Towards Understanding the Merger-Wave in the Indian Corporate Sector: A Comparative Perspective

The corporate sector in India has witnessed a substantial growth of Mergers and Acquisitions (M&As) during the 1990s, facilitated by the policy-shift under Structural Adjustment Program. During the first wave (i.e., 1990-95), the Indian corporate houses seem to have been bracing up to face foreign competition while the second wave (i.e., 1995-2000) experienced a large presence of multinational firms. M&As also determined, to a large extent, the nature of foreign investment in the country during this period. A large share of these M&As were between firms belonging to the same business groups with a view to increase their respective controlling blocs in order to guard against a takeover. However, the study could not find any evidence of efficiency-related factors influencing M&As. It is rather growth of the firm in terms of their asset-size and market share that have been noticed. There are indications that one of the main motives could have been financial, that is, to increase the equity size, which can be further used to borrow resources for modernization. It is indeed a matter of grave concern that with the end of licensing policies, not even a reliable list of MNEs in India could be located from a publicly available source, not to speak of reliable information about their operations in the country. The behaviour pattern of Acquiring firms alerts us to the importance of working towards a desirable and workable competition policy and an appropriate corporate governance regime for the country. This is to be done keeping in view the need to develop productive capacities and generate employment within the country, providing for adequate ‘promotional measures’ and safeguards to the small and medium entrepreneurs. [CDS Working Paper 355, January 2004]