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India’s biggest conglomerates, which wield immense pricing power in the retail, resources and telecommunication sectors, are contributing to elevated inflation and should be broken up, a former central banker said.

The “Big 5” consisting of Reliance Group, Tata Group, Aditya Birla Group, Adani Group and Bharti Telecom have grown at the expense of smaller local firms, said Viral Acharya who was Reserve Bank of India deputy governor between 2017 and 2019. At the same time, the government’s “sky-high tariffs” have shielded these conglomerates from competition by foreign firms.

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“Creating national champions, which is considered by many as the industrial policy of ‘new India,’ appears to be feeding directly into keeping prices at a high level,” said Acharya, who is a professor of economics at New York University Stern School.

He suggested such conglomerates should be dismantled to increase competition and reduce pricing power. If that doesn’t work, “throw sand in the wheels by making it economically unattractive to remain a large conglomerate unless productivity gains are truly large,” Acharya wrote in a paper to be presented at a Brookings Institute panel on emerging markets. 

Historically, India’s problem was considered to be the opposite — companies were too small and couldn’t emulate the productivity gains of big firms. 

Part of Acharya’s reasoning was that Indian consumers could not fully benefit from input price declines as the Big 5 companies control manufacturing of metals, coke, refined petroleum products as well as retail trade and telecommunications.