Family Businesses as a Pillar of Viksit Bharat

This article was first published in the Economic Times on January 29, 2026; https://economictimes.indiatimes.com/news/company/corporate-trends/family-businesses-as-a-pillar-of-viksit-bharat/articleshow/127759602.cms?from=mdr

Introduction: The Missing Big Idea

In a recent letter to the Finance Minister published in the Times of India, Duvvuri Subbarao, former governor of the Reserve Bank of India, posed a question that goes to the heart of India’s economic moment. If Viksit Bharat is the overarching vision of this government, what does it mean in concrete terms, and how are annual budgets aligned to that vision? Drawing a parallel with Manmohan Singh’s landmark 1991 budget, where the “big idea” was liberalisation, Subbarao asks what the equivalent organising principle is today.

This article argues that one such pillar of Viksit Bharat must be explicitly recognised and supported: India’s family businesses. The objective here is twofold. First, to situate family enterprises historically and empirically as engines of nation building. Second, to outline what the Finance Minister can do, through policy and budgetary choices, to enable family businesses to contribute responsibly, transparently, and sustainably to India’s development journey.

Family Businesses and Nation Building: A Historical Constant

Family businesses are the oldest and most enduring organisational form across nations. In India, family enterprises have long been builders of physical infrastructure, educational institutions, healthcare systems, and local employment. At India’s current stage of development, where the need for infrastructure, patient capital, and institution building is acute, these characteristics matter deeply.

History offers a useful parallel. In the late nineteenth and early twentieth centuries, the United States witnessed massive infrastructure creation led by business families such as the Vanderbilts, the Carnegies, and the Rockefellers. Railroads, steel, oil, and finance were shaped by families willing to take long-term risks at scale. These families helped build the economic foundations of modern America.

India today stands at a comparable inflection point. Large family-controlled business groups are deeply involved in roads, ports, renewable energy, logistics, manufacturing, education, and healthcare. These are sectors where long gestation periods and intergenerational commitment are advantages rather than liabilities.

Lessons from the Robber Barons

Yet history also cautions us. Many of the American families who built that infrastructure later came to be labelled “robber barons”. Some lost legitimacy due to concentration of power, weak governance, opaque practices, and an inability to manage succession effectively. Several family empires fragmented or faded, not because of lack of wealth, but because institutions did not evolve alongside scale.

This is a lesson India must take seriously. The choice is not between celebrating or constraining family businesses. The real policy challenge is to fuel entrepreneurial energy while embedding governance, transparency, and meritocracy. Without this balance, family capitalism risks public backlash and private decline.

Why Family Businesses Matter for Viksit Bharat

If Viksit Bharat is about sustained prosperity, social stability, and institutional depth, family businesses are uniquely positioned to contribute in four ways.

First, they provide patient capital. Family owners are often willing to invest across cycles, absorb short-term volatility, and commit to long-horizon projects that are unattractive to purely financial investors.

Second, they anchor local economies. Family enterprises are embedded in regions and communities, making them critical to employment generation, skill formation, and social cohesion.

Third, they enable institutional philanthropy. Many of India’s educational and healthcare institutions have been built by business families, often long before corporate social responsibility became mandatory.

Fourth, they ensure continuity. In a world of rapid managerial churn, family ownership can provide strategic consistency, provided governance systems are robust.

Policy Lessons from Other Economies

Across several jurisdictions, governments are beginning to recognise family enterprises as distinct economic actors whose long-term orientation and ownership continuity require tailored policy responses. As documented by Tharawat Magazine , this shift reflects an understanding that family businesses contribute disproportionately to employment, capital formation, and institutional stability, yet face structural vulnerabilities during succession and ownership transition that generic corporate policy does not address. The emerging response is not to privilege family firms indiscriminately, but to make them visible within the policy architecture.

This recognition has taken different institutional forms. In the United States, the creation of a bipartisan Family Business Caucus within Congress signals an effort to ensure that family enterprises are explicitly considered in legislative and regulatory debates. In Poland and Canada, legal and tax reforms have focused on reducing the cost and complexity of intergenerational transfers, acknowledging that poorly managed succession can destroy productive capacity and jobs. In the United Arab Emirates, a dedicated Family Companies Law, supported by state-backed institutions, seeks to codify governance, succession, and dispute resolution mechanisms, positioning family firms as long-term partners in national economic strategy. Hong Kong, meanwhile, has focused on building an ecosystem around family capital and family offices, combining regulatory adjustments with investments in institutional capacity for stewardship and legacy planning.

What unites these diverse approaches, as Tharawat Magazine underscores, is a move away from treating family ownership as incidental. Instead, policy frameworks increasingly aim to align continuity with governance, transparency, and professionalisation. The lesson for India is not to replicate any one model, but to recognise that if family businesses are to anchor Viksit Bharat, they must be deliberately integrated into policy design, fiscal incentives, and economic measurement, rather than remaining an invisible yet systemically important segment of the economy. 

Policy Recommendations

If robust family businesses are to be a measurable pillar of Viksit Bharat, policy intent must translate into administratively actionable and fiscally grounded measures.

First, formal recognition of family enterprises: The Union Budget can announce a formal definition of family businesses, notified jointly by the Ministry of Finance and the Ministry of Corporate Affairs. This would allow family enterprises to be recognised as a distinct category for policy design, without creating a new regulatory burden. Budget documents can mandate periodic data collection through MCA filings, enabling evidence-based policymaking.

Second, governance-linked fiscal incentives: Under the Direct Tax framework administered by the Central Board of Direct Taxes, targeted deductions or concessional tax treatment can be offered to family enterprises that meet specified governance benchmarks. These may include independent directors, documented succession plans, audited family constitutions, and separation of ownership and management. This aligns tax policy with long-term institutionalisation rather than short-term compliance.

Third, succession and continuity financing: The Budget can create a dedicated Succession and Continuity Credit Window, routed through public sector banks and development finance institutions. Backed by partial government guarantees, this facility would support ownership transitions during generational change, preventing distress sales, fragmentation, and employment loss. This intervention sits squarely within the Ministry of Finance’s financial stability and credit flow mandate.

Fourth, targeted public expenditure for family-led nation building: Capital expenditure allocations for infrastructure, education, healthcare, and energy transition can explicitly prioritise public–private partnerships anchored by long-term family ownership. Viability gap funding and concessional finance can be linked to governance and transparency standards, ensuring that public funds support stewardship-oriented capital rather than short-term extraction.

Fifth, next-generation capability development: Budgetary support can be provided under skilling and higher education heads, in coordination with the Ministries of Skill Development and Entrepreneurship, and Education, for structured leadership and governance programmes tailored to next-generation family members. Treating succession as a national economic continuity issue reframes it from a private family matter to a public interest concern. 

Measuring Progress: Integrating Family Business Health into Economic Reporting

If Viksit Bharat is to move beyond aspiration, it requires metrics embedded in official economic reporting. One such metric should be the robustness of India’s family business ecosystem.

The Finance Ministry can mandate the creation of a Family Business Development Index, published periodically alongside existing economic indicators. This composite index could track intergenerational survival rates, governance quality, professional management penetration, employment contribution, reinvestment rates, and participation in national priority sectors.

Such reporting would serve three purposes. It would signal that stewardship-based capitalism matters to India’s development vision. It would create incentives for business families to institutionalise governance and succession practices. And it would give policymakers an early warning system for stress in a segment that employs millions and anchors regional economies.

Conclusion: A Call for Early Attention

Embedding family businesses as a pillar of Viksit Bharat will not happen overnight. It may not be feasible to incorporate many of these ideas in the forthcoming budget. Policy design, inter-ministerial coordination, and institutional alignment take time.

But that is precisely why the conversation must begin now. As an early set of ideas for the next budget cycle, this article urges the Finance Minister to take notice. If India wants development that is durable, inclusive, and institutionally sound, it must look closely at the families that build, own, and steward its enterprises.

Viksit Bharat will not be built by capital alone. It will be built by families who think beyond one generation, supported by policies that reward responsibility as much as ambition.

Pledging of Shares by Promoters of Family Firms in India: Regulatory Concerns and Recommendations

This article was first published in the The Prime Directory 2023, Prime Database Group, September 2023. Co-aurthors: with Ray, Sougata & Ramachandran, Kavil; https://www.primedatabase.com/article/2023/Article-Nupur_Pavan_Bang.pdf 

Introduction

The practice of pledging of shares has existed in the Indian financial system for a long time. However, it gained significant disrepute during the Satyam Corporate Governance scandal in 2009. Since then, the Securities and Exchange Board of India (SEBI) mandated the promoter shareholders of firms to declare their pledging activities to the stock exchanges within seven days.

Regulatory bodies such as SEBI and RBI have continually highlighted their concerns around pledging. As pledging-induced corporate governance scandals have seen stock prices plummet, investors too have called for pledging to be curtailed via the introduction of stringent regulations. Academics and corporate governance experts have associated share pledging with several detrimental firm-level outcomes. Some of these concerns are highlighted below.

Concerns

Health of the financial system: In India, financial institutions have seen a considerable rise in their exposure to debt backed by pledged shares in the past decade. Often, the asset cover set by lending institutions may be too small to cover the price risk associated with shares as collateral. Where pledging loans are non-recourse (i.e., the borrower is not personally liable for the loan apart from the provision of collateral), there is a possibility of the lender not recovering the principal amount in the event of a sudden downturn in the stock price and loan default.

Loss of control of the firm for controlling shareholders: In the hunt for wealth diversification and legacy building, controlling shareholders may be tempted to over-pledge their shares with a lack of provisions to repay the loan or answer margin calls. There have been numerous instances where margin calls have led to controlling shareholders losing control of the firm. These disruptions result in a significant loss in market capitalization of the firm and raise considerable doubt over its future.

Underinvestment in innovation and risk-aversion: While innovation is a strategic driver of long-term growth and firm value, investment in innovation is much riskier than the firm’s business-as-usual activities. Post pledging, there may be a strong incentive for the promoters to underinvest in R&D activities to reduce the possibility of future margin calls.

Impact on accounting practices: To reduce the risk of a decline in the firm’s share price and subsequent margin calls, promoters may attempt to falsely present a positive picture of the firm. Consequently, firms where controlling shareholders pledge shares have a higher propensity to indulge in inferior accounting practices such as earnings management and choose lower-quality auditors to continue earnings management and navigate through the regulatory requirement of a financial audit.

Decline in Firm Value: Following a share pledge by a controlling shareholder, increased risk-aversion and a rise in the firm’s equity risk is likely to contribute to a decline in firm value in the longer term. Thus, while insiders pledging shares receive benefits in the form of a loan, outsiders must face a decline in firm value with no associated upsides, if the loan amount is not used for the same firm and with a judicious strategic plan.

Theoretically, there is a divergence in risks and rewards of the promoters who pledge their shares and other shareholders of a firm. This may act as an incentive for the promoters to pledge their shares despite all the concerns mentioned above. In the next section, the authors enumerate a few recommendations for the regulators that should help minimize the negative impact of pledging, while retaining the tool to access funds when in need.

Recommendations

Awareness and information dissemination: Despite concerns from all quarters over the negative implications of pledging, SEBI has indicated that it does not intend to prohibit the pledging of shares. SEBI believes that it should be the right of the owner of equity to decide the best possible way of utilizing it. Hence, given its positioning as a relatively accessible form of financing for shareholders, pledging of shares is expected to remain in the financial markets as a popular form of raising capital. Moving forward, it is critical for the regulators to create awareness and disseminate information about pledging of shares to all key stakeholders (including minority shareholders and financial institutions).

Integration and standardization: As of now, the disclosures on pledging by promoters to SEBI and the information available to RBI regarding the lending by financial institutions are not integrated. Both the regulators should jointly seek information from the promoters and disseminate the information in a consolidated manner to the investors. In addition, rules surrounding adequate cover for share pledges (and provision of the maintenance margin) must be standardized and ensured that they are implemented across all financial institutions uniformly.

End-use of pledging capital: SEBI has been considerably proactive in monitoring the pledging of shares and introducing stricter regulations around the same. We feel that these are steps in the correct direction. However, disclosure of the reasons for pledging must be mandated against all share pledges irrespective of the size of the pledge to further protect the interest of the minority shareholders. SEBI must actively mandate the precise destination of the funds obtained through pledging, as several promoters provide vague reasons for pledging in the disclosure reports. 

Control and cash flows: In an ideal scenario, the associated risks, returns and control should be homogenous across the firm’s shareholders. That is, the promotors, institutional investors and the retail investors should receive returns (in the form of capital gains and dividends), face risks and exercise control in accordance with the size of their shareholding in the firm. However, pledging may alter this homogeneity associated with stock ownership. While the shares are used as a collateral to raise funds, the promoters continue to enjoy all cash flows associated with those shares as well as their control and voting rights. In a way, this incentivizes the promoter to pledge their shares since there is no immediate negative consequence of doing so.

While, in a situation where the firm is close to default or needs immediate cash, the promoters might have no choice but to use pledging as a tool to access immediate capital, the promoters should have a plan to pay back the loan to the financial institution. Checks and balances are required to ensure that due to asymmetry of information, the promoters do not “cash out” of firms in distress leaving the financial institutions (lenders) and other shareholders to take the fall. A negative spiral in the stock price will most significantly impact the minority shareholders and leave the lenders with a collateral that may not cover the value of the loan extended. Such divergence can be checked by the SEBI by bringing in clauses such as deferred dividend payments until the shares are pledged or suspending the voting rights in proportion to the extent of shares pledged.

Guidance to the board: The role of the board of directors is critical in the event the promoters pledge their shares due to its far-reaching implications. The Ministry of Corporate Affairs may stress of the benefits of an empowered board of directors. It may also lay out the responsibilities of the board if a promoter wants to pledge its shares. The directors must caution the promoters from over pledging and should shield the firm from the promoters if they try to manage the margin calls by taking hasty or short-term view decisions in the firm. In addition, the board of directors should also evaluate if pledging is indeed the best option for the firm. Independent directors to be more vigilant and check that decision making at firm level is not impacted. In addition, they should be made more accountable for lack of carrying out their fiduciary duties.

Guidance to promoters: The Companies Act should also detail the expectations from the promoters when deciding to raise capital via pledging, viz. the promoters should be cognizant of the risks that this form of financing carries, the promoters should be reasonably confident of the cash-flow generation abilities of the investments made by them in the future. Overtly wishful and hopeful thinking by promoters without due diligence has indeed impacted many business barons in making over-optimistic bets. Also, the impact of variations in stock price of the firm observed in the short-term on the pledging contract should be manageable. The promoter should also have a contingency plan to answer margin calls made to the firm and they should disclose it to SEBI.

Compliance: Disclosure by the promoters and the companies should be monitored stringently with strict action for delays and non-compliance. For a better governed and efficient running of the market, there must not be any slip between the cup and the lip.

Conclusion

When we study individual cases of pledging of shares, we find that in conjunction with bad business decisions, pledging has had dire consequences for the promoters and other stakeholders. Such companies are many. They include Satyam, Future Group, and Zee Entertainment. However, there are also companies that have created long-term wealth for all shareholders by using pledging as a strategic tool to raise funds for expansion and growth. Examples include Apollo Hospitals and Granules Pharmaceuticals.

Therefore, all cases of pledging of shares should not be painted with the same stroke of negative. Rather, responsible pledging should be promoted, with appropriate checks and balances, transparent motivations to pledge, and a plan to revoke the pledge.

ESG and Stakeholder Capitalism: Seeking Value for All

This article was first published in Outlook India on May 09, 2023. Co-authors: Moksh Garg, Sougata Ray; https://www.outlookindia.com/business/esg-and-stakeholder-capitalism-seeking-value-for-all-news-284879

Nobel Laureate Milton Friedman, in his famous essay "The Social Responsibility of Business is to Increase its Profits," published in the New York Times magazine in 1970, famously wrote, "There is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits..."

Compare this with the Statement on the Purpose of a Corporation adopted by 181 CEOs of America's largest companies in 2019. The Statement declared, "…companies should deliver long-term value to all of their stakeholders – customers, employees, suppliers, the communities in which they operate, and shareholders."

Post the Covid19 pandemic, calls for "stakeholder capitalism" has further picked up the pace. Gone are the days when economic profits alone determined a firm's success. The for-profit entities are being held responsible not only for the bottom line but also for the activities through which they create shareholder value and the value they create for other stakeholders. As a result, it is no longer surprising to see them getting mired in controversies or even attacked by their shareholders over broad-ranging social issues. This has led shareholders and the wider investor community to take stock of businesses beyond traditional metrics.

Measure accurately and improve

The method to measure economic profits has been established and standardised for long. However, measuring stakeholders' value creation is still in its infancy. And, what cannot be measured, cannot be improved, managed, or controlled. Therefore, combined with changing social dynamics and the issue's salience, many rating agencies and data providers started providing ESG ratings for companies.

At the most basic level, ESG ratings aid investors in comprehensively evaluating a firm by analysing it across its three major dimensions: environmental, social, and governance actions and impact. While ESG, in spirit, is a step in the right direction, it has been wrestling to drive a commensurate impact worldwide. There are significant roadblocks impairing its overall uptake and effectiveness. Two major hurdles are the lack of standardized disclosures by corporate and inconsistent measurement criteria employed by the ESG rating providers (ERPs).

Disclosure: Our research at the Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business, suggests that less than 4% of the total publicly listed Indian firms have been assigned ESG ratings between 2014 to 2021. We arrived at this figure by consolidating three different ERPs, i.e., WRDS Sustainalytics, Thomson Reuters, and CRISIL. The reason for the low coverage of companies by ERPs is that ERPs rely on publicly available data to make assessments. However, most companies – especially the medium and small-sized ones – do not track their ESG activities, let alone disclose them publicly. Even companies that make complete disclosures do not follow any standard procedure, making their interpretation subjective and comparisons across companies challenging.

Measurement: While comparisons across companies are difficult due to a lack of standardised disclosures, how information for the same company is compiled, measured, and converted into an aggregate score differs quite a bit from ERP to ERP. A study conducted by researchers from MIT, published in the Review of Finance, reported steep inconsistencies in the ESG ratings assigned to a business by different agencies (Berg, Koelbel, & Rigobon, 2022). In many cases, firms are assigned highly inconsistent ratings by different ERPs owing to differences in methodology, scope, or weights (importance) assigned to attributes. The divergent estimates about the same underlying entity add to the confusion and defeat the very purpose of these ratings.

Sample: The number of firms assigned an ESG rating in India (by the three ERPs cumulatively) is a minuscule percent of all listed firms (4%). Further, because we cannot compare the ratings across ERPs, research must be done using the data from just one ERP, reducing the number of companies that can be studied even further. Additionally, the number of years of data available for each ERP varies. In such a scenario, the reliability and generalization of research become questionable.

ESG ratings and their effectiveness are subject to substantial political debate in the West. The opposition has openly attacked ESG for its overly ambitious vision but deeply flawed implementation. Some critics have even questioned the morality of ESG by calling it a fabricated tool to legitimize greenwashing. However, in our opinion, although ESG is undoubtedly far from perfect, it remains one of the most potent ways to reimagine businesses in a society fraught with grand challenges.

In line with the old saying "do not throw the baby out with the bathwater," we expect that in the Indian context, SEBI's mandate for BSE Top 1000 companies to report their ESG activities as part of the Business Responsibility and Sustainability Reporting (BRSR) shall alleviate some of these concerns. However, it is time that companies understand the spirit of ESG, and even those companies that do not fall under the purview of BRSR voluntarily disclose the steps taken toward a more sustainable future. Let us actively work towards addressing the pitfalls, bringing more standardisation to disclosures and objectivity to measurement.

Family Firms in India: Performance and Relevance

This article was first published in moneycontrol.com, April 05, 2022, Co-authors: Sougata Ray & Navneet Bhatnagar; https://www.moneycontrol.com/news/business/family-firms-in-india-performance-and-relevance-8320491.html/amp?ajaxcall=yes

Concentrated ownership of a firm in the hands of a family presents unique opportunities and challenges that impact its performance.

In India, family firms are a dominant force in the economy, contributing significantly to nation-building, the exchequer, creation of jobs and asset creation. Their footprints on the Indian economy are indelible. It is imperative for family firms to perform well, grow profitably, create value and contribute to economic progress if India has to realise its full potential.

Researchers have argued that family firms have better monitoring and lower agency costs than non-family firms, have incentives to take long-term views of maximising firm value, and are value-driven organisations. Yet, many of them are found to be plagued by rent-seeking behaviour, succession issues, lack of transparency and governance, lack of professionalisation, and family conflicts. Understandably, therefore, there is mixed evidence globally on whether family firms perform better than non-family firms.

Using a unique proprietary database of scientifically classified listed family and non-family firms, the team at the Thomas Schmidheiny Centre for Family Enterprise conducted a study on all listed firms in India over the past three decades. The analyses overwhelmingly reveal that on an average, family firms underperform non-family firms.

What are the reasons? Lapses in overall strategic planning by family firms, conflicting intrinsic motivations of family members, lack of professionalisation and governance, and opposing utility functions of management (non-family professionals) and the promoting family could be responsible. Many a time, maintaining control and influence over the firm also pushes the family to take decisions independent of financial considerations. These idiosyncratic strategies and irrational choices, mainly due to the emotional ties that the family has with the firm, may overpower the advantages of being a family firm. The analysis also reveals a negative impact of family leadership on performance among family firms.

While the average trend is negative, there are family firms across industries that have performed exceedingly well. They have withstood the licence raj as well as the winds of change that swept the nation during the economic liberalisation in 1991. There had been widespread apprehensions about the capabilities of family businesses to withstand the pressure of the newly created “freedom” that made them vulnerable to competition for resources, markets and capital. However, many family businesses transformed themselves by taking stock, restructuring their operations, taking advantage of new opportunities, putting the right governance systems in place, and professionalising.

There is much to learn from these businesses.

90% of the listed world 

Despite the underperformance of family firms on an average, their dominance in India continues. Ninety-one percent of all listed firms in India are family firms. Large family firms and business groups have consolidated their positions even more in recent years. As these business families and the firms owned by them are firmly embedded in the society and institutional context and develop patterns of trust and confidence among stakeholders, they have better access to social and financial capital and are willing to embark on enterprises involving considerable risk with a reasonable chance of success. This reinforces the continued cultural, political and social importance of family firms in India, which is not going to diminish any time soon.

However, a vast majority of family firms in India does not possess these constructive characteristics exhibited by the more successful ones. These underperforming family firms must be open to learning from the select others who have been performing well, put in place family as well as business governance systems, professionalise as they grow, delegate management and operating responsibilities to the right persons outside the family, and change with time to adapt and modernise. They need to be made aware of the enormous opportunities and be nudged to overcome their challenges building on their inherent strengths.

Policymakers must be open to framing targeted interventions that are required to create favourable conditions for improving the performance of family firms. Given the importance and significance of family firms in an economy like India, more family firms across industries have to undergo a transformation and start pulling their punches to make India Aatmanirbhar.