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What The Wall Street Journal Does Not Understand About India?

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By AltG Research on behalf of Poornima Vardhan & Taponeel Mukherjee

What Does The WSJ Say?

In an article published yesterday by The Wall Street Journal titled "Modi's Vision for India Rests On Six Giant Companies", the article states, "Half a dozen conglomerates now control or have major stakes in 25% of India's port capacity, 45% of cement production, a third of steel making, nearly 60% of all telecom subscriptions, and more than 45% of coal imports." The article begins with the assertion that "Prime Minister Narendra Modi says this is India's decade. That claim rests heavily on a handful of dominant conglomerates." Statistics and data are useful tools but can lead to spurious conclusions when not considered in context. An inability to understand India and the investment landscape while constantly stereotyping India from a western lens has been an issue that has plagued commentators for long.

What Don't They Say?

Firstly, the sectors mentioned of cement, telecom, coal, and ports are highly commoditised businesses that have seen consolidation globally. These sectors, by definition, are "cost-based" industries where the lowest-cost seller wins. Scale is paramount for business success and delivering value to the end consumer through low prices. The consolidation in the said sectors in India isn't alarming by any stretch of the imagination.

Let's take a couple of sectors in India and compare them to some global numbers to understand this better. In telecom in the USA, the top 3 players, AT&T, T-Mobile and Verizon, have a nearly 96% market share compared to India, where the top 3 players have a 90% market share. Steel is another sector mentioned. The top 3 players in Japan control north of 60% of the market, while in India, the number stands at around 44%. Essentially, India's numbers when compared with those of other large sized economies aren't an outlier by any calculation.

Secondly, the next two decades truly belong to India as it goes on a path of economic growth and development. However, to say that the claim rests heavily on the conglomerates again shows a poor understanding of the dynamics driving India's economy.

Anyone who has spent any time in India knows that India’s real growth comes from micro-entrepreneurs and smaller private companies. The smaller private enterprises numbering in the 1000s account for $1 Trillion in GDP today, projected to cross $10 Trillion in the next few decades. Understanding that these small private enterprises or MSMEs are world-class in service/product, systems, technology adoption, and value provision is crucial. Industries are blooming across financial services, staffing exports, contract research, floriculture, electronic components, medical equipment, and managed IT services in the B2B space and India's rapidly growing consumer market.

In financial investor speak, there are tons and tons of companies with "High Growth and High EBITDA Margins". India's global standing, GDP growth, Global trade contribution and economic prosperity are as much driven by these 1000s of private enterprises with more than a Trillion Dollars in GDP and 100s of Billions in Profit After Tax as it is by the hefty conglomerates, if not more.

What's The Future For India?

Large businesses with scale add value, and at the same time, Antitrust regulators must ensure that they do not get too dominant. However, The real investment opportunity for FDI and domestic capital lies in financing, partnering and growing with the smaller private companies that are powering the economy.

Understanding the importance of India's MSMEs is crucial not just to understand the India growth story but also to participate in it. Commentators and so-called "experts" are still caught in a time warp regarding India's MSMEs. There is a disproportionate share of attention large businesses in India get while equally high-quality companies abounding in the 1000s exist in India's private markets.

The launch of the digital stack in India, the formalisation of the economy and the technical workforce available have transformed the private markets for smaller businesses in India. For commentators and investors alike, it's time to focus on India's smaller private sector. It may look "niche" today, but that's where some of the greatest investment and business opportunities of the 21st Century sit. India will be the land of not just the $100 Billion Businesses but of 100s of Billion Dollar Businesses.


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