In most advanced markets, the conglomerate is an endangered corporate species. General Electric’s decision to split into three independent entities was a striking admission that the sprawling, diversified model had run its course. Kellogg’s, Johnson & Johnson, and Toshiba have made similar moves, preferring to unlock value by allowing each business to stand on its own. Investors in mature markets have rewarded clarity, focus, and sectoral specialisation.
India, however, seems to have missed the memo. Here, conglomerates have not only survived but thrived — stretching across industries, deepening control over supply chains, and leveraging their market power in ways that make life harder for smaller enterprises and MSMEs. This divergence is not benign. It distorts competition, limits innovation, and runs counter to the very principles that have guided successful economies elsewhere.
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Global retreat from conglomerates
The breakup of GE into aviation, healthcare, and energy was not an isolated event. It marked the culmination of years of investor disillusionment with the inefficiencies of conglomerates. The so-called “conglomerate discount” — often 10 to 12 per cent below the valuation of comparable pure-play companies — reflects the market’s view that unrelated businesses dilute focus and misallocate capital.
Digital trading platforms have accelerated this shift. Retail investors no longer need conglomerates to diversify risk; they can build their own portfolios with surgical precision. Private equity has reinforced the trend, providing deep pools of capital for corporate spin-offs and often running them with greater agility than a centralised corporate bureaucracy.
The lesson from advanced economies is unambiguous: disaggregation has delivered better governance, sharper strategies, and higher returns.
India’s expansionary conglomerates
Indian conglomerates have moved in the opposite direction. Large business houses have used their financial muscle, political connections, and privileged access to capital to expand aggressively into unrelated sectors. Infrastructure, telecom, energy, financial services, retail, and even emerging green technologies often sit within the same corporate umbrella.
This expansion comes at a cost to smaller firms. Conglomerates can leverage internal capital markets to cross-subsidise new ventures, underprice competitors, and control supply chains. MSMEs — already constrained by limited access to formal credit — find themselves competing against entities that enjoy both scale and systemic advantages.
The result is not merely a loss of market share for smaller firms. It is the erosion of a competitive environment in which entrepreneurship can flourish.
Why the Indian model persists
There are structural reasons why conglomerates remain entrenched in India. Competition law enforcement is sporadic and often underpowered, allowing large players to expand unchecked. Tax structures favour group companies through intra-group adjustments and other concessions. Capital markets for SMEs remain shallow; theme-based funds and sector-specific investment vehicles are still nascent.
Domestic investors also lack the breadth of choice available in developed markets. Where US or European investors can shift easily into focused companies with distinct growth profiles, Indian investors face fewer pure-play alternatives. In such a landscape, the conglomerate appears not as an inefficient anachronism but as a default investment option.
The hidden costs
The costs of this divergence from global trends are not abstract. They manifest in three critical areas.
First, innovation suffers. MSMEs and start-ups are often the source of disruptive products and services, but in India, their access to finance and markets is choked by conglomerate dominance.
Second, employment growth is skewed. Large, diversified groups create jobs, but often in capital-intensive sectors. MSMEs, by contrast, are labour-intensive and more geographically dispersed, making them critical to inclusive employment.
Third, systemic risk increases. When a large conglomerate stumbles, its problems ripple across multiple sectors and through the banking system. The collapse of even one major group can have macroeconomic consequences.
Aligning with best practice
Policy can correct the tilt. Strengthening the Competition Commission of India with both resources and legal teeth is the starting point. Scrutiny of cross-sector acquisitions and vertical integration must be routine, not exceptional. Tax neutrality should be enforced—removing concessions that benefit conglomerates over standalone enterprises.
Capital markets must be broadened to serve smaller companies. This means not only deepening SME exchange platforms but also encouraging institutional investors to deploy capital into MSME-focused funds. Incentives for spin-offs and demergers can help unlock value, create independent businesses, and inject new life into competitive markets.
The ecosystem for small enterprises must be strengthened with targeted credit lines, shared infrastructure, and technology hubs in Tier-II and Tier-III cities. The goal is not to dismantle conglomerates, but to ensure they do not crowd out the rest of the economy.
The persistence of India’s conglomerates is not in itself the problem. The problem lies in their disproportionate influence and the barriers they create for smaller competitors. In an era when the rest of the world is moving toward focused, agile businesses, India risks entrenching an outdated model.
The corrective is clear: enforce competition, level the tax and credit playing field, and widen access to capital for smaller firms. By doing so, India can preserve the dynamism of its economy, protect innovation, and ensure that growth is inclusive rather than concentrated in the hands of a few corporate empires.
If policy does not act, the cost will be borne not by conglomerates, but by the millions of small entrepreneurs who might otherwise power India’s next phase of economic growth.