If you were a big businessman would you create COMPETITION for yourself? Kind of a stupid question right?

Let us see what the Government of India does!

In the life insurance business it already OWNS India’s most valuable player viz LIC. However it creates SBI, Star Union Daichi, Canara Hsbc Insurance, Idbi Fortis, ….and I am not sure if I am missing a few names.

Similar is the case in General Insurance.

In banking it has 14 banks with branches all over the country, but is allowing one new bank IDBI to set up 150 new branches.

In mutual funds it owns UTI, but then creates SBI, Idbi, Canara, LiC, …..again a big list.

Beats me. Just cannot understand.

Can anybody give me an economically correct answer?

Politically correct answer I KNOW…but will not share it on a blog.

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  1. Politically correct answer……..large scale employment!!! to bureaucrats & others 😀

    Economic answer……beats me……it helps them to retain a big control over these sectors/industries, and use these companies for different motives (not so good ones)

  2. And from when did Government care about national economy! unless it favors them…

    As Ashwin mentioned above “CONTROL & POWER” is what drives all this. As long as it favors politicians/businessman to build their control over larger masses as well as make profitable for “themselves” it will be portrayed good for the economy and for everyone.

    It is sad that a nation with Billion in population has a seller driven market vs buyer driven market….

  3. Subra sir,
    insurance can be pushed on people through banking channel. In fact you only said that banking channel is comparable to agent channel.

  4. Definitely it makes lot of sense economically also to create multiple companies from same owner to capture the market.
    It happens every where. Look at this post —
    http://www.huffingtonpost.com/2012/04/27/consumer-brands-owned-ten-companies-graphic_n_1458812.html

    Most of the consumer brands are sold by very few companies. In India take example of Bath Soap. Almost 90% of bathing soaps sold in India are from unilever brand.

    This way owners can give many choice to consumer and also avoid competition for their product.

  5. It has nothing to do with politics.
    As per GATT and other agreements imposed by World Bank and IMF in 1991 ( so-called the great liberalisation year !) all countries that are members have to open their markets to FDI.
    The Govt of India did not create these companies, foreign companies established their branches in collaboration with Indian Banks/ companies (they had to take this route because 100% FDI is not allowed in Insurance)

  6. Srinivas Muthadi

    Competition? I do not think there is any real competition between these Govt. owned entities. Why then are there more entities? Just to create an illusion of competition.
    Other strategy could be to allow one of them to perform badly, so that everyone will flock to the safer one, even not so unprofitable.

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