The rise of a new plutocracy

For a country home to a third of the world’s poor, India has a surprisingly large number of billionaires. Forbes estimates India is now home to 100 dollar billionaires, whose combined net worth is a staggering $346 billion. China, an economy  roughly five times the size of India, is home to 168 dollar billionaires, whose combined net worth is only slightly higher than India at $393.2 billion.

While fortunes are bound to be created as an economy grows, a healthy sign would be if billionaires do not control an overwhelming share of a country’s wealth, says Ruchir Sharma of Morgan Stanley. Writing in the Wall Street Journal, Sharma says “it is typically a sign of health when the scale of billionaire fortunes is at or below the global average, which is about 10 per cent.” By this measure, a combined net worth of $346 billion, roughly 18 per cent of gross domestic product (GDP), implies India is producing too many billionaires with outsized fortunes and is “out of balance”. By comparison, the combined net worth of billionaires in China is under five per cent of GDP. But, author Gurcharan Das contends “as the economy grows, wealth currently concentrated at the top is likely to get diffused.”

Another useful metric to gauge the healthiness of the list is to examine the churn, how many new billionaires are added to the list and from which sector are they emerging. Sharma argues “if the same tycoons dominate the list for years, it’s a sign of stagnation. Healthy economies should produce billionaires, but they want good billionaires who face real competition and make money in productive industries like technology”, rather than billionaires whose fortunes are a result of political connections.

Over the past decade, many have voiced concerns about the growing concentration of wealth in the hands of a few politically connected tycoons in India. The 2000s saw the rise of billionaires who relied on connections with the “government to corner monopolies in resource industries”, which many likened to the well-connected Russian oligarchs. In his book Faultlines, current Reserve Bank of India governor Raghuram Rajan had argued “three factors — land, natural resources and government contracts or licenses — are the predominant sources of wealth of India’s billionaires.”

  While the charge of crony capitalism has dominated public discourse, a look at the new list suggests a change is underway. Though old names continue to dominate, a number of “good” billionaires in productive industries like pharmaceuticals are on the rise. In 2009, 27% of billionaires made their fortunes in sectors such as real estate and commodities that are considered corruption-prone. In 2014, this was down to 15%, with 33% belonging to information technology, pharmaceuticals and consumer goods and retail sectors.

Of the 100 billionaires in India, 17 have made their fortune in pharmaceuticals. Prominent among them are Dilip Shanghvi, who with an estimated net worth of $18 billion, is now the second richest Indian. The combined net worth of billionaires who have made their fortune in the pharmaceutical industry stands at $54.5 billion.

But in sectors such as real estate and natural resources, the old names continue to dominate. The 15 billionaires in these sectors are worth $63 billion. Das says “there is need for serious reforms in these sectors so that legitimate wealth gets created”. In his view, the new government “has been elected on the hope that they will clean up the system.”

This shift in the list in favour of billionaires making their fortunes in competitive sectors is a good sign for the country. As Sharma argues, “What matters for a country’s future is not how good or bad the current situation is but whether the direction of change is for the better or worse — so, even these marginal changes in the billionaire list could be a good sign for India.” Das adds that “It’s a good sign that today’s new tycoons such as the Bansals of Flipkart are coming from competitive sectors.”