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Sources of Corporate Profits in India; Business Dynamism or Advantages of Entrenchment?

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  • Michael Walton
  • Anusha Nath
  • Ashoka Mody

Abstract

Some see India’s corporate sector as the fundamental driver of recent and future prosperity. Others see it as a source of excessive market power, personal enrichment, and influence over the State, with an ultimately distorting influence. To inform this debate, this paper analyses the correlates of profitability of firms listed on the Bombay Stock Exchange, covering a dynamic period-in terms of firm entry and growth-from the early 1990s to the late 2000s. Overall, the results do not provide support for the systematic exercise of market power via the product market. At least for this period, the story is more consistent with a competitive and dynamic business sector, despite the continued dominance of business houses and public sector firms in terms of sales and assets. Those with opposing views can, with justification, argue that our analysis does not cover influences, such as corporate governance and state-corporate relations, which may paint a less flattering picture of the corporate sector’s role. Those broader themes deserve further attention.

Suggested Citation

  • Michael Walton & Anusha Nath & Ashoka Mody, 2011. "Sources of Corporate Profits in India; Business Dynamism or Advantages of Entrenchment?," IMF Working Papers 11/8, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:11/8
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    References listed on IDEAS

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    1. Flannery, Mark J. & Hankins, Kristine Watson, 2013. "Estimating dynamic panel models in corporate finance," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 1-19.
    2. Laura Alfaro & Anusha Chari, 2009. "India Transformed? Insights from the Firm Level 1988-2005," NBER Working Papers 15448, National Bureau of Economic Research, Inc.
    3. Petia Topalova & Amit Khandelwal, 2011. "Trade Liberalization and Firm Productivity: The Case of India," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 995-1009, August.
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    Cited by:

    1. Pratap Bhanu Mehta & Michael Walton, 2014. "Ideas, interests and the politics of development change in India: capitalism, inclusion and the state," Global Development Institute Working Paper Series esid-036-14, GDI, The University of Manchester.

    More about this item

    Keywords

    Economic models; Corporate sector; Competition; India; Profits; profitability; market power; growth; bse; gdp growth; tfp; economic growth; growth rate;

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