Operating at scale

From the first Budget to today, India's economy has changed, requiring boards to adapt and think on a global scale

Presenting the second Budget of independent India and the first for a full 12-month period in 1948-49, Finance Minister R K Shanmukham Chetty estimated the revenue for the full year to be Rs 256.28 crore, with expenditures at Rs 257.37 crore, leaving him to deal with a deficit of Rs 1.09 crore. The Budget aimed at improving the lives of 340 million Indians.

Today, conservatively, 1,592 listed companies have revenues greater than Rs 256 crore.

Reliance Industries Ltd closed its last financial year with a top line of Rs 9.7 trillion ($118.6 billion). Data from the International Monetary Fund for 2022 showed that there are 130 countries with a lower gross domestic product.

The first Budget covered a seven-and-a-half-month period from August 15, 1947 to March 31, 1948. The total revenue in the first Budget was estimated at Rs 171.15 crore, the total expenditure at Rs 197.39 crore, and the deficit an alarming Rs 26.24 crore. The Finance Minister was apologetic that we were living beyond our means. However, in what can be described as an understatement, he went on to say, “the circumstances during the period under review have been abnormal,” referring to the Partition and the unexpected expenditure on the evacuation and relief for refugees. I bring this up given the losses that startups report, without even breaking a sweat. Indeed, many wear their losses as a badge of honour.

In 2001, when the Unit-64 crisis unfolded, the Communist Party of India (Marxist) raised a red flag (sic) when it said, “The near collapse of the Unit Trust of India (UTI) flagship scheme US-64 is a gigantic fraud — unprecedented in independent India.” They went on to say that “a merciless loot of the Indian people has taken place, nearly to the tune of Rs 6,000 crore.” Our markets needed life support.

Today, UTI manages Rs 15.56 trillion, the mutual fund industry has a monthly systematic investment plan flow of Rs 18,000 crore, and assets under management of Rs 50 trillion.

We can multiply these examples of how old India has scaled up — way beyond the impact of inflation.

* Domestic steel production in 1970 was 5 million tonnes per annum (mtpa). Two decades later, in 1990, it had almost doubled and was at 9.3 mtpa. Today, there are at least eight companies that have an installed capacity of 10 mtpa, and three in the list of 20 largest steel companies in the world.

*  The Government of India acquired Bharat Petroleum from Burmah Shell in 1975, and the total cost of acquisition was pegged at Rs 37 crore. This comprised paying Rs 9.25 crore for 100 per cent of the equity and Rs 11.27 crore as a loan repayable to BPCL. The company’s market cap alone is Rs 1.04 trillion today and enterprise value is even higher. A year ago, Life Insurance Corporation raised Rs 21,000 crore by selling just 3.5 per cent of its equity shares. Hindustan Unilever’s food business was worth Rs 52.7 crore in 1992, a number that will attract Series C funding.

* This scaling up has been in absolute terms, relative to competition, global benchmarks or its own historical numbers.

Operating at size reflects the transformative economic and social change; because we are living through this, we just may not realise that the economy has changed. Boards too need to adjust their thinking and need to think at scale. It is not that the role of the board changes. The essential elements of an effective board remain the same. Microsoft’s or Apple’s boards do not function differently now that they are behemoths, although their priorities may differ. Some of these include: 

A sprawling business needs well-defined processes and a razor-sharp focus on compliance.  Consequently, companies operating at scale need a robust information system design. Boards must ensure they receive relevant information. This involves receiving comprehensive explanations of the issues, and, where appropriate, guidance from external experts to provide critical insights.

As the business is operated across far-flung locations, the primacy of systems and process, as well as a razor-sharp focus on compliance, becomes crucial. This includes escalation mechanisms, so that breaches are addressed on priority.  

Companies get evaluated not just on financial numbers, but on societal issues as well. How the companies respond to controversies or issues that flare up is crucial — particularly when issues have not been anticipated. At the same time, political issues start to come to the forefront, as do geopolitical risks — something that only a handful of small companies concern themselves with.

Again, for companies operating at scale, what is happening in other global companies matters. Technological change, production process changes, geographical moves, mergers and strategic alliances, all impact companies that are operating at scale.

In this euphoria of achieving and operating at scale, it is easy to forget the hard work that companies do in growing steadily year-in-year-out. The aphorism “what does not kill you, makes you stronger” applies to businesses as much as it does to you and me.  

The writer is with Institutional Investors Advisory Services India Ltd. The views are personal. X: @AmitTandin_in