I have been thinking for a long time to write on the topic of where Indian private capital invests. But in the absence of hard data it was not possible to make a reasoned case about my concerns and hypothesis. However, based on numerous anecdotal evidence and other signatures, I am inclined to believe that there are very compelling reasons for concern. This is one area where research could go a long way to illuminate, trigger public debates, and inform public policy.
As India courts foreign direct investment, it may be useful to examine what is happening to the large Indian private capital owners. Where and what does the Indian capitalist invest? How much of this capital is leaking out and how? How much of it is in the public markets? What share of these investments constitute real "risk" capital, or capital into entrepreneurship? Is there a resource misallocation happening in the aggregate - proportion going into real estate, for example? What share of the private capital is going to manufacturing?
In this context, it is important to make the distinction about what constitutes Indian private capital. In terms of the capital itself, the reference is to the wealth of the richest Indians. In terms of destination, the reference is to companies and brands owned by Indian citizens, and incorporated and headquartered in India.
Consider these signatures. Apart from Godrej, ITC, Parle, and Marico, where are the Indian FMCG companies? Apart from Godrej, Voltas, and Bluestar are there any major (top 5 in their category) home appliances brand? Is there any Indian car brand? Any Indian private bank, apart from Kotak, which has at least 25% owned by Indians? What about airlines - any Indian owned airline? How much of the Indian founded unicorns are owned by Indians (apart from the founder's capital)? What share of some of the larger Indian capital exits from start-ups has been re-invested in India, as against being reinvested outside? Are the "commanding heights" of the Indian economy being increasingly owned by multinationals and foreign investors?
What about Indian brands among heavy equipment - earth movers, construction equipment, agriculture implements, power BTGs, telecom equipment, solar panels and so on? Apart from Hero, is there any Indian FMCG or consumer durables or vehicle brand that is a significant enough entity in the global market? Even in software, apart from the IT companies which were started in the eighties and benefited from the early global tailwinds, is there any Indian owned software company with annual sales turnover of a $1 bn?
Any large enough PE fund with Indian non-institutional LPs which are not aimed at real estate? In fact, all Alternative Investment Funds (AIFs) raised in India and destined for "start-up or early stage ventures, social ventures, SMEs, infrastructure or other areas that government or regulators consider socially or economically desirable" has been meagre, far less than $1 bn (out of about $7 bn raised) in 2018.
Is there any meaningful Indian presence in the market to buy the IBC resolved assets? What is the Indian LP share in the leveraged buyout market or among Asset Reconstruction Companies (ARCs)?
Where is the wealth of the tech billionaires being invested? Is it in the riskier private market or in public markets? What is the share of their public and private market exposures? How much of it is leaking out?
I am inclined to believe that the vast majority of private capital of the richest Indians (and includes the owners of the large corporate groups) is invested in one of the three areas - public markets, real estate (largely commercial Class A real estate, and directly or through funds), and infrastructure. I think the last category is perhaps the only "socially and economically desirable" sector, though it comes with the stigma of political connectedness. In fact, can one say that the only "risky" or "socially and economically desirable" area where Indian private capital is investing is in infrastructure?
It was not always like this. Historically, there were large and very old family-owned Indian corporate houses whose brands were household names when the economy was liberalised. How have they fared in their respective market segments over the past three decades? How many of them have been able to stand their ground and grow on the face of competition from multinational companies? Have any of the new generation of family leaders of these companies been able to seed anything new and not merely harvest what their forefathers built?
Now, I may be off-mark in one or two places in my assessment. But that is beside the point. The larger point is about shining light on the investment destinations of Indian private capital and its implications for the Indian economy.
As mentioned at the beginning, this is an area for research. It is important that such information be debated in the public domain, consensus built, and policy making shaped on important areas like corporate and personal income taxation. It is also important since if Indian private capital itself is not investing in Indian entrepreneurship, then it is surely a stretch to expect foreign capital to invest in them. It then raises then questions about why is this the case and what can be done to address the problem.
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