9 Main Causes for the Growth of Monopoly

The following points highlight the nine main causes for the growth of monopoly. The causes are: 1. Industrial Policy and the Expansion of the Scope of the Private Sector 2. Inter-Company Investment 3. Government’s Licensing Policy 4. Import Duties and Market Protection 5. Planning Process and Others. 

Monopoly: Cause # 1. Industrial Policy and the Expansion of the Scope of the Private Sector:

The industrial policy resolutions introduced by the country have also expanded the scope of the participation of the private sector enterprises in various fields of industrial activity. The industrial policy resolutions of 1956, in its list of industries under Schedule A (exclusively reserved for the public sector), allowed the existing private sector enterprises to continue and expand.

The policy also mentioned that “in appropriate cases, privately-owned units may be permitted to produce an item falling within schedule A for meeting their own requirements or as by products”. Later on, the Government opened 11 industries under schedule A to the private sector, by which the large industrial houses got the opportunity to expand.

Again among the 12 industries under the Schedule B, the private sector entered in industries and in most of the cases, large industrial houses participated in these industries.

In this way, growing participation of large industries in these new industrial fields has resulted growing concentration in economic power to the large industrial houses. Again the New Industrial Policy, 1991 has again liberalised many new areas for the private sector which will lead to further concentration of economic power in future.

Monopoly: Cause # 2. Inter-Company Investment:

Inter-company investment is considered another important factor for the growth of large industrial houses and growing concentration of economic power. Through inter-company investment, big industrial houses occupy the directorship of a good number of companies and monopolized the decision-making of these companies.

Monopoly: Cause # 3. Government’s Licensing Policy:

The licensing policy of the Government has also facilitated the growth of large industrial houses and concentration of economic power. While giving industrial licence, the Government never tried to control the growth of monopoly or concentration of economic power. Rather, the licensing authorities had the tendency to sanction the licenses of new enterprises to experienced person having proven business ability, instead of new entrepreneurs.

Moreover, the Government policy on foreign collaboration, extension of tax incentives etc. have also helped mostly the large industrial houses to avail these facilities. Moreover, the Government never made any successful endeavour to grant licenses to the small producers.

But the multinational corporations along with large industrial houses were allowed by the Government to produce even the items like televisions, radio receivers, soaps, cosmetics etc.

Monopoly: Cause # 4. Import Duties and Market Protection:

Indian industries are being protected by the Government from foreign competition through the imposition of heavy import duties and also by banning imports of some commodities. This sort of protection has raised the strength of large business houses in the domestic market.

The Situation has reached to such an extent that these large houses even pressurized the small enterprises, created artificial crisis of their products for increasing profits, leading to growing assets and concentration of economic power in their hands by speculating the situation.

Monopoly: Cause # 5. Planning Process:

The planned development strategy has provided the opportunity to the large industrial houses to increase their fortunes further.

The MIC observed, “In the period immediately following Independence, the very force which are harnessed to produce the quick industrialisation of the country worked at the same time to concentrate power in industry in a few individuals or families who were already wealthy and powerful every one of these circumstances tended to produce concentration of economic power.”

Monopoly: Cause # 6. Control over Banking Companies:

In the pre-nationalisation period, the banking system was mostly under the control of large industrial houses. The major portion of the bank deposits collected from general depositor were mostly used for financing the industries of large industrial houses.

Thus the commercial banks played an important role in developing monopolies and industrial empires of large industrial houses. After nationalisation even such tendencies are being persisted as the output of the bankers did not changed much.

Monopoly: Cause # 7. Credit Policy of the Public Sector Financial Institutions:

Another important cause behind the growth of monopolies and concentration of economic power in the credit policy pursued by the public sector financial institutions, where they always favoured large industrial houses in advancing loan as compared to that of small entrepreneurs.

The Dutt Committee observed that nearly 56 per cent of the total financial assistance provided by IFCI, IDBI the ICICI and other financial institutions had been channelized to the large industrial houses.

For example, Birla’s alone have become able to obtain 25 per cent of the total loan assistance granted by the public sector financial institutions. Some industrial enterprises have even obtained between 60 and 75 per cent of their total financial requirement from the public sector financial institutions deliberately.

Monopoly: Cause # 8. Tax Policy:

The Government has also introduced fiscal incentives in the form of tax concessions or tax exemptions so as to provide incentives to some industrial enterprises for its development. Till 1955, the Government granted initial development allowance for such purpose. In 1955, the Government introduced development rebate and in 1976-77, they introduced investment allowance for the private enterprises.

All these incentives have benefited the large business houses to the maximum extent. Instead of corporate taxes, the Government increased the rate of excise duties at a faster rate which the producers are able to shift on to the consumers.

Monopoly: Cause # 9. Diversification and Technological Integration:

Diversification through proliferation of industrial units in different industrial categories and attaining technological integration by combining various stages of production under common ownership. Most of the large industrial houses have utilised both the techniques so as to increase their monopoly power.