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Pre-1971 firms still on top, says CMIE

BS Markets Bureau

Companies formed after 1986 have not been able to grow sufficiently to make a difference to the economy, according to a study by the Centre for Monitoring Indian Economy.

The study, based on the financial analysis of the audited accounts of over 6000 companies, found the new companies have grown in numbers, but are still small in size. Collectively, these accounted for only nine per cent of sales in 2000-01.

Nearly 15 years after the first round of liberalisation, which began in 1986, and 10 years after the liberalisation of 1991, the companies of the pre-1971 era continue to dominate the Indian corporate world in every measure of economic size.

In terms of size (in 2000-01) of the companies formed after 1986 was smaller than the size of companies formed between 1971 and 1985. These new companies have grown faster than the older ones. But, this has not been fast enough for them to be significant in terms of their size and therefore, in terms of their impact on the Indian economy.

Of the 1,000-odd companies in the sample that were promoted in the second half of the 1980s had a combined sales of Rs 780.91 billion ($16 billion) in 2000-01.

The 1,739 companies of the 1990s had a combined sales of Rs 1158.71 billion. But the combined sales of all post-1991 companies are less than the sales of Indian Oil Corporation and their combined profits are less than the profit of ONGC alone.

The sales of the post-1991 companies grew at an impressive rate of 65 per cent in 2000-01, as against the overall average of 15.3 per cent. Sales growth in 2000-01 is largely on account of the software firms.

Most of the young companies have been poor users of capital.

Asset turnover ratio (sales:assets ratio) among the post-1991 firms was only two-thirds of the ratio for the older companies. But these new companies are better users of labour. The average sales:wage ratio for such companies was at least fifty per cent higher among the post-1991 companies, the CMIE said.

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