How India’s billionaires get rich

Mukesh Ambani during World Economic Forum 2007 (Photo: World Economic Forum)

*Editor’s note: India has been infamous for its economic and social disparities. It is one of the world’s most unequal countries even though more people have been brought out of poverty than at any other time. This column from The Business Times explains how India’s billionaires get rich and compares their status with those in Russia and China.

There is no club more exclusive and privileged as that of the billionaire. There are just some 1,200 individuals all over the world that now pass this most challenging criterion. Remarkably for a poor country, India has 61 of them.

The number of dollar billionaires is also one measure of a country having “arrived” as one of the select few, and is an indication of how the economies of emerging markets have changed.

In the mid-1990s, India had only two billionaires with a combined wealth of US$3.2 billion according to the world billionaire list compiled by Forbes magazine. By 2012, there were 61 of them with a net worth of US$250 billion.

And how do they live? Very well indeed. The richest Indian, Mukesh Ambani, with wealth of US$21.5 billion has built a 27 storey, 570 foot high residential tower in Mumbai costing an estimated US$1 billion, the most expensive house built anywhere in the world.

It houses only his family of five, but has quarters for several hundred servants, parking for 168 cars and three heliports. Ambani also has two private jets – a US$73 million Boeing Business Jet 2 for himself and a US$44 million Airbus Corporate Jet that he gave his wife as a present for her 44th birthday. Cyberspace is abuzz with pictures of a 58 m long yacht costing 20 million euros (S$32.4 million) being built by a French company for them.

Pots of money need not mean pot bellies. A few of these billionaires make a fetish of fitness. Three of them – Anil Ambani, Anand Mahindra and Rashesh Shah – run regularly and have participated in half-marathons. Others such as septuagenarian Adi Godrej are avid trekkers, while Naveen Jindal of Jindal Steel & Power is a good horse rider besides being a pilot and a shooting enthusiast.

As the exploding market for luxury goods indicates, India’s billionaires and many more multi-millionaires love the feeling of exclusiveness that comes with luxury imports.

Cars such as Rolls Royce, Jaguar, Porsche, Lamborghini, BMW and Mercedes Benz can sometimes be seen revving up on the potholed Indian roads. World famous luxury brands such as Louis Vuitton, Hugo Boss, Armani, Gucci and Prada, among many others, have established themselves in upmarket stores in Delhi and Bombay – though the super-rich obviously prefer to shop abroad, leaving these stores for the hoi polloi, unless they are pressed for time.

Getting to the top involves many compromises and sometimes the ability to manipulate the political system. Thus some billionaires are considered “rent thick”, in Indian parlance. Some of these who make their billions in sectors such as real estate, infrastructure, construction, mining, telecoms, cement and media have been classified as “rent thick” because of the pervasive role of the state in giving licences, and these often have reputations of monopolistic and other shady practices.

But those who have made their wealth in information technology (IT) & software, engineering, pharmaceuticals, finance & banks – where the interaction with the state is more limited – are widely admired.

A 2012 research paper Where do India’s billionaires get their wealth? by Aditi Gandhi of Delhi’s Centre for Policy Research and Michael Walton of Harvard University’s Kennedy School of Government offers some insight on the sources of wealth of India’s billionaires.

The ratio of total billionaires’ wealth to gross domestic product (GDP) rose from around one per cent in the mid-1990s to 22 per cent at the peak of the boom in 2008, and was still 10 per cent of GDP in 2012. Furthermore, the study found that 43 per cent of the billionaires were from the “rent thick” sectors, and they had 60 per cent of the billionaires wealth. They also found that while in the early 2000s the proportion of wealth of “others” rose, the wealth of billionaires in the “rent thick” sectors shifted back to dominance in the second half of the 2000s.

So India’s business scene is sometimes compared to the robber baron era in the United States, instead of the model of the US today. But it is a poor comparison to Russia’s mafia-ruled landscape where the evidence of robber barons is much more striking. Russia’s 96 billionaires sit on US$377 billion or 20 per cent of the total GDP of the country. China has greater balance: the wealth of its 122 billionaires amounts to just 3 per cent of the country’s GDP.

The kind of people who make it to the billionaires list, the size and source of their fortunes and the churn at the top give an indication of how well positioned emerging nations are to compete in the global economy. Ruchir Sharma, head of emerging markets at Morgan Stanley and author of Breakout Nations: In Pursuit of the Next Economic Miracles, argues: “Billionaires should emerge primarily from productive new industries, not patronage. Creative destruction lies at the heart of a prospering capitalist society; and because well-connected incumbents have everything to gain from the established order, they are the enemies of capitalism.”

By this yardstick, China – which in the last 15 years has generated much more overall wealth than any other country – stands out. Its richest man is now worth about US$10 billion, far less than the billionaires in much smaller economies, including India, Mexico, Russia and Nigeria. Despite its freewheeling economy, China’s communist rulers seem to pay close attention when the deal-making generates fortunes.

In contrast, Russia – where 96 billionaires control fortunes worth 20 per cent of national GDP – over 80 per cent of the wealth of Russian billionaires comes from non-productive industries such as real estate, construction and, especially, oil & gas.

India stands somewhere in between these models. Much depends on whether it can rise on the innovativeness of its business leaders as they also seek to become world leaders through technology and productive practices, or becomes stuck in a crony capitalism where natural resources are distributed to a favoured few. A good place to look would be in the churn in its list of billionaires. <Yogi Aggarwal/Mumbai-based journalist>