Economists Arvind Subramanian and Josh Felman have drawn attention to the increasing heft of the “2As” — businessmen Mukesh Ambani and Gautam Adani — as evidence of an “extraordinary concentration of economic power.”
Twenty-five years ago, when as many Indians flew annually as they do in a month now, two state-owned airlines controlled half of the domestic aviation market. This March, 57% of the 13 million tickets that got sold were booked with just one private airline. India’s embrace of capitalism may have brought the country a higher rate of economic growth than in its pre-1990s socialist past, but sectors regulated by the state have largely failed to usher in the muscular competition that gives consumers more choices, better services and lower prices.
Economists Arvind Subramanian and Josh Felman have drawn attention to the increasing heft of the “2As” — businessmen Mukesh Ambani and Gautam Adani — as evidence of an “extraordinary concentration of economic power.” Viral Acharya, a former central bank deputy governor, has broadened the analysis to include the Mumbai-based conglomerate Tata Group, cement-and-aluminum czar Kumar Mangalam Birla and telecom tycoon Sunil Mittal. The Top 5 nonfinancial groups have expanded their share of total assets by 8 percentage points in 30 years, whereas the next five business groups’ sway has shrunk by roughly the same amount. “In other words, Big-5 grew not just at the expense of the smallest firms, but also of the next largest firms,” Acharya wrote in a recent paper.
The East Asian model of promoting large conglomerates as national champions was aimed at capturing larger chunks of global value chains. In India, hegemony is being acquired — or getting awarded — in domestic sectors. India’s import tariffs are behind only Sudan, Egypt and Venezuela, giving entrenched domestic groups more bargaining power over 1.4 billion consumers.
Contrast the competitive scenario in India’s aviation industry to its rival, China. The three major Chinese carriers — China Southern Airlines Co., China Eastern Airlines Corp. and Air China Ltd. — don’t control even half of scheduled seat capacity between them. “Pricing competition among Chinese airlines on domestic routes should remain strong due to seat growth,” Bloomberg Intelligence analysts Tim Bacchus and Eric Zhu noted last month. Meanwhile, in the neighboring economy, consumers are anxious after Go Airlines India Ltd. last week suddenly filed for bankruptcy, raising the risk that lessors will yank away its planes. If the 7% passenger share of Go First gets redistributed, Indigo, the brand operated by InterGlobe Aviation Ltd., might see its control expand to three-fifths of the market.
From aviation and telecom, to ports, airports, and power, the natural progression in India seems to be a withering of the state’s dominance, followed by the rise and demise of all but one or two oligarchs who manage to beat other rich moguls. Go First is controlled by billionaire Nusli Wadia’s Wadia Group. Vodafone Group Plc’s India wireless joint venture with Birla, the commodities tycoon, is barely alive.
High margins have been an important part of the persistently high inflation in advanced economies. Or at least that’s what a growing body of academic work is starting to suggest. Some of that may be true for India, too. “Consumers do not seem to be fully benefiting from input price declines, which may be due to greater pricing power in increasingly concentrated industrial organization structures,” Acharya, who is now a professor at New York University, noted.
Then there are distortions that are unique to India. Go First will be another test of the country’s bankruptcy law, which has so far failed to prevent sudden losses of aviation capacity. Other markets, such as power distribution, suffer from long-standing structural deficiencies, such as a mollycoddling of farmers at the expense of other buyers. The purchasing-power-adjusted cost of electricity for industrial consumers is more than double of what Chinese companies pay; US firms shell out a sixth as much as Indians.
An increase in prices is the most obvious result of stymied competition, though effects can take years to show up. Indians currently enjoy the fifth-lowest cost of data anywhere in the world, a direct consequence of Ambani’s seven-year-long quest to garner market share by squeezing out rivals. What used to be a field of almost a dozen operators now has only him and Mittal’s Bharti Airtel Ltd. standing. Data charges may stay low while the two dominant players are rolling out their 5G networks, taking customers away from Vodafone’s struggling joint venture. Then they might rise again in the run up to the much-anticipated public listing of Jio Platforms Ltd., Ambani’s digital empire.
To paraphrase Leo Tolstoy, every unhappy consumer is unhappy in her own way. Adani runs seven airports, and is currently building an eighth. Private concessionaires like him have wrangled a right to impose charges on departing passengers in exchange for taking the terminals out of the hands of a resource-constrained state. These extra costs may not matter to the rich, but they do pinch the poor, such as blue-collar workers flying to new jobs in the Middle East.
In consumer staples, where rival products are jostling for attention, the Indian consumer isn’t doing too badly. Unilever Plc’s India unit faced a 17% inflation in material costs in the year to March 31, but it restricted its price increase to 11%. The 6 percentage point hit it took on its gross margin in two years is broadly in line with the consumer multinational’s unit in Indonesia. Ambani’s big push into consumer goods will probably erode pricing power further.
Still, consumer utility can suffer in myriad other ways. A frequent-flier friend complained recently about the marmalade going missing from breakfast on the flights run by Vistara, a full-service carrier jointly owned by the Mumbai-based Tata Group and Singapore Airlines Ltd. Vistara is merging with Air India, which Tata bought from the government in 2021 in a privatization deal. Throw in AirAsia India, the third airline in the Tata stable, and the group has a market share of roughly 25%. It has also put in an order of 470 aircraft, the biggest in aviation history. The world’s most-populous nation may soon be left with only two viable options for local air travel: Indigo and Tata. My friend should perhaps forget the marmalade — and be grateful for the bread.
Source:financialexpress.com