Concentration of Economic

Power
Rekha Prasad
 Concentration of Economic Power
• Meaning of Industrial Concentration:
• Industrial concentration means sellers concentration. In
other words, in a market some big firms have dominance
over production and sales. The limit of this industrial
concentration depends upon two main factors, firstly
number of active firms in the given market, secondly,
quantity of demand fulfilled by a firm out of the total
market demand. If in a market number of firms is limited,
the size of firms will be relatively big and a big firm will
have the control over a large portion of total supply.
• Concentration of Economic Power:
• To check concentration of economic power
and diffuse and decentralise economic power
has become the accepted goal of a modern
economy. Concentration of power in a few
hands is a negation of social justice since it
leads to larger inequalities of income and
wealth.
• The economic power is manifested in the
control by few big businessmen over the price
of industrial products, the attempt and pattern
of investment and the choices of technology
and therefore over the creation of
employment opportunities in the economy.
Extent of the Concentration of Economic Power in India:

• In a developing economy such concentration

of economic power widens the gap of
disparity in income and wealth, which is
harmful to the development of the country.
This malady is growing fast in India. Many
committees were formed to study it and to
suggest remedies.
• 1. Mahalanobis Committee (1960):
• According to this committee, the working system
of the planned economy has encouraged the
growth of big companies in Indian industries.
These received financial assistance from Indian
Industrial Finance Corporation, National
Industrial Development Corporation etc., which
are public institutions. These have derived more
profit of tax reliefs and other facilities.
• 2. Monopoly Enquiry Commission (1964):
• Monopoly Enquiry Commission (1964) has studied
the extent, effect and causes of this concentration
and concludes that, “Concentration has been
promoted more by way of planned economy which
was adopted for rapid industrialisation in the
country.” The main causes, according to the
commission, are defective licensing system and
discrimination in availability of institutional loans.
• 3. Other Committees:
• Hazari Committee Report (1966) and Batta
Committee (1967) have also underlined that
big houses had adopted corrupt means for
getting licences. 8% big houses received 38%
licences.
7. Forms of Concentration of Economic Power:

• Monopoly Enquiry Commission has

mentioned two forms of concentration in
1964:
• 1. Product-Wise Concentration:
• When a production or distribution of any
commodity or service is controlled by any
person or group, it is called product-wise
concentration.
• It is divided in three parts:
• (a) High Concentration:
• On 75% or more by 3 main producers or distributors.
• (b) Medium Concentration:
• On 60% to 75% by 3 main producers or distributors.
• (c) Low Concentration:
• On 50% to 60% of production or distribution by 3
main producers, if the concentration is less than
50% it will not be considered as concentration.
• 2. Country-Wise Concentration:
• If ownership or control of most enterprises
engaged in production or distribution of
different goods is in the hands of one person,
family or industrial group it is called country-
wise concentration.
Causes of Concentration of Economic Power
in India:

• In a rapidly rising and growing economy like

India some degree of inequality and
concentration of economic power and wealth
in a few hands is to be expected, but the
disturbing things is that the degree of
inequality and concentration is very much
more that can be justified on a ground.
• 1. Government Policies:
• The Dutta Committee (1969) pointed out
nearly that the Government of India never
specified clearly to the licensing authority the
objective of preventing concentration of
economic power or monopoly
• 2. Rule of Government Financial Institutions:
• The financial institutions contributed to the growth
of concentration of wealth and economic power. The
financial institutions were set up with the ideal of
helping the private sector. But the large industrial
houses managed to influence its lending policies of
those institutions. The Dutta Committee found that
about 56 per cent of the total assistance provided by
the IFC, IDBI etc. had gone to the large industrial
houses.
• 3. Guidelines of Large Industrial Houses:
• So, after independence the Government of India
launched upon a programme of massive economic
development. The government provided financial,
tax benefits, etc. for the promotion of the private
sector. The industrial houses which were already in
the field saw the abundant chances for their
growth and expansion. They took full advantage of
the concessions.
• 4. Role of Commercial Banks:
• Before Bank nationalisation the large industrial
houses controlled the banking system. The
bank deposits coming from the general public
were used exclusively for financing industries
owned and managed by large industrial houses.
Even after nationalisation in 1969 there was not
much of a change in the lending policy of the
nationalised banks
• 5. Inter-Company Investments:
• Inter-company investment means, purchasing shares
of a company by other company. Big companies or
Industrial groups purchases stock of other companies
on large scale and make them as their subsidiaries.
• 6. Technological Progress:
• Big firms can reduce the production cost through
modern technology due to their sound financial
condition. Thus they get large economies and become
more powerful.
• 7. Managing Agency System:
• This system has greatly controlled in the
development of big companies by providing
financial assistance. These maintained their
credit through intercompany investments.
Though the system was abolished in 1970, its
dominance still remained upon industrial
groups.
• 8. Monopolistic and Restrictive Trade Practices:
• Monopolistic firms adopt such practices as
creating artificial shortage of goods, and get high
prices, decide high distribution rates of goods,
exploit the consumer by distributing market
among themselves. Sell goods on different prices
to different purchasers, rejecting sales to some
buyers or by other producers etc.
• 9. Strict Import Policy:
• After independence the Government had given
protection to various industries, and restricted
imports. This resulted in imposing monopoly by some
Indian producers upon the market.
• 10. Foreign Collaboration:
• After independence India has accepted foreign
collaboration on large scale. Foreign industrialists
prefer to collaborate with big firms. Thus their
dominance got increased.
• 11. Taxation Policy:
• Government offers many concessions on
starting new industries, such as relief in
income tax and sales tax. Grants are also
provided. Big industries derived utmost
advantage from this.
 Evils of Concentration of Economic Power:

• 1. Concentration of economic power is

associated with monopolies and therefore
with high prices and exploitation of
consumers.
• 2. The small scale units are not in a position to
compete with them without the development
of small and cottage industries concentration
of economic power cannot be diffused.
• 3. The large profits made by the rich people are
usually spent on luxurious consumption, this
creates demonstration effect and as a result
propensity to consume of the other people is
raised. This reduces the rate of saving.
• 4. The big businesses block the entry of new
young entrepreneurs in the industrial field by
the use of their advertising strength and large
resources and influence.
• 5. Big businesses use their resources to corrupt
officials and politicians. To quote the words of the
commission appointed by the government of India,
“We cannot ignore the unfortunate reality that some
big business houses do not hesitate to use their deep
pockets to try to corrupt public officials in the attempt
to continue and increase their industrial domain.”
• In view of the serious evils of concentration of
economic power steps should be taken to check this
concentration and ensure wider diffusion of economic
power. Small scale industries, cooperative enterprises
should be encouraged.
 Findings of the Monopolies Inquiry
Commission:
• 1 Causes of Economic Concentration:
• According to the Commission, the
development of joint-stock companies and the
economies of scale arising out of continual
technological advancement that was taking
place were the main causes of increasing
concentration of economic power in the
private corporate industrial sector.
• 2 Managing Agency System:
• Along with the joint-stock form of business
organisation and economies of scale, the managing
agency system played a vital role in bringing about
industrial concentration in the private corporate
industrial sector. Dearth of management skills in
the country result in vesting enormous economic
power in the’ hands of those who had the capital
to function successfully as managing agents.
• Another device was inter-locking of
directorships. The same boards of directors in
several industrial establishments producing
similar product or producing the needed raw
materials and engaged in the production of
allied products resulted in increasing
economic concentration in a few hands or in a
few industrial houses.
• 3. Licensing Policy:
• Further, acceleration of the concentration of
economic power in the private corporate
industrial sector took place because of the
system of industrial licensing, control of
capital issues and regulation of imports due to
the difficult balance of payments position in
the country.
• 4. Sale Out of British Firms:
• Also, when the country became independent,
many industrial houses in India managed to
acquire industrial establishments of British
and other foreign nationals who sold them
and left India for good. This had the effect of
accentuating economic concentration.
• 5. Additional Funds:
• The big industrial houses were in a more favourable position to raise
additional funds because of their well- established connections and
past experience; licensing authorities preferred to give additional
licences to companies already well- established than to some
unknown industrial concerns; well-established companies could get
additional licences because of their ability to manage to get foreign
collaboration agreements, foreign companies naturally preferring
already well-known industrial companies rather than entering into
agreements with some unknown companies; new companies found
the procedure for obtaining licenses extremely complicated and
time-consuming and almost beyond their capacity.
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