The Observer, India - Sun May 9, 2010

Billions pour in for India’s insulated superclass

The subcontinent’s elite have a huge market all to themselves – and a vast gap is opening up between rich and poor.

Brothers Shashi and Ravi Ruia and Shashi’s son, Prashant, have been busy. They have just spun out the power and oil interests from their sprawling Essar conglomerate, one of India’s largest, and floated it on the London stock market as Essar Energy, in the biggest UK listing in more than two years. The £1.2bn float got off to a shaky start, with shares tumbling 7.2% on the first day, but will propel Essar into the FTSE 100 index at its next reshuffle.

The Ruia family’s bank account may get another boost from Vodafone, which in  2007 made the leap into the Indian mobile telecoms market, buying two-thirds of an Indo-Hong Kong corporation, Hutchison Essar. The British group now has to decide whether to exercise an option to buy out the Ruias’ 33% stake in Vodafone Essar for at least £3.3bn.

The money keeps rolling in for  the Ruias, one of India’s wealthiest and most powerful dynasties. Collectively the family ranks 40th on Forbes’ Rich List 2010, with a fortune of £8.6bn drawn from interests spanning steel, energy, power and shipping.

Indian names now figure prominently on the league tables of the wealthiest people on the planet. The country boasts 47 billionaires, up from 12 in 2005 and just nine at the turn of the millennium, compared with 10 in France and 35 in Britain. The highest-ranking Indian in the Forbes rankings is Mukesh Ambani, the world’s fourth-richest man with £19bn. Ambani’s flagship company, Reliance Industries, inherited from his father Dhirubhai, is India’s largest privately run firm with annual turnover just shy of £30bn. He is reported to have recently spent £650m building a 27-storey house in the upmarket Mumbai district of Malabar Hills, complete with helipad, lavishing a further £40m on a private jet said to be for his wife, Nita.

Mukesh’s younger brother Anil, owner of telecoms giant Reliance Communications, is worth £9bn, ranking him 36th worldwide, just beneath George Soros, but ahead of Microsoft co-founder Paul Allen. Further down the list are such luminaries as Sunil Bharti Mittal, founder of Bharti Airtel, India’s largest (and the world’s third-biggest) mobile telecoms firm, and Kumar Birla, a commodities tycoon worth £5.2bn. Between them, these tycoons and a few dozen others make up the elite that owns India.

They have been compared with great US capitalists of the 19th and early 20th centuries such as John D Rockefeller, who made his fortune in oil, John Pierpont (JP) Morgan, who dominated corporate finance, and steel magnate Andrew Carnegie.

Unlike their American counterparts, no single member of India’s industrial and financial superclass exerts a nationwide grip on a sector or commodity, but many boast virtual local monopolies, with entire industries divided up and profitably parcelled out among the country’s jet-set. Many hang out at opulent clubs such as the Bombay Gymkhana, holiday in London, Dubai or New York, and rub shoulders with Bollywood film stars in swish Mumbai nightclubs.

is a key member of the so-called “Bric” nations – standing for Brazil, Russia, India and China – a term coined by Goldman Sachs to describe what they see as emerging superpowers.

Though not immune from the credit crunch, India has come through relatively well. But compare the opulence enjoyed by the ruling commercial elite with a very different India, a nation founded on the communistic principles of Mahatma Gandhi. While the rich few shelter in gated communities safeguarding their billions, the masses live in cramped communal apartments – if they are lucky – or in the press and heat of the city streets if they are not. More than three-quarters of the country’s 1.2 billion people have to get by on less than £1.30 a day, double the level of poverty seen in China.

Seen up close, this world of total financial extremes is disturbing. The Ruias, cocooned in their personal tower block soaring over Mumbai’s majestic racecourse, can enjoy panoramic views of the city; even the air they breathe is fragrant and untainted. But nearby, in a morass of slums where households live cheek by jowl, I met a family sheltered under a flimsy tarpaulin against the lashing of a monsoon. The father told me they had been there “many, many years”.

The Ruias and their fellow billionaires provide regular employment to tens of thousands of workers and – in recent weeks at least – have also kept a few hundred City of London bankers, auditors and lawyers in gainful employment. Their wealth and enterprise has helped push India’s economy into the global big leagues. Gross domestic product here is tipped to rise by 8-10% each year for the rest of the decade, figures the UK can only dream about. And many of the country’s wealthiest people are also philanthropists, notably Ratan Tata, owner of steelmaker Corus and luxury British car marques Jaguar and Land Rover. Two-thirds of the equity of Tata’s holding company, Tata Sons, is held by a network of charitable firms channelling profits into worthy causes.

But the divide between rich and poor remains. Sir Mark Tully, the respected former BBC Delhi bureau chief, says that while absolute poverty levels have come down in recent years, huge concerns remain over the yawning wealth divide: “There are some very rich people indeed, but the vast number of people are struggling. There is great concern that the gap between the rich and the poor is not narrowing fast enough, and that’s why India’s premier, Manmohan Singh, talks about inclusive growth.”

Critics are also exercised by the  virtually uncircumscribed power the financial elite wield both in industrial and political circles. Leading businessmen (they are almost always men) can change rulings in the Lok Sabha, the lower house of India’s parliament, almost at will. Allegations of corruption are repeatedly aimed at the police, the judiciary and professional sport – witness the controversies surrounding Lalit Modi, a top cricket official and creator of the hugely popular Indian Premier League, and the sale of 3G telecom licences.

Many worry about a backlash against the extremely wealthy and their activities. In recent years, riots in areas such as West Bengal highlight the level of public anger felt at the appropriation of agricultural land for factories, real estate and shopping malls.

On 5 April, writing in the Indian newspaper DNA, activist-artist Mallika Sarabhai lambasted the government for failing to crack down on corruption and collusion, asking the pointed question: “Who will fight the robber barons pillaging India?”

A plethora of protectionist rules – many established by the political elite and reinforced by business moguls – makes it difficult if not impossible for foreign companies to do business on a serious scale in India. Lord Desai, the Gujarat-born British economist and Labour peer, highlights the difficulties facing any foreign business: “India’s political elite is still very xenophobic – they still look back to colonisation and the imperial past. They don’t want foreign businesses to come in, and local businessmen gain from having these obstacles put in place.”

The occasional global player, such as Vodafone and IBM, makes it through the net, but most are stopped at the gates. Tesco boasts a huge presence in many Asian markets – notably China, where it is growing in leaps and bounds – but has struggled to get its local joint venture off the ground in rural India. Foreign corporations are constantly stymied by nebulous regulations that favour local interests.

Contract talks can open and close any number of times before anything gets done, while most laws are only semi-developed. “The laws on foreign investment are improving,” notes Desai, “but it would help everyone if India would clarify its business laws a bit better. It will take a long time before India gets anywhere close to the likes of the UK, with its transparency and sense of playing by the rules.”

In its 2010 Ease of Doing Business report, the World Bank ranked India 133rd out of 183 nations. The UK ranked fifth, behind only Singapore, New Zealand, Hong Kong and the United States. In terms of enforcing contracts, India ranks bottom of every country in the world bar tiny East Timor.

Such statistics rarely bother the country’s comfortable political classes, let alone a financial community that continues to reap vast profits from a fast growing and largely closed economy – whether in mobile telecoms, steel, shipping, energy or power. Or, in the case of the Ruia family and many of their billionaire peers, all of the above.

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