The impact of a few dominant players in the market on consumers depends largely on how effectively the government regulates cartelization. For instance, China boasts of being a manufacturing giant, where dominant public sector manufacturing units, by scaling up production, effectively pass on the benefits to consumers in the form of lower per unit prices.

A lower per unit price also ensures that the government generates more revenue as consumers purchase larger quantities of goods at a reduced price. When the government realises more tax revenue from economies of scale in production and formalisation of economic activities, it can plough back part of the revenue collected towards incentivising and making domestic production more competitive.

On the flip side, the emergence of a few dominant players, especially in the presence of weak institutions like a monopoly regulating authority and with government favouring large industry players may lead to price rises that adversely affect consumers. This may be the case with India.

India is now among the fastest-growing large economies. Growth leads to the formalisation of economic activities. It is a healthy sign as it leads to more tax realisation. The size of the national output and scale of operation grow with formalisation, and this may in turn attract foreign direct investment. In fact, government is encouraging competitive manufacturing through the production-linked incentive (PLI) scheme. 

But formalisation of economic activities in India has also allowed the emergence of bigger businesses, which may form cartels and start charging higher prices. They can create entry barriers for efficient smaller and marginal players by hoarding or limiting access to scarce resources through their political clout.

The bigger players have access to massive capital, advanced technology, and extensive distribution networks, which is outside the reach of the smaller players. However, the survival of small and medium enterprises (SMEs) is crucial for job creation and sustaining mass consumption.

SMEs produce goods which are typically consumed by low and middle-income households with a higher marginal propensity to consume. They have a presence in day-to-day life, ranging from baby foods and biscuits, medicines, education, healthcare to hotels and travel.

Impact Of Oligopolies On Prices Vary

The consequences of oligopolistic market structures in India are mixed. In some sectors such as the paint industry and electronic items like TVs and refrigerators, the price increases have been relatively lower. However, that is not true for sectors such as telecommunication, healthcare, media and entertainment, education, and aviation. 

For example, over the last three years, entry level telecom tariffs have increased 340 per cent, from Rs 35 to Rs 155. Air fares shot up after Go First was grounded. Cost of digital TV recharge has also increased three folds over the last five years.

Costs of healthcare and education in India, most of which have to be borne privately, are also on the rise. As per the latest household social consumption data (NSS 75th Round), only 4 per cent of the rural population and 19 per cent of the urban population reported that they had health expenditure coverage. According to the Economic Survey 2022-23, almost half of all medical expense is still borne by patients.

A recent study finds that drug prices and the profitability of domestic pharmaceutical firms have grown post-Covid. The cumulative wealth of pharma billionaires doubled after 2018, and 15 of India’s top 100 billionaires are from the sector. The study covered data from six pharma and diagnostics companies, and demonstrated a spike in overall profit and revenues between 2011 and 2021.

In education, too, there’s a similar story. As per a survey conducted by ET Online research, educating a child from age three to 17 costs around Rs 30 lakh; a four-year BTech or a three-year BSc costs Rs 4-20 lakh; and a five-and-half-year MBBS degree can cost up to Rs 1 crore.

Implications For Foreign Investment

Trends indicate that Indian policymakers are encouraging emergence of big domestic manufacturing corporates by implementing measures such as raising import barriers, employing discriminatory practices against foreign companies, and making arbitrary policy changes and enforcement actions, particularly in the realm of taxes. 

This has led to some of the major technology advanced foreign firms shying away from investing in India. For example, Taiwan based Foxconn Technology Group pulled out of a deal with Vedanta to jointly manufacture semiconductor in India. Sony, Japan also snapped ties with Zee Entertainment, scrapping the much hyped $10 billion deals. Tesla is stilling toying with the idea whether to start manufacturing in India.  

Critiques argue that the big conglomerates in India do not want Indian firms to be taken over by the foreign companies. Besides the price variable, at a macro level, India's strategy to promote its domestic conglomerates is getting reflected in the Foreign Direct Investment (FDI) data.  Charting FDI inflows as a percentage of GDP over the past decade points a dismal performance (See chart above)

Drawing from China's experience, it's evident that technology plays a pivotal role in propelling any nation to the forefront of manufacturing. However, adopting a more protectionist stance in the Indian market could potentially impede efficient manufacturing processes and hinder job creation.

While measures like the Competition Law Amendment Bill may address pricing concerns stemming from an oligopolistic industry structure, fostering an environment conducive to attracting technologically advanced foreign manufacturers is essential for generating manufacturing jobs in India. Thus, Indian policymakers should not hesitate to prioritise the creation of such a business environment.

(The writer is Professor, School of Management, Mahindra University. He posts on X @banik_nilanjan. Views expressed are personal)