Opinion: Traditional Values Have Served India's Powerful Family Businesses Well for Generations, Writes Robin Pagnamenta, but Is the Need for Modernisation Now Too Strong to Ignore?

Article excerpt

The Indian model of family-controlled business dynasties, often spanning a dizzying range of industries, shows few signs of dying out. About 90 per cent of the nation's enterprises are family affairs, from behemoths such as Tata and Reliance Industries right down the food chain to SMEs and micro-businesses.

Even as India's economy has grown, modernised and become more closely integrated with the rest of the world over the past two decades, this model has changed little. While family firms are often seen in the West as something of an anachronism, in India they remain the lifeblood of the economy.

One of the main factors behind the durability of the family-owned business is that the ancient bonds of kinship and caste remain powerful forces in India. These serve to ensure that commercial skills and expertise continue to be passed down from one generation to the next. Many of India's most successful business empires come from tight-knit communities such as the Baniya and Marwari trading clans from the western desert states of Rajasthan and Gujarat. Both India's richest man and India's richest expatriate--Mukesh Ambani of Reliance and London-based steel tycoon Lakshmi Mittal--are Marwaris.

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If caste and community ties help to explain why families have become important repositories of business know-how in India, what explains their fondness for conglomerates? One reason is that many of these enterprises have expanded into new areas because vertical integration has been the easiest way for them to prosper. India's soft state throws up endless challenges. Court decisions can take decades, contracts are hard to enforce, infrastructure is weak and red tape is a constant problem. In an environment where so little can be taken for granted, becoming self-sufficient and developing internal economies that enable groups to operate with the minimum of external interference is an obvious answer. …