Business concentration - airport services edition

A feature of the efficiency-maximising (American version) capitalism is the trend of business concentration at the extensive and intensive margins. The former involves horizontal integration, whereby a handful of firms make up an increasingly major market share in their respective industries. It’s a phenomenon that spans industries and countries in varying degrees. The latter refers to the trend of vertical integration, where the dominant firm tends to capture an increasing share of value addition within the industry. This feature is pervasive in certain sectors like IT, healthcare, infrastructure, etc.

The Ken has a story on the rapid changes in business models in the airport services industry due to the increasing dominance of the Adani Group. The predominantly outsourced model of services in the airport industry in India is giving way to a more vertically integrated model. 

Traditionally, the various non-aeronautical services in the airport, like lounges, food and beverages (F&B), retail, etc., were outsourced to specialised service providers who in turn contracted with aggregators who brought together brands (like banks for lounges, retail brands for F&B and retail space, etc.). This is now giving way to a strategy where the real-estate concessionaire (Adani Group) is seeking to maximise value capture from airport services by creating its own service companies and squeezing out the outsourced service providers. 

The article narrates the story of Dreamfolks Services.

Dreamfolks Services, a publicly traded company that has quietly built a 90% monopoly in the lucrative business of getting Indian credit-card holders into airport lounges. It sits in the middle of a four-way handshake among banks, card networks, lounge operators, and travellers… TFS and Encalm ran the physical lounge spaces. But it was aggregators like Dreamfolks that unlocked access by bundling lounge networks and partnering with banks and credit-card issuers. If a lounge visit costs Rs 100, the aggregator might charge Rs 115, pass Rs 5 back to the operator, and keep the rest. Banks liked the convenience. Aggregators liked the margins… Around them, a cottage industry of brands and partners grew…

Liberatha Peter Kallat, the company’s founder and chairperson, appeared on CNBC TV-18 and accused Adani Airport and the second-largest airport operator, GMR Airports—without naming them directly—of pressuring banks like ICICI and Axis to abandon aggregators like hers in favour of themselves… Travel Food Services (TFS) and Encalm Hospitality, both prominent lounge operators, have since cut out Dreamfolks and signed directly with Adani. Banks are following suit… As tech infrastructure improved, there was no longer a strong reason to maintain the middle layer… every airport and lounge operator is now building its own backend.

It describes how in-sourcing is happening across service verticals.

Unlike Adani’s other airports, where retail concessions are often managed by third parties, in the Mumbai airport, Adani directly runs the non-aero business… Adani Airport has moved to a franchisee model—a shift from the earlier system, where brands paid rent (fixed or revenue-linked) to concessionaires who had won competitive bids for spaces. Now, instead of paying rent, they are licensing their brand to the airport and letting it run the show… 

In Mumbai, three large players—TFS, Lite Bite Foods, and Devyani International—used to dominate F&B. That has changed. Last March, Adani acquired a majority stake in Semolina Kitchens, a TFS subsidiary. TFS, now aligned with Adani, is emerging as the primary F&B operator at the airport. Lite Bite’s share has reportedly fallen from 50% to under 20%, said F&B operators in the know. Both it and Devyani are expected to exit entirely once their contracts expire later this year… 

Of the eight lounges at the Mumbai airport, at least five are now managed by TFS. Through Semolina, TFS has lounge and Quick Service Restaurant (QSR) concession rights at six Adani-operated airports, as well as Goa (operated by GMR), according to its pre-IPO documents. The roles are consolidating. The partners are getting fewer. The integration is getting tighter… So if a brand is trying to operate at the airport, they can’t be surprised if the space goes to TFS’s in-house brands like Caffecino, Curry Kitchen, or Dilli Streat instead… 

Over the past 18–24 months, categories like watches, apparel, cosmetics, salons, and even convenience stores have seen a shift in how business is done at Adani-run airports. The model is familiar by now: migrate the old setup into a new one, run by a close partner. In this case, that partner is April Moon Retail, claimed multiple brand owners. Stores at these airports still carry their logos and branding, but the backend has moved, they said. Employees are now on April Moon’s payroll. Bills carry the brand’s name, but the GST number belongs to April Moon… 

April Moon has begun launching in-house formats across categories. Stores like Bon Voyage, which sell everything from snacks and books to travel accessories, now operate across multiple Adani Airports… What’s really taking off is the retail-cloning strategy. When something sells well at the airport, it doesn’t take long for a lookalike to show up—all run by April Moon. A luxury watch counter resembling Ethos or Helios? That’s Meridiem. A beauty and cosmetics outlet that looks like Nykaa? Meet Amara Luxe. Something that feels like Lenskart or Titan Eye+? It’s probably Vue De Luxe. Handicrafts à la Rare Planet? That’d be Pravasi. There’s even talk of a Hamleys knockoff said to be in the works.

This trend, in turn, creates several disturbing concerns.

TFS, whose IPO opens on 7 July, was founded by the Kapur family—the same folks behind Copper Chimney, Bombay Brasserie, and The Irish House… TFS could eventually be replaced, too. Adani is reportedly talking to Plaza Premium, the global lounge operator, for future airport lounge ops… 

April Moon began appearing around 2021. Its role was to take over the duty-paid retail at airports. That September, Adani acquired a 74% stake in Flemingo Travel Retail—a global duty-free operator founded by Atul Ahuja—for just Rs 2.8 crore. This, for a company that had clocked nearly Rs 900 crore in revenue in FY19. The deal, struck mid-pandemic when travel retailers were reeling, came at a throwaway price. And it gave Adani near-total control over both duty-free and duty-paid retail. For brands, that left little room to negotiate: either go through April Moon, or lose access to airport shelves… “If we made Rs 15 lakh in monthly sales at a store, we’d only be allowed to record Rs 5–6 lakh,” said one retailer. After costs, they say, the effective take-home margin is 5–6%. “Retailers who spent decades building these brands are now effectively just vendors.”

Strong financial incentives are driving these trends

At AAI airports, non-aeronautical revenue makes up maybe 10% of the pie. At private airports like Mumbai or Delhi, that jumps to 62%, per data cited by Crisil in TFS’s IPO documents. And within that, F&B alone account for as much as 40%. For instance, the top five Starbucks outlets in India by revenue are all located at airports, according to an F&B operator. A single store can bring in Rs 1.5 crore a month; that’s 3–4X more than a high-street outlet. And margins are nothing to sneeze at. A Rs 400 latte at an airport (Rs 350 at other outlets) contains roughly Rs 20 worth of ingredients.

Business concentration through horizontal and vertical integration may be inherent to the dynamic of capitalism with its profit-maximising firms. And there are doubtless efficiencies to be realised from both these trends. 

But the case of the airport sector in India, representative of trends across several sectors, raises questions about the stifling of entrepreneurship and innovation, and business dynamism in general. 

For example, what’s the incentive for entrepreneurs to start something like Dreamfolks Services, or April Moon Retail, or TFS, if there’s an imminent threat of being squeezed out of the market or being taken over by the dominant airport operator? Wouldn’t such trends deter investors from putting their money behind entrepreneurs whom they would otherwise have supported? More generally, is business concentration at the extensive and intensive margins likely to scare risk capital away from these sectors?

In addition, there’s a compelling argument that vertical integration under a corporate behemoth would lower innovation, service quality, and sector-wide dynamism. There’s a strong likelihood that once these services are taken in-house, like with all monopolies, the airport operator will have diminished incentives to pursue innovation and service quality and instead will have increased incentives to maximise profits. 

In any case, it’s unlikely that large infrastructure groups or their subsidiaries will be as innovative or driven to improve service quality (say, cater to all market segments), expand service portfolios (including interoperability with similar services globally), explore adjacent market synergies, and so on. This has been the global experience from across sectors, especially but not only in the infrastructure sector, over time.

It’ll be easy for the airport industry in India to become entrapped in a sub-optimal equilibrium of a horizontally and vertically integrated market dominated by a couple of operators. Given the inevitable growth in traffic due to economic growth starting from a low baseline, the associated inefficiencies can be papered over for a long time. But its opportunity cost can be considerable. 

Vertical integration also creates problems with the transparency of accounting for all those involved. Being part of the same corporate group means that there will be incentives to indulge in manipulation of accounts to minimise statutory payments and taxes, besides also maximising leverage. The operator can show lower revenues by over-invoicing and shifting profits to subsidiaries. Entities within a corporate group can do tax arbitrage by shifting profits among themselves. 

There’s also the case that horizontal integration creates the incentives for vertical integration. Adani Airport will have the incentive to in-source hitherto outsourced airport services only if it enjoys the economies of scope and scale from operating multiple airports. This underlines the importance of controlling market shares in such technically monopolistic markets (which also include those in IT, which benefit from network effects).

However, concerns about business concentration must be balanced with the need for large capital, a high risk appetite, and business ambition, especially if the objective is to scale big and rapidly. The country’s rapid and high growth ambitions require massive investments. The government is expanding airports at a rapid pace, and the airline industry is expected to grow fast for several years. Given their long gestation and deep exposure to the business cycle, only businesses with a high risk appetite and access to patient capital will invest in these sectors. 

Take the example of smart meters. The Government of India wants to install bi-directional smart meters in all 250 million households by the end of 2026. Even at a very conservative Rs 10,000 per smart meter (and its allied components), this would require a staggering investment of Rs 2500 billion (or about $28 bn). Given that regulatory conditions would restrict the discoms from recovering the cost of these new meters from existing metered customers, this cost must be borne by the government or the discoms. 

Since mobilising upfront capex of this scale would have been impossible, a totex model was adopted where the major share of capex would be borne by the concessionaires who would recover it over the eight years of the contract. This also means that the concessionaires would have to bear the significant risks (technology obsolescence, political economy of electricity tariffs, policy shifts, and local politics) involved and carry them in their balance sheets over the contract period. Only a few firms with the deepest pockets and highest risk appetites can assume such risks and make money from these contracts.

In conclusion, business concentration poses a dilemma for policy-making in many sectors. Its harms are well-known and often salient in a bad way, but its benefits are less known. When it unleashes a dynamic that confines an increasing and dominant share of the benefits in the hands of a few corporate groups, then there will be problems. 

Econ 101 would have it that such monopolistic trends should be formally regulated. But regulation is fraught with problems, given its inefficiencies and the political economy. Besides, there are limits to the extent of regulation required to control these business dynamics. 

From another perspective, the reliance on large corporate groups to drive high-growth aspirations is essentially a legitimate political economy choice that many countries, including those in the West, have made in their growth trajectories. Therefore, it’s only natural that a recognition of the problems that accompany the pervasiveness of large corporate groups be met with a similar political economy choice to force some form of restraints on their overreach.

Weekend reading links

1. How is global trade changing due to Trump tariffs?

US tariff revenue surged almost fourfold from a year earlier to a record $24.2bn in May, while imports from China fell 43 per cent from the same month in 2024... China's exports are up 4.8% on last year despite a sharp drop in trade with the US.

There's also emerging evidence that Chinese firms are rerouting exports to the US through South East Asia and EU countries to avoid the high tariffs on Chinese exports.

The value of Chinese exports to the US dropped 43 per cent year on year in May, according to figures published by the US census bureau — equivalent to $15bn-worth of goods. But the country’s overall exports rose 4.8 per cent in the same period, official Chinese data showed, as the shortfall in trade with the US was offset by a 15 per cent increase in shipping to the Association of Southeast Asian Nations trade bloc and a 12 per cent rise to the EU... 

Separate research by Capital Economics estimated that $3.4bn of Chinese exports were rerouted through Vietnam in May, a rise of 30 per cent compared with the same month last year. Indirect trade through Indonesia also increased markedly, with an estimated $0.8bn rerouted in May 2025, 25 per cent higher than May 2024. Exports of electronic components such as printed circuits, parts of telephone sets and flat panel display modules to Vietnam were up 54 per cent, or $2.6bn, in May 2025 compared with a year earlier, Chinese data shows... Indian exports to the US jumped 17 per cent in May compared with a year earlier, while imports from China and Hong Kong rose 22.4 per cent according to Ajay Srivastava, founder of the Global Trade Research Initiative, a research group.

This is a good graphic on what products have been squeezed following the tariffs. 

2. The US equity markets are going about their merry ways overlooking the real costs that are introduced by the Trump tariffs. 

Despite the carve-outs and climbdowns, the US’s overall average effective tariff rate now stands at 15.8 per cent, according to calculations by the Yale Budget Lab — the highest rate since 1936 and an increase of more than 13 percentage points since Trump returned to office in January.

A big cause of concern is the uncertainty associated with Trump policies that are taking its toll on investments.

The most tangible consequence of the Trump tariffs so far is not supply chain reordering, but the sudden dearth of dealmaking, according to Persson of EY. A survey of dealmakers by PwC in May found that 30 per cent were either pausing or revising deals because of the uncertainty caused by tariffs. Among those pushed back amid the uncertainty included bids for Boeing’s navigation unit and an expected £4bn sale by buyout group Apax of insurance group PIB. The sudden slowdown flew in the face of investor expectations that Trump’s return to the White House would trigger a wave of M&A activity on the back of a deregulatory splurge, according to Josh Smigel, partner in PwC’s deals practice. As a result, Smigel calculates, private equity firms are holding about $1tn worth of assets that — absent the Trump uncertainty — could have been redeployed back into the market if planned exits had not stalled.

3. Has Israel won the battle, but only to lose the war?

Mr. Netanyahu’s relentless and unapologetic military response to the Oct. 7, 2023, Hamas-led attack that killed 1,200 people and took 250 people hostage has cemented the view of Israel as a pariah, its leadership accused of genocide and war crimes, and disdained by some world leaders. In opinion polls globally, most people have a negative view of Israel. In Gaza, the war against Hamas has taken a devastating toll, killing tens of thousands of people and leaving more than a million homeless and hungry. Much of the enclave has been reduced to rubble. Poverty and hopelessness are rampant... Israel’s actions have shattered a rock-solid, bipartisan consensus in the United States for defending Israel. Now, support for the country has become a fiercely contentious issue in Congress, the subject of angry debates and protests on college campuses and fuel for a surge in antisemitic incidents in the United States and around the world... Israel has created a new wave of global opinion critical of its goals and methods. And many Israelis now feel threatened while abroad, even as they are more secure at home... 

In a Pew Research survey of 24 countries around the world published last month, negative opinions about Israel have surged. In 20 countries, more than half of the people said they had an unfavorable view of Israel. In eight countries — Australia, Greece, Indonesia, Japan, the Netherlands, Spain, Sweden and Turkey — more than 75 percent held that view... Just 46 percent of Americans in the latest Gallup survey expressed support for Israel, the lowest number since the company began asking the question a quarter-century ago. A third of the respondents in the United States said they sympathized with the plight of the Palestinians, up from just 13 percent in 2003... Inside Israel, the decision to prioritize military victories over the return of the hostages has deeply wounded many people. And the violence has strained the good will of the country’s allies and neighbors.

4. Thrive Capital, founded by Josh Kushner, the brother of Jared Kushner is charting a new model of VC investing.

The approach Kushner has developed since launching Thrive 14 years ago: get close to founders, remain loyal through crises and concentrate funds in a small number of companies. Betting a billion dollars or more on a behemoth inverts the classic venture model: firms typically write dozens of small cheques in young start-ups; most fail, but the flops are more than offset by a few spectacular successes... venture capital has mutated from a cottage industry into an institutionalised asset class... The shift has left VCs with a choice: remain faithful to early-stage investing and hope for outsize returns, or scale up funds to meet increasingly massive private companies. Thrive is attempting to manage both, writing cheques for multibillion-dollar start-ups its team believe can still multiply 10 or 100-fold in value... Most VCs split funds between dozens of start-ups, but the vast majority of a Thrive fund will go to just 10-15. The firm has put 10 per cent or more of earlier funds to work in single companies, including workplace messaging app Slack, GitHub, Instagram and Stripe. Thrive first invested in Stripe, then valued at $3bn, in 2014, and has increased its stake multiple times, including investing close to $2bn last year... the firm has quietly shown intense fealty to founders during moments of crisis, such as during the boardroom coup that briefly ousted OpenAI’s Altman last year. Kushner was instrumental in returning Altman to the company after less than a week... 

Thrive’s rivals, including more established West Coast firms, dismiss the approach as closer to asset management. “We invest in companies, they trade in stocks. It’s like an ETF [exchange traded fund] for venture,” says a partner at one Silicon Valley firm. “But private companies are not stocks. You can’t get out when they start going down.” Speaking privately to the FT, some institutional investors question whether Thrive’s massive bets can ever deliver “venture-style returns”. Others say it is too soon to judge a group whose biggest investments have not yet cashed out. Thrive’s biggest portfolio companies, including OpenAI and payments start-up Stripe, have racked up massive paper gains. But until they go public or are acquired, profits won’t be returned to institutional investors in Thrive’s funds... The payout for Thrive and its backers would be enormous should Stripe, OpenAI, or defence tech company Anduril go public... Thrive has raised a total of $12.3bn, and now has almost $25bn under management, making it one of the largest VCs in the country.

Interesting that Mukesh Ambani has a 3.3% stake in Thrive capital as part of a consortium of investors! 

5. This is a very good graphic that shows how VCs are experiencing a squeeze in their cash flows.

Much the same could be said about PE funds.

6. Private equity in data centres.

The private equity giant Blackstone spent $10 billion in 2021 to acquire QTS, and has been pouring billions more into the company to help it expand its data centers... This largely unglamorous industry is critical for A.I. leaders to get right. QTS leases its facilities to companies like Amazon and Meta and supplies the electricity and water needed to power and cool their computers... Blackstone calls data centers one of its “highest conviction investments.” Blackstone is already one of the world’s largest owners of office buildings, warehouses and science labs, but it has sunk more money into data centers and related infrastructure than into almost any other sector in the firm’s 40-year history. All told, Blackstone has put more than $100 billion into buying and lending to data centers, as well investing in construction firms, natural gas power plants and the machinery needed to build them... (it) says it still sees strong demand from tech companies, which are willing to sign what they describe as airtight leases for 15 to 20 years to rent out data center space... 

Blackstone is not alone. Data centers are drawing a crowd on Wall Street — investment giants like KKR, BlackRock and Blue Owl have collectively plowed hundreds of billions into the industry. As investment firms announce larger and larger deals, one Wall Street executive says he jokes about “Braggawatt” deals, as data centers are typically measured by the wattage they use. The spending frenzy has created concerns about whether too many data centers are being built... The complexity and cost of running A.I.-focused data centers stem from the vast amounts of power they guzzle, which can be about 10 to 20 times as much per server or rack as general cloud computing. There is also the need to keep the centers operational 99.999 percent of the day, or the “five nines” in industry parlance. That equates to about five minutes of downtime all year for maintenance or to switch out servers.

7. China's dominance of clean energy technologies

China has also begun to dominate nuclear power, a highly technical field once indisputably led by the United States. China not only has 31 reactors under construction, nearly as many as the rest of the world combined, but has announced advances in next-generation nuclear technologies and also in fusion, the long-promised source of all-but-limitless clean energy that has bedeviled science for years.

And, buoyed by President Trump's policies, America retains leadership of fossil fuels.

This reversal is striking.

Americans created the first practical silicon photovoltaic cells in the 1950s and the first rechargeable lithium-metal batteries in the 1970s. The world’s first wind farm was built in New Hampshire nearly 50 years ago. Jimmy Carter installed solar panels on the White House in 1979... In 2008 the United States produced nearly half of the world’s polysilicon, a crucial material for solar panels. Today, China produces more than 90 percent.

This is a good description of China's manufacturing prowess.

Last June, the Urumqi solar farm, the largest in the world, came online in the Xinjiang Autonomous Region in China. It is capable of generating more power than some small countries need to run their entire economies. It’s hardly an anomaly. The other 10 largest solar facilities in the world are also in China, and even bigger ones are planned. The Chinese automaker BYD is currently building not one but two electric vehicle factories that will each produce twice as many cars as the largest car factory in the world, a Volkswagen plant in Germany.

Finally, a graphic that captures China's clean energy investments globally.

Chinese firms are building wind turbines in Brazil and electric vehicles in Indonesia. In northern Kenya, Chinese developers have erected Africa’s biggest wind farm. And across the continent, in countries rich with minerals needed for clean energy technologies, such as Zambia, Chinese financing for all sorts of projects has left some governments deeply in debt to Chinese banks. Since 2023, Chinese companies have announced $168 billion in foreign investments in clean energy manufacturing, generation and transmission, according to Climate Energy Finance, a research group.

8. Tim Harford points to a new paper by David Autor and Neil Thompson who use an "expertise" framework to explain the impact of automation and AI on jobs. Autor and Thompson pose a question

Would we expect accounting clerks and inventory clerks to be similarly affected by automation? There are several well-established approaches to analysing this question, and all of them suggest that the answer is “yes”. Back in the day, both types of clerk spent a lot of time performing routine intellectual tasks such as spotting discrepancies, compiling inventories or tables of data, and doing simple arithmetic on a large scale. All of these tasks were the kind of things that computers could do, and as computers became cheap enough they took over. Given the same tasks faced the same sort of automation, it seems logical that both jobs would change in similar ways. 

But that is not what happened. In particular, say Autor and Thompson, wages for accounting clerks rose, while wages for inventory clerks fell. This is because most jobs are not random collections of unrelated tasks. They are bundles of tasks that are most efficiently done by the same person for a variety of unmysterious reasons. Remove some tasks from the bundle and the rest of the job changes. Inventory clerks lost the bit of the job requiring most education and training (the arithmetic) and became more like shelf-stackers. Accounting clerks also lost the arithmetic, but what remained required judgment, analysis and sophisticated problem solving. Although the same kind of tasks had been automated away, the effect was to make inventory clerking a job requiring less training and less expertise, while accounting clerks needed to be more expert than before. 

The natural worry for anyone hoping to have a job in five years’ time is what AI might do to that job. And while there are few certainties, Autor and Thompson’s framework does suggest a clarifying question: does AI look like it is going to do the most highly skilled part of your job or the low-skill rump that you’ve not been able to get rid of? The answer to that question may help to predict whether your job is about to get more fun or more annoying — and whether your salary is likely to rise, or fall as your expert work is devalued like the expert work of the Luddites.

9. Two graphics that capture the essence and outcome of One Big Beautiful Bill (OBBA). One, stripped off all its hype, OBBA is a giant tax cut bill.

And its biggest beneficiaries will be the richest.

Analysis by scholars at the University of Pennsylvania suggests that Americans earning under $18,000 would lose $165 in 2027, or 1.1% of their income. By 2033 their annual losses would rise to $1,300 on average—about 7.4% for the group. The richest 0.1%, earning over $4.45m, would gain more than $300,000 in 2027, a 2.3% increase. Much of this comes indirectly, via changes to corporate taxes, which are usually assumed to benefit wealthier households who own stocks... Analysis of the House version by scholars at the University of Pennsylvania suggests that Americans earning less than $16,999 would lose about $820 a year—a 5.7% reduction in median income for that group. The richest 0.1%, earning more than $4.3m, would gain $390,000, a 2.8% increase.

10. Driverless EV trucks are already operational in a coal mine in Inner Mongolia. (HT: Adam Tooze).

Yimin is one of the five largest open-cast coal mines in China. During peak season, it used to require about 300 trucks, operated by around 1,200 drivers working shifts around the clock, to transport coal to processing sites, and soil, sand and rocks to dumping grounds. But managers said the mine faced a shortage of drivers. Dangerous driving conditions led to high attrition rates, compounded by declining interest among younger generations in pursuing this profession. “Truck drivers face exhausting workloads that often lead to health issues,” said Yimin mine director Shu Yinqiu. The solution came earlier this year with a fleet of 100 photovoltaic-battery-powered, self-driving trucks. They represent the world’s largest deployment of autonomous electric mining trucks, highlighting China’s resolve to upgrade its traditional industries with advanced technologies, as the nation grapples with a shrinking labour force and an ageing population...

Key partners in the project include Huawei Technologies, Xuzhou Construction Machinery Group, State Grid and the Beijing University of Science and Technology. Now, instead of a thousand-man crew, just 24 people, divided into four teams, are needed to operate the 100 new trucks. Staff monitor and control the vehicles from the comfort of a remote control room, where live-feed videos and real-time traffic information are displayed on multiple screens... As of September, the China National Coal Association (CNCA) estimated there were over 1,500 automated mining trucks in China. It predicted that number would triple to 5,000 by the end of this year and exceed 10,000 by 2026... A fleet of 100 unmanned trucks could save coal mine operators 40 million yuan (US$5.6 million) in driver salaries annually, according to CNCA estimates.

11. Major announcement for the establishment of a PCB and Copper Clad Laminate (CCL) manufacturing facility by Syrma SGS Technology at Naidupeta in Andhra Pradesh with an investment of about Rs 1800 Cr and in partnership with South Korean company Shinhyup Electronics Ltd. The project is expected to be commissioned by 2026-27 and can avail incentives under the GoI's Electronics Component Manufacturing Scheme (ECMS). In 2024, the GoI had imposed a 30% anti-dumping duty (ADD) on bare PCBs to boost domestic production. The Indian PCB market was valued at $6.2 bn in 2024 and is estimated to grow by a CAGR of 16.4% from 2025-33. 

12. Spain wants to avoid the costs of being part of NATO, while wanting to access its benefits. It was the only standout against accepting the goal of 5% of GDP defence spending target by NATO members at the recent NATO summit. At the same time, as FT reports, one of its defence firms, Indra, which is 28% owned by the Spanish Government, is benefiting from NATO defence spending. 

In April, the group was given a role in 12 European Defence Fund research and development projects and made the leader of one involving radars. Its executives were in Ukraine last month pitching their wares... In the air, Indra is Spain’s lead participant in Europe’s flagship fighter jet project, the Future Combat Air System, a sometimes prickly partnership with Airbus, which represents Germany, and France’s Dassault Aviation.

13. India's derivatives market, and how Jane Street abused it before SEBI cracked down.

In December 2020 — when Jane Street first set up its Mumbai arm — the monthly turnover of futures and options markets on the National Stock Exchange had reached nearly $300bn, from just $134.7bn four years earlier, and by December 2024 stood at $512.7bn. This became a fertile terrain for Jane Street. Between January 2023 and March 2025 the firm netted an overall profit in India of about $4.3bn, Sebi said in its order on Thursday.

14. Using dupes of expensive brands appears to be a trend in the US, as seen from the ongoing fight between Lululemon which has sued Costco of copying at least six patented clothing designs, including its popular Scuba hoodie and Define jacket.

Once seen as embarrassing parsimony, buying knock-offs has become a fashion statement of its own. Egged on by hashtags, TikTok videos and media articles, customers are leaning into the fun of finding cheaper but still good alternatives, turning the search for dupes into a public treasure hunt. Nearly half of US consumers surveyed by analytics firm First Insight said they had tried a product specifically because it was a “dupe”, and 70 per cent of shoppers who make more than $150,000 said they were more likely to try a dupe than other private label goods...

The warehouse store’s $20 sweatshirt mimics the ornamental stitching and pouch pockets of Lululemon’s Scuba offering, which sells for six times the price. And Costco’s dupe of the Design jacket mimics an unusual line of curved stitching across the back. Lululemon contends in its lawsuit that those specific details violate the “trade dress” patents that it has registered over the past two years, as well as a trademark on the colour description “tidewater teal” that it applied for one day before filing its claim that Costco had “unlawfully traded upon Plaintiffs’ reputation, goodwill and sweat equity”.

Interestingly, US laws allow considerable flexibility in the interpretation of design patents.

US rules protect makers from infringement claims if the similarities are based on function rather than distinctive design. The warehouse group could also try to turn the dupe craze to its advantage by arguing that consumers are unlikely to be misled into believing that they are buying a Lululemon original. Costco’s products are clearly marked with either the Kirkland brand or the manufacturer’s name. Despite the publicity, most patent attorneys expect the dispute to settle, as Deckers’ first Uggs lawsuit did last year. Each side has too much to lose from a trial. Costco could be on the hook for gigantic monetary damages, while “if Lululemon were to lose, it would be open season” for other duplicates, says Josh Gerben, a DC trademark attorney.

15. Good story on how Tamil Nadu's industrial development strategy has brought about broad-based regional development across the state.

16. AI in primary health care.

Shishu Mapan, an artificial intelligence (AI) tool trained on over 30,000 infants, built by scientists at the Wadhwani Institute for AI, a non-profit that develops AI-based solutions for social impact. Using a short, arc-shaped video while the newborn is undressed and laid on a cloth sheet, the app estimates the infant’s weight and growth metrics, which eliminates the need for scales or guesswork... AI-powered tools like Wadhwani AI’s app could become frontline essentials, capable of transforming child health outcomes where the system often falls short. It also eases the burden on frontline health workers, who often struggle to keep up with high demand in rural areas... AI-powered tools like Wadhwani AI’s app could become frontline essentials, capable of transforming child health outcomes where the system often falls short. It also eases the burden on frontline health workers, who often struggle to keep up with high demand in rural areas... AI-powered tools like Wadhwani AI’s app could become frontline essentials, capable of transforming child health outcomes where the system often falls short. It also eases the burden on frontline health workers, who often struggle to keep up with high demand in rural areas.

17. Interesting that even as the overwhelming majority of the world has no confidence in Donald Trump, India stands alongside Israel in having the highest confidence!

Wonder what actions of Trump warrant such confidence?

18. Patent cliffs facing pharma companies.

Keytruda... cancer medicine is one of the world’s best sellers, earning Merck $29.5bn in sales last year... In 2028 Keytruda’s patent ends... Drugs worth about $180bn of revenue a year are going off patent in 2027 and 2028, according to research firm Evaluate Pharma, representing almost 12 per cent of the global market. Bristol Myers Squibb and Pfizer are also facing 2028 patent expirations for top-selling drugs. 

Interesting aspects of the Pharma industry.

While all innovations can be patented, the pharma industry suffers from patent cliffs in ways that others such as the tech industry do not. This is mainly because the key active ingredient in a drug is covered by one main patent, which is hard to invent around, and chemical formulas are relatively easy to copy. Sampat of Johns Hopkins says the median number of patents per drug is around three to five, not the hundreds or thousands that cover, for instance, an iPhone. “So any given patent expiring doesn’t matter all that much for something like the iPhone, as it would for a drug,” he says. Also unlike the iPhone, few patients are loyal to their brands and healthcare systems are eager to cut costs by moving to generic versions quickly after they are released. Many countries have laws allowing pharmacists to automatically swap out branded prescriptions with generics.

19. The problem with the rail ticket subsidy of Indian Railways

This monopoly network transports 13 million people every day and its non-premium services are heavily subsidised. According to the railway minister, the cost of travel per km by train is ₹1.38 but passengers pay only 73 paise, a subsidy of 47 per cent. Though the government dishes out large sums for passenger subsidies, part of the gap is supposed to be covered by freight services and premium air conditioned passenger services. The problem with this cross-subsidy policy is that railway freight services have been steadily losing share to road transport over the decades and its profits are not enough to cover the losses from passenger services. As for AC services, some of which make money in some years, they account for a minuscule 5 per cent of overall passengers. The proliferation of low-cost airlines and growing air connectivity — ironically, this, too, is government policy — is likely to diminish demand for this segment, despite the investment in semi high-speed premium Vande Bharat service.

20. The NPAs on bank loans to MSMEs are at historic lows.

Gross NPAs in the system have touched a new low of 2.3 per cent of loans, with a sharp drop in NPAs in MSMEs. Gross NPAs in MSMEs declined from 6.8 per cent in 2022-23 to 4.5 per cent in 2023-24 and further to 3.6 per cent in 2024-25. NPAs in the MSME sector have historically been of the order of 9 per cent or more... bankers have found innovative ways, such as the Trade Receivables Discounting System (TReDS), to finance MSMEs... The TReDS book was about ₹2.7 trillion, or 10 per cent of the MSME book, in 2023-24. It cannot explain the current NPA level of 3.6 per cent on the entire MSME exposure. The NPA level in the Emergency Credit Line Guarantee Scheme (ECLGS) is 5.6 per cent. Recall that the ECLGS was introduced during the pandemic in May 2020 in order to facilitate additional lending to MSMEs and prevent a secular collapse in the sector on account of a crisis of liquidity. The eligibility conditions were pretty stringent. Only MSMEs that were solvent prior to the onset of pandemic were meant to qualify. The loans granted under ECLGS in the period 2021-23 amounted to ₹3.68 trillion or 12 per cent of loans outstanding to MSMEs in 2024-25. If gross NPAs on the ECLGS loans were 5.6 per cent and NPAs on total MSME loans are 3.6 per cent, that makes the performance on the remaining 88 per cent of MSME loans truly impressive.

21. Finally, a graphic below on the spectacular reduction in the price of green energy sources since 2010.

Examining the twin global structural imbalances

In this post, I’ll summarise the issue of the structural imbalances facing the global economy, which manifest in the form of China’s dominance of manufacturing and America’s in consumption. I had previously blogged about these issues here.

Martin Wolf has an excellent article on structural imbalances in the world economy, where he has a graphic that captures the crux of the problem that Trump is trying to address with tariffs. 

He also cites a paper by Michael Pettis and Erica Hogan to highlight two global macroeconomic correlations, centred around China. One, countries with high savings rates have highly repressed consumption.

Second, countries with low domestic consumption have larger manufacturing sectors. 

On the structural imbalance in the US economy, The Economist has a very good description. It says that over-consumption, trade, and foreign borrowings are linked, and “is as if shipping containers arrive in America, unload goods, and then sail back filled with Treasury bills or shares in S&P 500 companies”. It writes,

America’s gross domestic savings are around 17% of GDP, compared with an average of 23% in high-income countries. America invests about 22% of GDP, roughly in line with the rich-world average. The difference between saving and investment is the capital the country must import, which last year amounted to $1.3trn. Meanwhile, America’s consumption as a share of GDP—81% once that by the government is included—is the highest in the G7 apart from Britain. Among the other five big rich economies, the consumption share is on average five percentage points lower.

Relying on net capital inflows has left America with deep financial obligations to foreigners. The difference between the assets that Americans own overseas and those foreigners own in America has fallen to -90% of GDP. This is the kind of “net international investment position” (NIIP) that would be hair-raising in almost any other country. For years America could take solace from the fact that its income statement was healthy. Even as its NIIP worsened, the country earned more on its overseas assets than it paid out to foreign investors. Foreigners own lots of low-yielding debt, including Treasuries; Americans own more stocks and FDI, which have higher yields. The stubborn positivity of the country’s net foreign income has been part of the “exorbitant privilege” that comes from issuing the world’s reserve currency. Yet as the NIIP has lurched into the red, this comfort has dissipated. In the third quarter of 2024 America paid more to owners of its assets than it earned on foreign investments for the first time this century, in part because of higher interest rates…

Mr Trump wants the trade deficit to close, meaning that the financial flows must slow, too. But he also wants America to enjoy an investment boom. The only way to make the equation add up is if America ponies up its own capital by saving more. In other words, it must cut its consumption.

The article underlines the importance of America’s credibility in ensuring it’s able to pull of a smooth landing on its massive structural imbalances.

The $62trn-worth of American capital owned by foreigners is distributed across tens of millions of balance-sheets belonging to firms and individuals. A third is debt instruments that cannot be marked down as seamlessly as equity prices or property values; of that debt, two-fifths is government-issued. Moreover, since America’s debt liabilities are mostly denominated in dollars, it should always be able to honour them, at least in nominal terms.

But a loss of faith in America’s ability to deliver the necessary real returns for foreign investors could cause a large depreciation in its asset prices, which have reached eye-watering highs. The country’s bonds, properties and stocks, as well as the dollar itself, would come under intense selling pressure. A much weaker dollar and lower prices for American bonds and stocks would force a rebalancing by reducing the size of America’s external liabilities relative to its external assets. Tighter financial conditions would discourage consumption, whipping the current account into line no matter how uncomfortable such a sudden adjustment would prove.

The question for America, and indeed the global economy, is whether it can defuse its external liabilities without paying such a steep price… Tariffs discourage consumption by raising prices and hurting living standards. Barriers to capital mobility, the first signs of which are buried in Mr Trump’s tax bill, force up domestic interest rates and encourage domestic saving… It makes Americans poorer, and by imperilling the returns earned by foreign investors, threatens to bring about the very crash rebalancing is supposed to prevent… A smoother adjustment—one that does not seek to make America a creditor nation overnight—should be possible. If faith in the country is maintained, its exorbitant privilege means it ought to be able to repay its foreign debts with smaller trade surpluses than other countries, says Menzie Chinn of the University of Wisconsin-Madison. If America avoids sullying its own assets, it can afford to be gradual in its transition towards a trade surplus. 

Let me explain these structural imbalances in greater detail. 

There exist two major structural imbalances in the world economy. The first concerns the imbalance between consumption and investment, and the second concerns that between savers and lenders. They are also linked to each other. While there are also contributors like globalization, trade liberalization, technological advances, and demographics, these imbalances have become excessive enough to spill over as trade wars due to the policies pursued by governments across the world. Reversing these policies is important to addressing these imbalances.

Let’s start with the first. A fundamental problem facing the world economy is the structural imbalance between consumption and investment among countries. The consumption share of national economic output is disproportionately low in some countries, while the investment share of output is similarly excessive. Similarly, some countries with the fiscal space for public investments underinvest in public goods despite having large investment requirements while pursuing economic growth through exports.

The most totemic example, of this consumption-investment imbalance is China. Since the beginning of its current growth phase, the country has maintained investment rates of over 35% of GDP, rising to touch 45% of GDP since the Global Financial Crisis. However, its consumption share of GDP has stayed at a remarkably low 35-40% of GDP, at least a third lower than that for other major developed and developing economies. All told, in 2024 while China accounted for 32% of global manufacturing, double that of the US, it represented only 12% of its consumption. 

The percentage of Chinese households who had out-of-pocket health spending greater than 10% of total household consumption rose from 20.4% in 2007 to 21.7% in 2018, compared to the global average of 13.2% in 2017 and 7.7% and 1.5% respectively for Russia and Malaysia, two countries with similar per capita GDP as China. Compounding matters, the Chinese government spends only 6% of GDP on individual consumption (services ranging from healthcare to social security), an outlier among major economies and lower than even similarly placed economies. The low public spending forces precautionary savings.

This imbalance has also been sustained by financial repression that keeps interest rates low, the hukou system that restricts access to welfare benefits and reduces consumption, wage controls and other measures that help businesses access a huge class of cheap and mobile industrial workers, inadequate public health care and social safety nets that lead to forced savings, artificially inflated property markets that allows local governments access to plentiful credit, and a shadow banking system and off-balance sheet financing entities that compromises financial discipline and funnels credit. For all these reasons, China is often referred to as a country with a rich government and poor citizens!

This imbalance has reduced domestic demand and channeled manufacturing towards an excessive reliance on exports. It has resulted in China consistently running large trade surpluses, which recently hit an astronomical trillion dollars in 2024.

The imbalance on investment has also been turbocharged by China’s search for alternative engines of economic growth after the real estate crisis that erupted in 2021 with the default of the Evergande Group, the country’s second-largest property firm. Beijing re-directed the large volumes of credit away from real estate towards manufacturing, especially solar, batteries, automobiles, and electric vehicles. Chinese companies rapidly built massive over-capacity which they started exporting at discounted prices, thereby further tilting the playing field towards them and against their competitors in their domestic markets.

China is not alone here. Germany, the largest economy in Europe and for long the engine of European economic growth, has pursued rigid and excessively conservative balanced budget policies. These policies have meant that successive governments have avoided the much-needed public investments in replacing ageing infrastructure facilities and expanding them to meet emerging requirements. This, in turn, has depressed consumption and, like with China, channeled an increasing share of the output of the highly competitive German manufacturing firms towards exports. Germany’s domestic consumption share of the economy at slightly below 50% of GDP in 2023 was the lowest among all G-7 economies and has been continuously declining in the last four decades. The result has been a consistent trade surplus for decades, if only on a smaller scale than China.

The consumption-investment imbalance in countries like China and Germany has been complemented by a similar imbalance in the opposite direction in the US. The cheap imports from China allowed American consumers in particular and their Western counterparts in general, to enjoy and gradually get addicted to good-quality products at very low prices. Their businesses similarly maximized profits by using cheap Chinese inputs and products. It allowed central banks and governments to take disproportionate credit for low inflation and high economic growth rates driven by consumption (and debt, which we discuss next).

This imbalance is also a reflection of the skew in the economic structure of countries like the US, where the non-tradeable services sector has taken a disproportionately high share of the output. A consumption culture that prioritises services tends to squeeze resources from going into tradable manufacturing. This imbalance can also arise when aggregate demand exceeds output, like with a US economy that has been operating close to full employment for a few years.

This imbalance is closely linked to the second imbalance between savers and lenders. China’s Gross Domestic Savings as a percentage of GDP has been in the range of 40% since the eighties and rose above 50% of GDP in the aftermath of the GFC and has remained above 45% since. Financial repression meant that Chinese households have limited avenues to savings outside of the banking system that pays low returns. The hukou system, inadequate welfare and social safety benefits, and high property prices have amplified savings while also depressing consumption. Meanwhile, in countries like Japan, worsening demographics led to reduced investment opportunities and lower returns.

The trade surpluses retained in the country add to their central bank reserves. These reserves, in turn, had to find investment opportunities outside the country. Their safety and liquidity made the US Treasury Bonds the most common and convenient investment opportunity for global central bank reserves. All of this has resulted in what Ben Bernanke famously described as a “global savings glut”. The global financial market integration promoted by institutions like the International Monetary Fund (IMF) has amplified the global cross-border financial flows. The extended period of outperformance of US equity markets and the strong performance of the US economy have made it the most attractive global investment destination.

These inflows have also allowed the US government to borrow at very low rates despite running up large deficits. They have led to a surge in the US debt-to-GDP ratio from 67.5% in 2008 to just below 125% in 2024. Fiscal deficits in the US have risen sharply in recent years, and was over 6% in 2024. A similar trend of rising debt-to-GDP ratios is observed across many developed economies, with the trend having become especially pronounced since the global financial crisis. This also coincided with the period of rising trade surpluses of China and Germany.

In simple terms, the US’s roles as the largest import market, a form of global buyer of last resort, and as the largest borrower, a haven for lenders, are two sides of the same coin. It borrows to buy. Its exorbitant privilege from the ownership of the global default reserve currency coupled with the global savings glut, allows the US government to continually borrow in its currency at cheap rates. The apparently never-ending rise of its equity markets, coupled with the depth of its financial markets, make it the standout investment destination for foreign portfolio investors. At the same time, the strength and dynamism of its economy make it the most attractive destination for foreign direct investments and private equity investors.

The underlying trade and financial transactions reflect an accounting reality that links the two imbalances. The total amount of money coming into a country must necessarily be balanced by that leaving the country. In other words, the current and capital accounts must be equal, or the balance of payment must be zero. This means that if a country runs a large trade surplus, it must necessarily be exporting capital, and similarly, trade deficits go alongside capital inflows.

Underlying these structural imbalances is a more fundamental imbalance, one that manifests across several problems faced by modern society. It’s that of a global economic system that has become unhinged in the pursuit of efficiency and profit maximization and has traded off resilience and equitable distribution of returns to capital. It manifests in the worrying trends of business concentration across industries, widening inequality, and the emergence of a small group of staggeringly wealthy plutocrats.

The most important trends of the global economy since the turn of the nineties have been the globalization of value chains, offshoring and outsourcing, trade liberalization, financial market integration, financialization, and increased immigration. While these trends have contributed to the unprecedented period of global economic growth and prosperity, they have also triggered self-reinforcing dynamics that have taken each of them too far down the road with disturbing consequences and incentive distortions. As the cliché goes, too much of a good thing is a bad thing!

The role of domestic corporate groups in manufacturing value addition

There are two distinct stages to manufacturing: product assembly and localisation of components. Industrial policy measures tend to focus on product manufacturing. But countries generally start at the lower part of the manufacturing Smile Curve, with low-value-added activities like mounting components on the PCB (SMT), product assembly, testing, marking, and packaging (ATMP). Domestic value addition comes only with component manufacturing. Then countries move slowly up the value chain with research and development, product design, and branding. 

Having boarded the manufacturing train through the production-linked incentives (PLI) scheme and contract manufacturers, the next step is to localise component manufacturing. But given the vice-like grip of the Chinese component manufacturers (arising from their massive volumes, low prices, and deep integration with the global value chains), even countries like Vietnam have struggled to make much headway in component manufacturing. 

In this context, The Ken has an article on how Tata Motors is tackling the electric vehicle (EV) manufacturing challenge. Central to its EV ambitions is Tata Autocomp, an associate company of Tata Motors (its shareholding is 26%), established 30 years ago to meet the component needs of Tata’s commercial and passenger vehicles. Accordingly, Autocomp delivers EV components to Tata Motors. It had revenues of Rs 13,600 Cr in FY24. Autocomp does this through a “constellation of joint ventures” and subsidiaries.

With over 60 manufacturing facilities globally and a slew of strategic joint ventures, Pune-based Tata Autocomp claims to be one of India’s largest end-to-end EV-component suppliers. Be it battery packs, motors, seats, or even the body of Tata’s EVs, a significant share of it all flows through Tata Autocomp. 

And this reflects in Autocomp’s revenue, about half of which comes from partnerships with overseas OEMs. 

Tata Motors claims a very high degree of localisation in its Tata Harrier EV model’s drive trains, battery packs, motors, etc., though it’s more likely that many of the components themselves are subassemblies of imported subcomponents. It’s important to make the distinction between components made by Autocomp’s partners globally and in India. It must be critically scrutinised as to how much of the claim of domestic value addition is actual manufacturing and not an assembly subterfuge. 

In this context another Ken article has the graphic below which shows how India’s top EV makers mostly rely on outsiders for critical motors (and most certainly battery).

The first article describes the strategy behind Autocomp’s business model.

Building every capability in-house for an EV delays the time to market, says Danish Faruqui, chief executive of Fab Economic, a US-based automotive and gigafactory consultancy, making it difficult to capitalise on evolving demand. “As a result, many auto companies across the globe, including Autocomp, are looking to get external capabilities and turning the EV business into something like an iPhone supply-chain delivery, where the best components are sourced from specific suppliers and the final product is delivered to the customer, bypassing the R&D cost.”

Further, joint ventures give more agility for companies in the short-term. “With technology changing so fast, and cell chemistries and the EV market still evolving, it wouldn’t have been right to invest and develop these in-house while starting from scratch,” Faruqui said. And the other best part of a partnership? The freedom to walk away. Tata Autocomp has already shut down multiple joint ventures, such as Taco Sasken Automotive Electronics (its partnership with Bengaluru-based product engineering firm Sasken Technologies to design and develop automotive electronic products) and Seco Powertrain (a collaboration with the Korean clutch maker Seco Seojin).

The Tata Group is uniquely placed to leverage synergies across the Group companies.

The Tata group’s many companies, spread across 10 sectors, give it an unmatched ability to cross-sell and co-develop. For instance, Tata Motors taps TCS for software; Tata Chemicals for cell chemistry; Tata Power for charging infrastructure; Tata Agratas for cell production; Tata Technologies and Tata Elxsi for design, development, and simulation; Tata Autocomp for hardware; and Tata Capital for loans.

But there are challenges arising from the corporate structure of the Tata Group that are limitations on realising synergies and efficiencies. 

Tata Autocomp helped Tata Motors crack the EV code. But here’s the thing: the latter still can’t call the shots on when and how to scale. It’s forced to run at the pace of its other in-house entities… The group is trying to align its moving parts through the “One Tata” approach, a push for internal synergy across entities… But that’s easier realised on Powerpoint slides than on shop floors. “In-house agreements and tech-building often don’t turn out as desirable as designers and engineers want them to be for production,” he added. Essentially, there’s no option to penalise an in-house supplier for any delays… If four to five in-house entities are not performing at the same pace, the whole value chain gets hit.”

This challenge of internal misalignment isn’t unique to Tata Motors. The group’s own super-app experiment, Tata Neu, is a cautionary tale. Despite access to multiple retail brands, the app has failed to deliver a seamless consumer experience, largely due to poor cross-entity integration. Even within Tata Motors, the complexity of managing over 100 entities breeds both independence and inefficiency. 

Tata Motors, through Tata Autocomp, may be doing to the creation of EV component manufacturing in India what Apple did with iPhone for mobile phone manufacturing in China, albeit in a completely different manner and at a much smaller degree and scale. 

Apple pursued a model of an OEM actively engaging (including embedding its engineers and purchasing some of the equipment) with its contract manufacturers and component makers by building capabilities and handholding them to ensure very high quality. Tata Autocomp is following a vertical integration model of building in-house capabilities through joint ventures and buying up component makers, and then gradually moving their manufacturing (and hopefully design) into India. 

This kind of engagement may be essential to develop a component manufacturing ecosystem. It may be necessary that either a large OEM or a vertically integrated corporation provide the de-risking required to attract component manufacturers. By financing and ensuring captive demand, it derisks and encourages component makers to relocate from China. A PLI top-up will be a bonus. 

This highlights the importance of large companies in establishing a manufacturing base that is at scale, globally competitive, and strategically significant in key sectors. Apart from EVs, Tatas are now also spearheading India’s mobile phone manufacturing pursuit. Tata Technologies accounted for 26% of iPhones made in India in 2024 and is expanding rapidly. 

There’s a strong case that India’s large corporate groups, Ambani, Adani, Mahindra, Birla, etc., could emulate the Tata Group’s EV strategy. The Ambani Group may be well placed to play an important role in petrochemicals, telecommunication equipment, and green energy technologies. Similarly, with the Adani Group in solar cell manufacturing, other green technologies, and smart meters; the Mahindra Group in automobile/EV manufacturing, and so on. 

Only these groups have the heft to overcome the coordination problems, financing deep pockets, and risk-aversion to be able to manufacture at a scale that’s attractive enough to break away from the vice-like grip of Chinese manufacturers, and shift component manufacturing in India. Even with the most generous industrial policy and the favourable geopolitical tailwinds of diversifying out of China, there are hard limits to how much industrial policy and market dynamics on their own can go in relocating component makers from China. At the least, the engagement of deep-pocketed corporate groups like Tatas can expedite domestic-scale manufacturing in India. 

For countries like India, without any large domestic OEM and without the unique circumstances behind Apple’s engagement with China, local corporate groups may be valuable assets to succeed with the objective of deepening and broadening their manufacturing base.

In this context, there’s always the risk of crony capitalism. Already, there are strong trends of business concentration across sectors in the Indian economy, driven by the large corporate Groups. But this risk cannot overlook the large body of evidence from across the world about the value of large domestic corporate groups in national economic growth. I have blogged on the emerging domestic monopolies in infrastructure and digital markets (also this), the role of family-owned businesses in driving commercial scale across East Asian economies, and the inevitability and need for monopolistic firms in certain sectors. 

In this context, a new MGI report highlights the role of a few large firms in driving national economic productivity growth. It finds that a small number of firms contribute the lion’s share of productivity growth and that the most productive firms find new ways to create and scale new value. I’ll blog separately on this report.