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On This Day - 22 OCTOBER 2011
Can India Inc. continue its current way of doing business?
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What makes Indian companies unique is that many of them are family run businesses who are ready to take the responsibility and spend large amounts of money on long term projects in India. This has helped many of them to become conglomerates. This business model is viewed favourably by quite a few companies since it gives the management more headroom to raise capital without having to cede control. What is more, the inadequacies of the government have also in a sense helped family run businesses to thrive. Legal issues are a grey area, infrastructure is often poor, supply chains not well developed, red tape a hazard, and markets for people, materials and finished goods unreliable. As a result, as the Economist points out, companies have take upon themselves the responsibility of doing things on their own and have worked out a system by which they can capitalise on the shortcomings of the government. Unfortunately, in many cases, it has also led to wide scale corruption.
But can this style of doing business continue for long? Indeed, today's way of doing things reflects a rational response to the way the government operates, and has helped India's economy motor along despite them. But at some point, the returns may not be that beneficial. Because at the end of the day, for India to be even considered as a country to be reckoned with, it will have to tackle the chronic issues of poor infrastructure, corruption, land allocation, education among others. It then follows that if the government is able to suitably address these concerns, the current way of doing business in India will no longer hold good. Given how slow and ineffective the government has been, this may not be such a big problem now, but is certainly a scenario that cannot be ruled out.
That said, Indian businesses do have the ability to adapt and the above scenario playing out may not turn out to be a very big challenge. But they will have a bigger responsibility towards the Indian people who have much higher expectations from them than they have from the government. And those companies which will have the ability to lead and not merely follow and at the same time have impeccable corporate governance practices to match will certainly stand the test of time.
Indian stock markets however fell by almost 1.7%. The markets were plagued with a number of fears including the worsening of European debt crisis resulting in the outflow of FII (Foreign Institutional Investor) money. There were concerns about inflation remaining at intolerably high levels and the RBI hiking interest rates yet again. Amongst the other world markets, Brazil and Germany were up by 0.4% and 0.1% respectively. Asian stock markets were down led by China (down by 4.4%).
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