TIRUPATI. A temple town, dominated by a Vishnu shrine that thousands of pilgrims visit daily. It’s not quite the place you’d expect to meet the chairman of a Fortune India 500 company, Amara Raja Batteries’ Ramachandra Galla. His home, in the midst of a teak grove (part of the sprawling Amara Raja Township), is spartan; the only elaborate place is the puja room. Outside is a rustic scene, with chickens and geese wandering around, and cows mooing. A modern swimming pool seems a little out of place, but it’s there for Galla’s socialite son (and managing director of Amara Raja), Jayadev or Jay Galla. Galla Arunakumari, Galla’s wife, is a Congress member of the legislative assembly (representing Chittoor district, where Tirupati is), and the state’s minister of mines.
Galla, who studied at Michigan State University and spent 17 years there before returning to his hometown, symbolises the great Indian dream. He’s set up a thriving business (Amara Raja’s revenue for 2011 was Rs 1,761 crore), has close political ties (his wife is from a family of influential Congress politicians), a son who is being groomed for the top spot, and a community that looks up to him. Down the ages, people have been driven by versions of this dream; entrepreneurs more than anyone else because they are willing to risk a whole lot to achieve it. Which is why most of those seen to be living the dream are from the great business communities—Marwaris, Parsis, and so on.
The Marwaris and the Parsis were once the backbone of business in India. The Tatas, Shapoorji Pallonji Mistrys, Godrejs, and the Wadias are shining examples of Parsi enterprise. The Marwaris too commanded a major chunk of the country’s industrial assets: Business houses included the Khaitans, Goenkas, Kotharis, Lodhas, and the Ruias. By the mid-19th century, the Marwaris had set up robust trading and banking networks wherever they went. They were talking of profits and global expansion long before anyone else in the country. The community is known to have made money speculating in cotton, jute, and hessian during World War I; those profits were used to lay the foundations of successful businesses. The likes of Ghanshyam Das Birla and Ramdutt Goenka set up the Birla and Goenka empires, which continue till today. Down south, the Chettiars stood out; they made their fortunes as moneylenders in Burma before returning to India to set up flourishing business houses such as the Murugappa Group, SPIC, etc.
Business history makes for fascinating conversation, and so, over endless cups of tea and heated debate, the Fortune India team developed a theory: Historically, any successful business group emerged from an area of scarcity. The Jews, the Arabs, and the Marwaris all came from the desert; the Chettiars left their drought-stricken homeland for greener pastures. The Parsis, who came from Persia, first settled in Kutch in western India—desert again. It seemed a great theory, but one community refused to fit in. Like the Marwaris characterised the 19th and 20th centuries, the Andhra entrepreneur is prominent in the 21st century, with companies including the GMR group, GVK Industries, Dr Reddy’s Labs, Apollo Hospitals, Lanco Infratech, and Amara Raja Batteries.
The founders of most of these companies come from fertile lands, so that put paid to the desert theory. But here’s the thing: “Most of the current entrepreneurs of Andhra are from the coastal areas,” says T.K. Oommen, emeritus professor of sociology, Jawaharlal Nehru University, New Delhi. While fertile, these areas are the worst hit by cyclones and other natural calamities. The farmers there are always looking for alternative routes to creating wealth.
Many cups of tea later, the big question was asked: Are the Andhra entrepreneurs the country’s new Marwaris? The similarities between the two communities are striking. Both come from non-business backgrounds—traditionally, the Marwaris were moneylenders, while many of the Andhra entrepreneurs have an agrarian background. Both communities made the best of their time to set up flourishing businesses. Both have strong ties to their community. So, will the Raos and Reddys become as totemic to Indian business as the Birlas and Oswals?
BUSINESSES FROM ANDHRA have historically not figured on the national map. But that’s simply because there was no Andhra Pradesh till 1956; till then, much of the present state was part of Madras Presidency, while the rest belonged to the state of Hyderabad. “Entrepreneurs such as K. Nageswara Rao, the founder of Amrutanjan back in 1893, and Dr. Bhogaraju Pattabhi Sitaramayya, the founder of Andhra Bank, are exceptional cases. These great men were seen more as freedom fighters than entrepreneurs,” says C. Ramoji Rao, Andhra Pradesh’s media baron, and founder of the Ramoji group, which brings out the Telugu newspaper Eenadu (Today).
The state’s business story started with the birth of Andhra Pradesh and the building of the Nagarjunasagar dam, one of India’s earliest infrastructure projects, and possibly the largest masonry dam in the world. The dam was started in 1955 and took 12 years or so to complete. Most of the present-day infrastructure entrepreneurs in the country cut their teeth here. “I started my life there. I remember having a house and living by the dam during the construction. In those days, all the construction work you did, you did with the government. There were no private projects [on such a scale],” says G.V.K. Reddy, chairman and MD of the Rs 1,943.2 crore GVK group, who started out as a contractor. “Contracting has always been a respected business in Andhra Pradesh. One contractor came in and soon there was a plethora of companies,” says Goutham Reddy, executive director, Ramky Group, an infrastructure company.
The foundation of what is today Lanco Infratech, a leading energy company, was laid in the 1960s, when the Naidu brothers (Amarappa Naidu, Venkata Rama Naidu, and Venkata Ratnam Naidu) set up a transportation and logistics company that benefited from the construction of the dam.
The Nagarjunasagar dam did for the Andhra entrepreneurs what moving to Kolkata in the 1800s did for the Marwaris. The Marwari community is known for its proficiency with numbers; they were moneylenders, not manufacturers. But they were brokers and traders without peer, and leveraged their experience to enter vastly different sectors.
Ramdutt Goenka is a fine example of this. He came to Calcutta (now Kolkata) in 1820 from a small town in Rajasthan to do business with The East India Company and soon he had his own gaddi (trading centre). By 1860 he was working with several large firms. From there, he went on to become a cloth broker and founded his own firm. By the 1900s the Goenkas had established themselves in sectors such as jute and tea.
G.V.K. Reddy admits that he was prosperous while working with the government, but wanted to venture into businesses where he didn’t have to deal with bureaucracy on a daily basis. “Other people are born and brought up in business. Their parents are in business and they have projects in hand. They have licences in hand. I thought if they were able to do it why can’t I.” That was in the late ’70s, when licences were needed to set up any business. Reddy wanted to start a jute factory, and, despite opposition from his family who wanted him to continue as a contractor, went to Delhi to see if he could obtain a licence. He could not get the one he wanted, but was told that a licence for setting up a particle board factory was available. With that licence, he set up Novopan, a company that still makes pre-laminated particle boards used in furniture and construction.
G.M. Rao is also a product of the licence raj. “I took whatever licences were available in that area [Visakhapatnam district] and started some 28 industries in all sorts of sectors: rice, sugar, brewery, cotton, rolling mills, etc.” He says that the Nagarjunasagar dam did not matter to him, since he was not an infrastructure player till recently.
Entrepreneurs who did not start off as contractors began as traders. The fact that their communities traditionally cultivated cash crops such as cotton led them naturally towards trade. In a working paper for the Center for the Advanced Study of India at the University of Pennsylvania, research fellow Harish Damodaran explains how in the 1920s, British American Tobacco (BAT) introduced contract farming of cigarette-grade Virginia tobacco in Guntur district. The Kammas, one of the most prominent communities in this region, grabbed this opportunity and soon became commission agents to BAT and other exporters. By 1982, some 60% of the registered exporters from Guntur were Kammas, with Congress politician Rayapati Sambasiva Rao’s Jayalakshmi group having a 35% share of India’s tobacco exports to Russia.
IN ANDHRA PRADESH, THERE'S absolutely no difference between business, media, entertainment, and politics,” says Hyderabad-based filmmaker G.K. Mohan, who directs and produces television programmes for several channels, including Doordarshan. But that’s true of anywhere in India, isn’t it? “Have you seen it on this scale anywhere else?” he demands.
K. Anji Reddy, widely called the grand old man of Indian pharma and the founder chairman of the Rs 7,469 crore
Dr. Reddy’s Laboratories, says, half in jest, the main difference between a Marwari and an Andhra businessman is that a Marwari will never get into politics, but for a Reddy politics is a must.
It’s not that much of a joke, actually. Traditionally, a successful business has been one that has managed New Delhi, and the political connections of the Marwari families go back a long way. In her book Business Maharajas, author and business historian Gita Piramal writes about the close relationship between former prime minister Indira Gandhi and R.P. Goenka, and also talks about the closeness of the Bajaj and the Nehru families. In a research paper, Tarun Khanna and Krishna Palepu, professors at Harvard Business School, mention that under G.D. Birla, the Birla group financially supported the Independence movement. They also mention Sarojini Naidu’s now famous line: “It took all Birla’s millions to enable Gandhi to live in poverty.”
With the end of the licence raj, New Delhi’s influence over business was expected to wane, but recent events (the huge furore over political lobbying, for instance) show that’s clearly not the case. And the Andhra entrepreneurs have always known this. Everybody in Hyderabad seems to know the political back story of almost every Andhra entrepreneur. But nobody wants to be named or go on record with these stories. “This is a tight-knit community. If I want to work here again, I can’t afford to be a whistle-blower,” admits an industry watcher. “Today, people like GMR and GVK are bigger than politics, so there’s no need for them to ally with any party,” says another.
Unlike the Marwaris, Gujaratis, or Sindhis, who cultivate politicians while their community members man their factories, the Andhra business community likes to have its kith and kin in political circles. “Today when you need so many things to be an entrepreneur, these connections become an additional cultural capital,” says Oommen. In 2002, Lanco Infratech’s founder chairman Lagadapati Rajagopal, now a Congress member of Parliament from Vijayawada, opted for active politics and handed over the running of the company to his brother.
Some sectors rely more on politics and policy than others. Real estate, infrastructure, construction, and the like are highly political, with big money at stake. Pretty much any company that’s involved in large-scale building projects, whether it’s GMR or Adani, has been accused of giving and receiving kickbacks, or of unscrupulous lobbying. It just happens that several of these companies have been started by entrepreneurs from Andhra Pradesh. (Scuttlebutt in Andhra political circles has it that prominent Delhi political families own large stakes in some of the Andhra companies, which is why those companies win all bids.)
Fortune India asked G.M. Rao about the nexus between politics and business, and he’s categorical about maintaining a distance from politics. “I believe that politics and business cannot go hand in hand. Politics is not required to make money.”
If not politics, there’s generally a media connection. “Media is an important instrument to combat criticism and uphold your viewpoint,” says Oommen. Damodaran says that the rise of the Telugu Desam Party (TDP) also saw the rise of Ramoji Rao, often called the Rupert Murdoch of the South. His Telugu daily, Eenadu is one of the most influential papers in the state, although often accused of being biased in favour of the TDP. It was the first paper to launch in the districts. G.M. Rao credits Eenadu with instilling a sense of curiosity and fostering enterprise in the youth. “Earlier, we would get newspapers only in the evening, but Ramoji Rao made sure the papers reached in the morning, so we cultivated the habit of reading.” That, he says, had a direct impact on the hunger to grow.
Then there’s E. Venkatram Reddy, nephew of Congress parliamentarian, Tikkavarapu Subbarami Reddy, who runs newspapers including the Deccan Chronicle, Andhra Bhoomi, and the Asian Age. Subbarami Reddy, incidentally, is a filmmaker himself; more interesting, perhaps, is the fact that his daughter is married to G.V.K. Reddy’s son.
There are other sectors, such as pharma, IT, and health care, that are relatively free from political manoeuvring. The same people in Hyderabad who are happy to gossip about the infrastructure sector’s nexus with politicians are quick to say that Anji Reddy and Prathap Reddy (founder of the Apollo Hospitals chain) never used politics to get ahead.
Where an Anji Reddy scores is in his market knowledge. “I followed Dhirubhai Ambani in issuing linked non-convertible debentures. After my issue came out, there was a furore; everybody was jealous of the amount collected, not realising their money too can be multiplied,” says Reddy. A Hyderabad-based business consultant says that one of the reasons for the growth in businesses from Andhra was the rise of market-based companies such as Karvy Stock Broking.
Playing the markets is a risk not everyone wants to take. The Andhra entrepreneur, like the Marwari, has an appetite for risk because there’s a strong safety net in the community. The Marwaris are known for their financial support systems. In some cases, established businesses served as incubators for new entrepreneurs, something the Birla group was known for. Krishna and Palepu’s paper also mentions that several prominent Marwari groups in existence today, including the Khaitans and Kejriwals, are spun off from the Birla Group.
G.V.K. Reddy says something similar is happening within the Andhra communities now. “You go to a school and learn from one another. In the same way, we learn from one another and educate people working with us. People start out with us as sub-contractors or do transportation work for us, and eventually become contractors. About 40 to 50 years ago there was nobody. This is how they have all come up.” G.M. Rao agrees, adding: “There is a lot of collaboration. The cake is so big that many more can share it.”
It’s a 600 kilometre drive north of Tirupati to the tiny village of Garagaparru, hardly a dot on the map. The village acquired short-lived fame when its most famous son, B. Ramalinga Raju, founder of Satyam Computers, was arrested for promoting financial irregularities in the company. But the villagers say that Raju is not the villain he is made out to be, but rather someone who got into hot water and needs to be helped out. They point to the school, health centre, and other welfare projects that Raju began in the village. Without these schemes, Garagaparru could be just another dead end.
A few hundred kilometres north is another small town, Srikakulam. It’s one of the hundreds of small towns in India, and could have been among the most backward in the state had it not been for G.M. Rao. Again, there are schools, vocational training facilities, and factories to provide employment.
The entire state is dotted with such villages. The industrialists say that this is their way of giving back to the community that nurtured them. However, a political analyst in Hyderabad says some credit should also go to former Andhra Pradesh chief minister Chandrababu Naidu’s Janmabhoomi scheme. Under this, the government called upon business houses to fund welfare projects in their hometowns. But long after Naidu, these entrepreneurs continue to pour money into such programmes.
Mudit Kapoor, assistant professor of economics, Indian School of Business, Hyderabad, says that based on his interactions with Andhra entrepreneurs, he has found them to be quicker than most to identify an opportunity and expand it. Lanco Infratech, he says, is an example. In a few decades, the company grew from a one-truck firm to an infrastructure major with revenue of Rs 8,042 crore in FY11.
“The Andhra businessmen did not have as much social capital as the Marwaris, but the India shining story could very well be called the India shining story of these guys,” he says.