nationalist leadership…the central premise of the Bombay Plan was that a national government would undertake the task of economic development in which business would be an equal partner."

This imagined partnership never materialised as the state assumed greater powers and imposed new controls, leaving business disillusioned and scrambling to adapt to the changed circumstances.

Whatever be the perspective, context and reasoning for the state’s arrogation of a predominant role in the initial post-independence years, and its flagrant abuse in later years, it undoubtedly helped foster India Inc’s unique but questionable business practices in subsequent years. This is by no means true for all members, but certainly applies to large swathes of the corporate sector.

The other major occasion for government-industry coordination occurred with the 1991 economic reforms, when the government abolished Licence Raj and allowed foreign investment in multiple industry segments. Predictably, there was pushback.

A loosely cobbled body (nicknamed the Bombay Club) presented a note to then finance minister Manmohan Singh in November 1993, demanding a level playing field for Indian industry before opening up to competition from foreign investors.

Protection came in many direct and indirect forms. One was the tacit condition that required foreign partners to get an Indian partner before striking out on their own. This not-so-explicit rule was blended with other categorical rules that automatically added a premium to the Indian partners’ shareholding. Other forms of protection were also provided.

In 2013, the height of industrial slack and a period marked by “policy paralysis", then prime minister Manmohan Singh reached out to industry at CII’s annual meeting: “I urge each one of you to keep faith and call on you to partner with the Government in our effort to put the economy back on the path laid out in our Twelfth Five-Year Plan."

Industry, of course, was not impressed, having binged on bank credit by then. Their disappointment sprang from the perception of slow progress on issues like land and labour reforms; plus, there was the spectre of scams and overzealous investigative agencies after questionable allocations of various national commons. They were also uninterested because 2014 elections were around the corner.

Prime Minister Narendra Modi has also, on multiple occasions, done his bit to exhort industry to invest, requested it to partner the government on various initiatives, provided policy space for various demands. Yet, the investment rate has been in steady decline since 2014, partly because of the after-effects from the 2009-12 loan-binge, global headwinds and unpredictable government policy action (demonetisation, hasty introduction of Goods and Services Tax, or the abrupt March 2020 lockdown).

In conclusion

India Inc is now at the crossroads. The pandemic-induced lockdown and economic shock seems to have aroused some of its latent reflexes; but the challenges on the road ahead will need it to assume a much larger social role. Threats to Tanishq, after the Tata company released ads showing inter-faith marriages, exemplify India Inc’s hollowness: there was not a single voice in the company’s support.

Clearly, the world has changed: ESG (environmental, social and governance) mode of investing is seeing old blue-chips ravaged and premium transferred to newer companies pursuing sustainable goals; bright youngsters are seeking employment only in certain kinds of companies. The pandemic presents a pivotal moment; business-as-usual is being replaced by the New Normal. It’s now or never.

Rajrishi Singhal is a policy consultant, journalist and author

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