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Wealth Secrets of the Forbes Global Rich List

THE SOCIETY WEDDING

Dhirajlal Hirachand Ambani, known to his many admirers as Dhirubhai, and to his family simply as Dhiru, did not approve of the bride that his son Anil had selected—or so the gossip columns claimed. Dhirubhai hailed from a small village in Gujarat. He was a lifelong vegetarian by religious conviction. He insisted on holding a puja, a traditional Hindu blessing ceremony, for each new item of equipment installed at his first factory.

But his children had a rather different upbringing. Raised in cosmopolitan Mumbai, as a result of their father’s success they had been part of the city’s wealthy elite since at least their teenage years. And Anil, as billionaire bachelors are wont to do, had selected as his prospective bride a Bollywood starlet, a beauty pageant winner, a glamorous, independent woman whose previous relationship with a Bollywood leading man had been covered in salacious detail in the tabloids. There were rumors, probably untrue, that Dhirubhai used his political connections to have his son’s love interest investigated on the off chance that she might have violated India’s restrictive foreign exchange laws.

Dhirubhai may also have thought that falling head over heels for someone was a poor foundation for a marriage. His own wedding had been an arranged union. The wedding of his eldest son, Mukesh, was also arranged. But Anil Ambani’s wedding to Tina Munim was not going to be that kind of wedding. It was going to be a love marriage—and a society wedding.

The wedding started relatively slowly, with a “simple” engagement ceremony at Dhirubhai’s home, reported the Times of India. Assuming that it followed the tradition of most Gujarati weddings, the event gathered steam over several days in a series of ceremonies. These would have included a ceremony in which the hands and legs of the bride and the female members of her family were covered in henna decorations; another in which the two families would get to know each other by singing traditional wedding songs and dancing a whirling dance called the dandiya raas; another in which an uncle presented gifts of clothes and jewelry to the bride; and yet another in which the bride (and sometimes the groom) were anointed with a paste of sandalwood and perfumes.

The main ceremony, held on February 2, 1991, was kicked off by Anil, who appeared suddenly amid the wedding guests—there were some 5,000 guests in total—dressed in white astride a white horse and wearing a sequined turban. He led the guests in procession to the wedding venue, a fairy-tale palace of flowers constructed on a football field in the center of Mumbai. A brass band struck up a march and joined the procession while guests danced the dandiya raas. The ceremony itself lasted several hours, led by a bare-chested Hindu priest on a small stage. In traditional Gujarati practice, the bride and groom are first separated by a cloth screen, and later their clothes are stitched together to symbolize their union. (It is not all so serious: traditionally, the bride’s mother attempts to pinch the groom’s nose, and the bride’s sisters attempt to steal the groom’s shoes.) Anil and Tina then walked seven times around the holy fire of sandalwood, exchanging promises that made them man and wife. Even at this point, Anil’s wedding was still gathering steam. By the next day, at a postwedding reception banquet, there were some 22,000 guests (possibly even outdoing Marcus Crassus’s public feasts). Anil laid on an elaborate buffet of samosas, curries, fruits, and sweets for the assembled masses while police with sniffer dogs attempted to maintain a semblance of order.

Still, as Hamish McDonald, a journalist and author of a biography of Dhirubhai, noted, “by the standards of Bombay weddings a few years later, it looks a modest and traditional affair.” McDonald had a point. The weddings of India’s industrialists in the present day often include events in several cities, private performances by Cirque du Soleil, and extraordinary prizes for guests (at one 2012 wedding, an Audi, a BMW, and a Mercedes were handed out to winners of party games). Many wedding venues include purpose-built meeting rooms where guests, perhaps moved by the celebration of human union, can consummate commercial deals of their own during the lengthy ceremonies.

And indeed, the 2013 wedding of the first of Dhirubhai’s grandchildren to be married, Nayantara Kothari, would cement his family’s place among the nation’s commercial royalty. One of the guests was Narendra Modi, today India’s prime minister. The ceremony in Chennai lasted four days, and a prewedding party featured a performance by Yanni. There was reason to celebrate: Dhirubhai’s granddaughter wed Shamit Bhartia, the grandson of K. K. Birla, a member of what is arguably the first family of Indian industry. The commercial dynasty of the Birlas stretches back to India’s days as a British colony.

This was all rather remarkable, considering that Dhirubhai was born in obscurity and relative poverty in a tiny village in rural India. There was little about his birth or even his upbringing to suggest that his children would be marrying movie stars and his grandchildren the stars of the Indian business and social firmament.

So what was his secret?

THE LICENSE RAJ

Dhirubhai was born on December 28, 1932, in Chorwad village in Gujarat, on India’s northwest coast. It is an out-of-the-way spot notable mostly as a waypoint on a pilgrimage road that runs between the Hindu holy sites of Somnath and Dwarka. Even today, it is the kind of place where, if you have some things you want to move from point A to point B, hitching a camel to a cart is a fairly common way to go about it (another popular option is a three-wheeled contraption that looks like a motorcycle mating with a pickup truck). An overly ambitious attempt at a holiday camp now stands derelict on the town’s quiet beach. Most of the villagers reportedly live below India’s national poverty line, and a main occupation is subsistence fishing.

To be sure, Dhirubhai was well placed among this group, having been born into a merchant caste, the Modh Bania, a subcaste of the Vaisya, who traditionally took jobs as merchants or bankers. His father was a village schoolteacher. His home—today a museum-cum-shrine—was one of the finest in the village, although the Ambanis shared it with several other families. But Dhirubhai was one of five children and progressed only as far as high school, since his family lacked the money to send him to college. Even this was an achievement, as at the time few residents of Chorwad would have been high school graduates. At school, Dhirubhai had only two sets of clothes, so he would sleep with one under the mattress so that by the next morning it would appear to have been ironed. It was an unlikely beginning for a man who would become one of history’s richest people.

Dhirubhai’s success was even more unlikely considering that in the 1960s, when he went into business, the regulatory environment in India was spectacularly hostile to the growth of private enterprise. India had adopted five-year planning, following the model of the USSR and many other developing countries. There were many reasons for this. One was that, when India gained its independence in 1947, the country’s history of exploitation at the hands of the British East India Company was still very much in the minds of the nation’s new leaders. State control of the economy was seen as one way to guard against risks posed by the avarice of foreign capitalists. Additionally, the first prime minister of India, Jawaharlal Nehru, leaned markedly to the left.

The Industrial Policy Resolution of 1948, the government’s first major economic policy law, propelled the government into a leading economic role. Several industries were made state monopolies, including atomic energy and railways, and the government gave itself the exclusive right to make investments—inviting private cooperation only when it saw fit—in a further six industries, including steel, shipbuilding, and telecommunications. In a further eighteen industries the government would regulate and license the activity of private enterprises. The rest of the economy was open to the private sector—although “open” was perhaps being a bit generous.

Initially, any company employing more than one hundred workers and operating in one of the eighteen regulated industries was required to have a government license to produce anything. This license would specify how much could be produced, where it could be produced, and in what size factory. In practice, these strict guidelines were applied to all companies in these industries, whether they employed more than one hundred workers or not. The licensing regime was the unwieldy tool by which the Indian government attempted to fit the square peg of private enterprise into the round hole of five-year planning. Eventually, in some sectors, up to eighty government agencies had to be satisfied before a new business could be started; some seventy regulatory approvals were required each year for firms to carry on operations; and compliance with labor laws entailed the submission of some sixteen separate types of worker registries.

The resulting system, a bureaucratic nightmare, came to be known as “the license raj”—a reference to the British Imperial government in India, which had been dubbed the British Raj (raj means “rule” in Hindi). From the point of view of private companies, life under industrial licensing had more than a little in common with the arbitrary oppression of the colonial era. And as far as oppression of business was concerned, the Indian government was just getting started. In 1956, the schedule of industries in which the state would play a key role was, in effect, expanded, with the objective of giving the government a majority share of all investment undertaken in India. At first, the bureaucrats who ran the license raj tended to be relatively permissive, handing out licenses for the asking (perhaps because production was below targets in most areas). But by the 1960s, gaining a license to produce goods or import production equipment had become more of a challenge for many companies. And then, in the late 1960s and early 1970s, a new series of laws tightened restrictions further. Industries that had previously been exempted from licensing restrictions were placed under bureaucratic supervision. Large businesses would require specific regulatory approvals if they wished to expand further. Certain products were reserved exclusively for small companies. By the end of the 1970s, the list of products that large companies were not allowed to produce had expanded to include everything from clothing, to shoes, to sporting goods, to toys, to stationery.

The idea here was to encourage small entrepreneurs, but in effect the result was a budding tycoon’s worst nightmare. If Dhirubhai wanted to start a business in one of the sectors reserved for small companies, he would be welcomed. Of course, so would anyone else, and thus it was all but guaranteed that any new product or production process that proved successful would quickly be copied. It seemed that India’s leaders wanted to inflict on their people the horror of perfect competition. How cruel! And what if, by miraculous luck or gift of exceptional ability, Dhirubhai somehow did manage to make his business grow? In that case, the law set an upper limit on his expansion. These sectors were reserved for small businesses only. So if Dhirubhai did find some scale economies, the government wasn’t going to let him have them.

It was perhaps a bit like being a rat stuck in a maze designed by sadistic research scientists. If, against the odds, you ran the maze and reached the cheese, there was no cheese. Or maybe there was cheese, a marvelous cheese, but it was on the other side of a glass wall. And sitting there on the other side of the wall, watching you and probably nibbling your cheese, were a bunch of Indian bureaucrats, giggling.

It seemed there was no way to make a decent profit in India. Or was there? One reason India’s government had tightened licensing restrictions in the 1970s was that, contrary to expectation, a few of the country’s largest businesses were both thriving and expanding rapidly under the license raj. In an economy that seemed designed to prevent anyone from amassing any wealth at all, a handful of people were somehow raking it in. Some people were reaching the cheese. But how?

THE BIRLAS

G. D. Birla was born into the Maheshwari subcaste of Marwari traders, and quickly assumed the occupation that was by tradition his birthright. Apprenticed in 1906 at the age of twelve to the family business in Mumbai, he apparently dabbled briefly in violent opposition to British rule while rising rapidly in a fast-expanding commercial enterprise, trading cotton, opium (neither unusual nor illegal at the time), and especially jute, a fibrous plant that, in the absence of plastics, served as packaging for just about everything in India, from rice to tea. Birla’s family had broken the European monopoly on jute trading and used the resulting windfall to become leading philanthropists in Calcutta, where they had expanded their business after fleeing home to avoid the bubonic plague.

It was in Calcutta that Birla first met Mahatma Gandhi, the future leader of India’s independence movement. Gandhi was at the time just beginning to attract a political following, and Birla was entranced by the man. As Gandhi was pulled in a horse-drawn cart through the market in Calcutta, Birla and another man unhooked the horses and, in a sign of devotion, pulled Gandhi’s cart themselves. Birla attended all five of Gandhi’s public appearances in Calcutta.

By the mid-1920s, Birla and Gandhi had struck up an improbable friendship. How the relationship began is unclear. Birla did make a generous contribution to the Tilak Swaraj Fund, which supported Gandhi’s independence campaign against British rule. In 1924 Birla wrote a letter to Gandhi saying that “if any financial or personal service is required by Mahatmaji I shall be happy to render it.” By 1925 Gandhi, an avid correspondent, was sending Birla letters approximately once a fortnight. Meanwhile, Birla’s star was rising. The family trading company had prospered mightily during World War I, and Birla was becoming something of a spokesman for Indian businesses in the colonial era. By World War II, the house of Birla had become one of the leading non-European companies in India, and G. D. Birla himself was something of a public figure, taking, for example, a leading role in efforts to prevent famine in Calcutta. He traveled frequently to Europe on business and had also become an unofficial ambassador to the United Kingdom for India’s independence movement. Gandhi stayed often at Birla House, the family’s estate in New Delhi, when he visited the capital. After India gained its independence from Britain in 1947, Gandhi and his entourage moved into Birla House permanently, if briefly. Birla moved his family to the second floor and threw open the gates so that Gandhi could receive visitors below. While Gandhi was conducting an evening prayer at Birla House in 1948, he was assassinated.

Birla was by no means as close to Jawaharlal Nehru, who took office as India’s first prime minister following Gandhi’s assassination. But despite their differences, the two struck up a correspondence, their letters covering everything from the relative merits of communism and capitalism, to India’s foreign policy, to tax policy, to the idea of turning Birla House into a memorial for Gandhi (an idea Birla politely opposed). But Birla did still have close ties to other members of Gandhi’s Congress Party—and very quickly, the party found itself desperately in need of campaign funds. In 1952, the first election after independence, Congress realized that it would need to field about four thousand candidates, given the number of political offices up for grabs. Birla contributed 50,000 rupees (equivalent, in terms of purchasing power, to about $128,000 today) to the cause. It turned out that, having delivered India’s independence only a few years before, the Congress Party was almost guaranteed to win, and did not really need the money. By 1957, however, at India’s second general election, the contest was more open. The Congress Party was sorely in need of cash, and Birla took charge of fund-raising. He estimated that about 1 crore 92 lakh rupees (about $48 million today) could be raised from sympathetic donors (large figures in India are presented in units of lakh [100,000] and crore [10 million], a convention I’ll use for rupee amounts). The Birla family business provided almost 70 percent of the funding that launched the campaign. By the time the campaign was complete, the Birlas and the Tatas—another major business house of the colonial era—were the largest contributors, providing 20 lakh rupees (about $5 million) each.

Although he would never quite equal the role he played in this first campaign, Birla would continue to be a major funder of the Congress Party. And his financial support for the party—including his brave backing of Gandhi in the preindependence era—paid off handsomely. Jawaharlal Nehru’s leftist rhetoric regarding central planning sounded ominous for the future of private business, and Birla was distinctly uncomfortable with the idea of licensing, calling it a “Damocles’ sword permanently hanging on you.” But together with the Tatas and a few other members of India’s precolonial business elite, Birla lobbied hard for favorable treatment of private businesses under the new regime. At some point, he realized that his financing of the Congress Party gave him a great deal of influence.

Indeed, Birla may have been slightly shocked by the extent of his success. The bureaucracy had a great deal of influence over Indian private business; politicians had a great deal of influence over the bureaucracy; and Birla, as a result of his campaign finance generosity and early backing of Gandhi, had a great deal of influence over the politicians. In the immediate postindependence years, numerous businesses that had been owned by Europeans came up for sale. The Birla family picked up many of these, at rock-bottom prices, including several jute companies, numerous tea estates (until then, reserved for European owners), and companies in sectors including milling, paper, and asbestos. Partly this was because the Birla group was one of the few organizations with money to spend. Partly it was because the government exercised extensive control over bank lending, and thus Birla was one of the few with ready access to finance.

It seemed that Birla had somehow ended up on the other side of the glass wall, with the bureaucrats and the cheese. It would doubtless be an exaggeration to claim that he influenced the shaping of the maze through which other Indian businesses were forced to run. But sometimes, it seemed like it.

A later government investigation found that in the decade following independence, some 56 percent of bank lending in India had gone to the twenty largest business houses, and fully a quarter of this amount had gone to Birla alone. And this was just the beginning. On licenses, Birla did even better. To be sure, Birla was denied a license to enter steel production (that was reserved for the Tata family who, in effect, carried on the steel monopoly that had been awarded to them by India’s colonial government). But Birla and the other major business houses quickly realized that licenses could be a tool for eliminating competition. A common tactic was to make multiple applications for licenses, via different companies controlled by the same business group. Only one or a few of the licenses would then be used—the rest would be held in reserve. Since the government had, at least on paper, allocated all the licenses needed to meet the plan targets, would-be competitors would then be denied the licenses they needed to enter the market. The Indian government soon figured out what was going on but could not prevent it from occurring. “Influential parties and large houses were permitted [to use licenses] to preempt capacities,” a policy inquiry committee reported in 1969.

Perhaps because Birla had the most influence, the system seemed to work best for him. Between 1957 and 1966, the Birla group of companies received licenses amounting to approximately a fifth of all investment permitted in India during those years. This gave Birla room to grow while denying would-be competitors—especially smaller businesses, but probably even some of his fellow industrial titans—the same advantage. The result was only logical: by 1958, Birla and Tata had expanded so rapidly that between them they accounted for one-fifth of the assets in India’s corporate sector. The four largest business houses together accounted for a quarter. The Birla family company had nearly tripled in size over the decade following independence, measured in terms of capitalization. During the 1960s, the Birla group’s capitalization would double again.

There was bound to be a backlash in a nation pledged to socialism. This came when Indira Gandhi—the daughter of Nehru, and no relation to Mahatma Gandhi—took power as the nation’s new prime minister in the mid-1960s. Birla sent her a silver tea set as a personal gift. It was returned. Just as they came for Pierpont Morgan, they would come for G. D. Birla. Hearings were held on the monopolistic practices of large businesses (ironically, since it was government action that had created these monopolies). G. D. Birla took on a new role, as public enemy number one. A junior member of the ruling Congress Party weighed in with rhetorical flourish: “a vigorous onslaught on their [the Birla group’s] infinite crimes is essential.” An investigation into the Birla group’s “infinite crimes” was duly launched. It was known as the Sarkar Commission. Investigators labored for eight years, but—as with the Pujo Committee that investigated Pierpont Morgan—the results were inconclusive. The political witch hunt nonetheless continued. A portion of Birla House in New Delhi was nationalized and turned into a Gandhi Memorial in 1971. The Birla group also lost its bank, one of the five largest in India, to nationalization. Intensive restrictions on large business expansion, mentioned above, were put into place. G. D. Birla withdrew from public life. From 1969 to 1972, he went on pilgrimages to four of the holiest sites of Hinduism.

But the titans of the license raj would not fall so easily. While some large business houses, particularly those focused on textiles, suffered greatly during the crackdown, larger restrictions on private business meant, counterintuitively but inevitably, an even better life for any survivors. Greater powers for government bureaucrats meant that political influence would, following the crackdown, be an even more valuable commodity. For the most influential firms, competition was dulled even further—or, more accurately, there was competition for political influence rather than competition on price. The winners in such competitions would enjoy huge profits year after year while making little commercial effort.

To take just one example: Hindustan Motors, a Birla group company, began producing an Indian version of the U.K.’s Morris Oxford in the 1960s. The car was called the Hindustan Ambassador and remained essentially unchanged for decades. By the 1970s, it was outdated; by the 1980s, it was positively archaic. Yet it was still earning profits for Birla as recently as 1995. I had the distinct pleasure of riding in one in the late 1990s, for a 130-mile journey that, on traffic-clogged highways, lasted more than eight hours. The car had a certain retro charm. But frankly, it was a comically poor automobile, with appalling suspension, weak acceleration, and a dashboard that became too hot to touch, apparently due to the absence of a functioning radiator.

The Birla group did survive the crackdown on G. D. Birla, in part because the head of the family had taken the fall on the group’s behalf. The group still faced almost no competition, and thus had no need to waste money improving their cars. By the 1960s, there was already a waiting list of between five and eight years for an automobile, and no way to grow capacity because all the licenses were taken up. Everyone wanted an Ambassador, primarily because they had no other choice. In this strange world “the job of marketing was one of allocation, not selling,” noted Madhur Bajaj, a senior executive at Bajaj Auto, a scooter manufacturer. It was easy money—provided you had the influence to get the licenses, and the financing.

Nearly all the major business houses maintained a permanent embassy in New Delhi to liaise with government on key policy decisions. Outright corruption, initially limited, began to flourish. Bureaucrats realized that their gatekeeper roles could be a lucrative source of petty bribes from long-suffering businesspeople. Politicians realized that their influence with bureaucrats could command an even higher premium, because a few well-placed licenses could deliver, to a friendly businessperson, a captive market producing spectacular returns. In an effort to crack down on the exercise of influence via campaign finance, Indira Gandhi banned campaign contributions by companies in the late 1960s. This decision had the unintended consequence of driving the money underground, because Indian elections were no less expensive to fight. Black money became the main source of electoral funds. This resulted in what was dubbed “briefcase politics.” Prices of regulatory decisions were measured in units of “briefcases,” where each briefcase was presumed to contain approximately ten lakh rupees (about $2 million today). Allegedly, some particularly sophisticated political operators began to demand compensation as a percentage of returns, rather than simply stating a fixed bribe.

Although some major companies did suffer losses from nationalizations, for many of India’s most influential businesses, the crackdown was, oddly enough, a golden age. Between 1951 and 1977, the Tata group’s assets increased by roughly twenty-six times. The Birla group grew its assets by roughly forty-three times. Top enterprises occasionally lost political battles but managed to win the war. Despite new restrictions, a few reforms, and the occasional crackdown, this system persisted from the 1950s into the 1990s. Indeed, in 1990, the 210 largest companies in India earned some 72 percent of the profits of the entire corporate sector (composed of more than 200,000 companies). More than 70 percent of these profits were earned by companies that, like Tata and Birla, dated from the preindependence period. While the other rats were running and running and getting nowhere, for the politically connected it was all cheese all the time.

And thus, for seekers of wealth secrets, India’s bureaucratic maze was both a Kafkaesque nightmare and, just possibly, a path to industry dominance. But how was Dhirubhai going to get involved? After all, the reason why Tata and Birla were growing so quickly was precisely because the licensing system and government control of finance prevented young, ambitious, intelligent men like Dhirubhai from doing what Tata and Birla were doing.

And so Dhirubhai did what young, ambitious Indians had been doing for decades and would continue to do for many decades to come: he left.

DHIRUBHAI’S DREAMS

In 1951, at the age of sixteen, Dhirubhai moved to Yemen. This was not an unusual route for a man of his caste, and he was following his older brother, already established in the Gulf port of Aden. In Yemen, there was a more liberalized economy (virtually tax-free) and a demand for English-speaking labor (Yemen was, unlike India, still a British colony at the time), so a young Indian man might command a high wage. After a short interview consisting essentially of an English-language proficiency test, Dhirubhai was hired by A. Besse & Co., a French trading company. Following his arrival in Aden, he engaged in some youthful hijinks demonstrating his bravery, determination, and love of sweets. In one famous incident, he swam from a boat to the shore at night through waters reputed to be shark-infested in exchange for a bowl of ice cream (some sources say the prize was an “ice cream party,” in which case it was well worth it). But mostly, Dhirubhai worked and saved. He traveled from Aden to ports around the African coast, selling Shell and Burmah lubricants, and learning to speak some Arabic. He was promoted, eventually managing a Shell refueling station on a military base in Aden.

Working for Shell, Dhirubhai’s eyes were opened to the possibility of commerce on a scale far beyond anything he was familiar with in India. While he and his colleagues, fanatical about saving money, would think long and hard before spending 10 rupees ($24 today), his employer, Shell, would willingly spend 5,000 rupees ($12,000) to send multipage reports via telegram, Dhirubhai later recalled. In Aden, Dhirubhai observed the construction of a new oil refinery, the most grandiose industrial plant he had ever seen. Instinctively, he knew that this gleaming, stinking vision of a factory offered an alternative to the rat-eat-rat hypercompetitive world of Indian small businesses that he was familiar with from home. More than anything, Dhirubhai wanted one for himself. He thus conceived what would become his lifelong dream: to build an oil refinery.

By the mid-1950s, Dhirubhai had a little money in his pocket and was ready to marry. Back in Gujarat, a little money went a long way. Dhirubhai journeyed home, where, through family connections, a match was arranged with Kokila, a young woman from a port town about one hundred miles away from Chorwad, of the same caste as Dhirubhai. Dhirubhai was immediately taken with his prospective bride. But he worried: “I am so dark and she is so fair! She might not like me.” This remark, whispered to Dhirubhai’s sister, was overheard by his prospective bride, to her great amusement, because she was already eager to marry him. There was one hurdle to clear, however. Dhirubhai took Kokila (generally known as “Kokilaben”—the suffix is a term of endearment meaning “sister”) on a long and strenuous walk as a fitness test, as he was worried that the delicate young woman would not survive the rigors of life in Aden. Evidently she passed the test and soon joined Dhirubhai in Yemen. The couple remained there for about four years, until 1958, by which time Dhirubhai had saved enough money to return to India and start a trading company.

Dhirubhai had already honed his trading skills in Aden, where he would often join the market traders after work, buying and selling rice and sugar on his own account. Upon returning to India, he traveled to Mumbai and in 1958 started Reliance Commercial Corporation, together with a friend and with the financial backing of his friend’s father. The funds involved were tiny. The start-up company had four employees, including the two founding partners, and an office so small that if all four were present one would need to stand. Disappointingly, Dhirubhai could not later recall the origins of the name Reliance—now one of the most famous appellations in India. He said that he had seen it written somewhere, and it stuck in his mind.

Present-day market stalls in Pydhonie, the Mumbai district where Dhirubhai traded yarn. (Sam Wilkin)

Dhirubhai had already celebrated the birth of his first son, Mukesh, while in Yemen. His second son, Anil, and two daughters, Nina and Dipti, followed within roughly the next four years. His family, together with his mother, younger brother, nephew, and nephew’s family crammed themselves into a tiny two-bedroom flat in Jai Hind Estate, a type of Mumbai building known as a chawl, which set numerous small apartments around a central courtyard, generally with shared toilet and washing facilities. Sometimes as many as eight members of the extended family would sleep in a single room. It was far from luxurious, but it was not a bad standard compared to the shantytown slums that many new migrants to Mumbai experienced. Dhirubhai and his business partners initially traded in spices, relying on contacts in Aden. A business associate of the time remembered him as a “small time, paan-chewing trader, with a persuasive manner and a razor-sharp brain for finance.” Each day at about 1:30 p.m. Dhirubhai would join the traders gathering in a square near Mumba Devi Temple known as the Khada Bazaar, the “standing market,” to conduct his key trades of the day.

Soon, Dhirubhai was drawn from the spice trade into something more lucrative: synthetic fabrics. Given the presence of a huge domestic cotton spinning and weaving industry, the Indian government considered synthetic fabrics like rayon, nylon, and polyester unnecessary luxuries, and restricted their import. This had the effect of turning polyester and nylon into improbable status symbols. “Do you remember bri-nylon?” Dhirubhai asked an interviewer many years later. “When it first came, anyone who came in wearing a bri-nylon shirt would be walking two inches above the ground!” As a result, there was a large differential between the international price of synthetic fabric and the price buyers were willing to pay in India, and anyone who could somehow manage to import synthetic fabrics would make a killing.

Many chancers—not Dhirubhai—resorted to smuggling, a lucrative but risky alternative, and hardly a sustainable growth model if one had great ambitions. But there was another way. The Indian government began to offer licenses to import synthetic yarn to businesses that exported Indian textiles (in theory, to enable these firms to replenish their stocks of raw materials). Each license allowed the legal import of synthetic yarn up to a certain value. Whether the licenses themselves could be exchanged from one company to another was something of a gray area, and yet a market sprang up in which these licenses were traded. Dhirubhai focused on this market, reportedly becoming by the mid-1960s the largest trader in replenishment licenses. Trading in a gray market for government licenses was not for the fainthearted. At one point the bureaucrats cracked down, claiming the trading was illegal, and about a dozen traders were arrested. According to a former yarn merchant interviewed by Dhirubhai biographer McDonald, rather than backing down, Dhirubhai launched a charming offensive, charging into the police station, ostentatiously greeting senior officers, and handing out sweets to all comers. The traders were quickly released. When the bureaucrats struck again, impounding yarn shipments, Dhirubhai led the traders in a counterattack, retaining lawyers and arranging meetings with senior ministers, until after six months of courtroom battles the regulators’ decision was repealed. “Whenever [Dhirubhai] fights an enemy he goes in the open,” explained the merchant. Dhirubhai, it was clear, had guts.

He also had brains. At some point Dhirubhai made the intellectual leap to realize that, by laying down roadblocks to business, the government’s licensing scheme opened a pathway to profitability. While most of the rats continued to run, Dhirubhai saw the walls of the maze. And he realized that he knew how to get to the cheese.

In 1966, Reliance—by this point wholly controlled by Dhirubhai—started a power loom operation at Naroda, a site on the outskirts of the Gujarat city of Ahmedabad, a bit more than three hundred miles from Mumbai (the land there was cheaper). He had about seventy workers and four knitting machines. The plant wove synthetic yarn into synthetic fabric, and was export-oriented. This entailed hard graft, because no one really wanted to buy synthetic fabric from India, as it usually fell well below international standards of value. But Dhirubhai, by this point 34 years old, was willing to work hard. Office hours were from 10:30 a.m. to 9:30 p.m. The staff at the Naroda plant would frequently work a full shift during the day and then a second shift selling in the evenings. Eventually, Dhirubhai would organize fashion shows in Russia and Poland, and export fabric to Zambia, Uganda, and Saudi Arabia. He also labored mightily to make his operations more efficient. This focus on performance was exceptional in the Indian power loom business, which was dominated by tiny operators. As late as 1975, a World Bank team reviewing textile mills in India found that only Reliance’s operations even came close to an international standard.

It is questionable, however, whether even these Herculean efforts could have made Dhirubhai internationally competitive. India’s exchange rate tended to be overvalued; the country’s transport infrastructure was appalling, even by the standards of other developing countries; petty bureaucratic bottlenecks dogged every business decision or transaction; power was unreliable; labor laws were unwieldy; the local ecosystem of suppliers and distributors tended to consist of inefficient small businesses. The odds were against Reliance succeeding as an exporter. But global competitiveness was not Dhirubhai’s objective. Rather, Dhirubhai understood that the license raj could be made to work for him.

As a result of government restrictions on imports, the local price of synthetic fabric was many multiples of the international price. This meant that Dhirubhai was willing to sell synthetic fabric internationally at a loss. These exports would give him access to replenishment licenses, and thus the synthetic yarn he needed to produce more fabric. And while some of this fabric would also be exported, much of it would be sold domestically, where the extraordinarily high prices would more than compensate for the losses on international sales. “There were occasions when we exported rayon at a loss, because the entire purpose was to get an import license for nylon,” Dhirubhai later explained. Because the licensing scheme had artificially inflated the price of nylon, the markup on imported nylon was typically about 300 percent, and on occasion reached as high as 700 percent. “In this country, it is considered fashionable to complain about government restrictions,” said Dhirubhai. “We took the restrictions as an opportunity. If the rules against nylon imports had not been there, I could not have made the money!” In 1967, the new power loom factory made profits of 13 lakh rupees (about $2.2 million today) on sales of 9 crore rupees ($152 million). Not bad for a first year in operation.

Most of the titans of the license raj affected a weary disdain for the system that maintained their dominance. The retired Indian industrialist and respected author Gurcharan Das recalled a meeting he once had with J. R. D. Tata, patriarch of the Tata clan. Das called on Tata at his home, The Cairn, an island of green in Mumbai’s concrete jungle. To reach Tata’s personal office, Das walked down a long and winding corridor past a number of public rooms, each filled with flowers. “I am powerless,” Tata said during their interview. “I cannot decide how much to borrow, what shares to issue, at what price, what wages or bonus to pay, and what dividend to give.” It was the late 1960s, and parliament was about to pass a law restricting the actions of the largest business houses. “Henceforth, I will not be allowed to start a new business or even expand an older one. What do they expect me to do? Sit here and wait till I die, I suppose,” said Tata, his face filled with sadness.

It is difficult to take such comments at face value, given the success that the Tatas and the Birlas had enjoyed and would continue to enjoy long after the antimonopoly law was passed. While the public political attacks must have been tiring, and dealing with haughty Indian bureaucrats on a daily basis was surely a hassle (even if one’s political contacts could eventually overcome most obstacles), didn’t the Tatas and Birlas feel the system was ultimately working in their favor? Perhaps not. When I met Das in Delhi recently, he explained that “if not for the license raj, the dominant industrial houses would have done even better.”

Frankly, it is hard to conceive what “even better” might have looked like for the Tatas and Birlas, given the extraordinary success enjoyed by their businesses. That said, it is not inconceivable that a man like J. R. D. Tata would have thought this way. The Tatas and Birlas may well have perceived only the frustration of having their plans rejected (more than one hundred expansion requests by the Tatas alone were turned down). They may not have realized that their superb commercial performance was in part the product of this same system acting even more brutally to prevent the growth of would-be competitors.

Dhirubhai, by contrast, saw things as they were. If you could understand the maze and work with it, he realized, it could make you rich. When Dhirubhai made his pronouncements crediting the license raj with producing his profits, he sounded like a man telling the truth as he saw it. Perhaps his willingness to embrace things as they were gave Dhirubhai a sort of power.

And he would need this power, because his success would soon bring him to the attention of those who had ruled Indian industry since the country’s independence.

After a decade of hard work, Dhirubhai was, by the end of the 1960s, finally making good money. Like the ancient Romans before him, he used his newfound wealth to celebrate in inventive ways. At eleven one winter night, Dhirubhai abruptly announced to family and friends that they were having a picnic. About a dozen people piled into cars and drove to Rajeswari, some thirty-five miles from Mumbai. At around three o’clock in the morning, the group arrived at a pilgrims’ lodge meant for ascetic Hindu holy men known as sadhus. The group spent a short time sitting in silence in the freezing cold. Then Dhirubhai lit a fire and they camped in relative comfort until dawn, when they cooked kedgeree (a dish of fish, rice, and curry powder) on the fire, told jokes, sang songs, and bathed in the hot springs, returning to Mumbai late the next afternoon.

After ten years in a cramped Mumbai chawl, Dhirubhai moved his family to comfortable accommodations at Altamount Road, on a hill overlooking the Arabian Sea. He arranged a private tutor for his children. He bought a Fiat, then a Cadillac. Dining out at a restaurant with a friend, he ordered an espresso. “What is an espresso?” asked his friend. “I don’t know, but everyone else seems to be ordering it, so I did too,” said Dhirubhai.

POLYESTER

The video from the DuPont company that Dhirubhai saw was not, by most accounts, a thriller. It involved lots of smelly factories, industrial processes, and serious technicians. But for Dhirubhai, it was more inspirational than Field of Dreams, Dead Poets Society, or even The Wolf of Wall Street.

The video showed, more or less, how to produce polyester, and it turned out that polyester fabric was made by weaving polyester filament yarn, which was in turn made from chemicals—which, after a long process, were made from natural gas. Seeing the video, Dhirubhai recalled his dream from his days in Yemen of one day owning an oil refinery and realized he was in exactly the right line of business.

What if he could expand his polyester business backward along the production process all the way to natural gas, so that he did not have to import anything or deal with any other Indian businesses? This approach, called “backward integration,” could be a fabulously lucrative proposition in the Indian context. These were economy-of-scale businesses: “the more you make, the less it costs,” explained Dhirubhai, echoing Rockefeller. And, in contrast to Rockefeller and Carnegie, who over time began to face imitators, if Dhirubhai could somehow start a large-scale operation, the license raj would render him all but impervious to competition. Anyone who wanted to match Dhirubhai would either need to import from large manufacturers abroad (which required import licenses, which were strictly limited) or set up a large-scale operation in India (which required production licenses, which were also strictly limited, as well as imports of expensive production machinery, likewise limited, and on top of that, financing from state-owned banks, which was perhaps hardest of all to come by). Moreover, the larger Dhirubhai’s scale, the less likely it would be that anyone would be able to do something similar, since restrictions on imports and production were set at a national level. If Dhirubhai could set up an operation on a scale that dominated the nationally licensed limits, the result would be the most coveted license of all: a license to print money.

In 1971, Dhirubhai took a crucial next step on his path to large-scale production. Characteristically, he exploited India’s restrictive regulations to find an oasis of profitability in what should by rights have been a desert scoured clean by the forces of competition. To do this, he exploited an incentive program called the Higher Unit Value Scheme, which for those who could not see the maze must have seemed a singularly dull piece of regulation. Previously, nylon exporters had been permitted to “replenish” their stocks of nylon yarn via imports. Under the new program, exporters of synthetic fabrics could import polyester filament yarn for any purpose they wished, provided they could sell their products internationally at a high price. There was still a huge demand for polyester in India, and import licenses were still nearly impossible to obtain. As a result, polyester filament yarn was selling in India for more than seven times the prevailing international price. With access to cheap yarn, Dhirubhai’s mills would have a spectacular cost advantage.

The Higher Unit Value Scheme became hugely controversial in later years, and so the facts are difficult to establish. Some said it had been developed specifically for Dhirubhai, although there was no evidence for this claim. Dhirubhai later mocked such speculation, noting, accurately, that the scheme was at least in theory open to anyone. “When an elephant walks, dogs tend to bark,” said Dhirubhai of his critics. Dhirubhai had reportedly cultivated good relations with Indira Gandhi (unlike G. D. Birla, whose tea set was returned). He also, it was speculated, had a close relationship with the minister for industries, T. A. Pai, whose Syndicate Bank had been an early backer of Reliance. Whether Dhirubhai had input into the creation of the new regulation or not, he was clearly the most forward-thinking in his exploitation of the opportunity. It took at least a year for any other business to join the Higher Unit Value Scheme. Almost a decade later, in 1980, Reliance was estimated to have accounted for some 60 percent of all the goods exported under the scheme nationwide.

Moreover, a number of other companies that attempted to use the scheme ran into a variety of obstacles. One exporter, called, improbably, Fancy Corporation, ratcheted up international nylon sales to 1 crore 50 lakh rupees (about $14 million today) per year, but found that the commerce ministry would not release the import licenses for which they qualified. On another occasion, in 1974, the Mumbai customs authority seized polyester filament yarn shipments from a number of importers on suspicion that their value was underdeclared. It finally released the shipments about a year later. Adding injury to inconvenience, it released all the shipments at the same time, causing a temporary glut in the market and a plunge in prices.

Reliance quickly became the dominant importer of polyester yarn into India. With the Higher Unit Value Scheme in place, the company achieved an exponential growth rate, doubling its revenues nearly every two years. Sales were 4 crore 90 lakh rupees in 1970 (about $72 million today), 30 crore 20 lakh ($274 million) rupees in 1974, and 209 crore 70 lakh rupees ($1.3 billion) in 1980. The company was soon the largest textile producer in India. Dhirubhai started a chain of retail stores and leveraged his scale advantages by—almost uniquely in an industry dominated by tiny businesses—spending heavily on marketing. While small competitors found that advertising added greatly to average costs, Reliance, by spreading marketing expenses across multiple retail operations in a given region, could increase its appeal to status-conscious Indian consumers with a manageable impact on costs. Dhirubhai’s first brand was Vimal, named for a nephew. An early, memorable advertising slogan, which doesn’t make sense and yet somehow does: “A woman expresses herself in many languages. Vimal is one of them.” Reliance’s synthetic fabrics were marketed as high-end luxuries, but most buyers came from the middle income bracket, reaching for something that would make them stand out from the crowd.

Dhirubhai on many occasions suffered political attacks, but in general he was able to avoid the bureaucratic obstructions that snagged his competitors. Perhaps this was because he saw the system for what it was. While most businesses might tend to focus on their customers, or perhaps their commercial rivals, Dhirubhai claimed that “the most important external environment [for business] is the Government of India.”

Indeed, Dhirubhai and his business partners traveled so frequently to New Delhi, the seat of national government, that they made special arrangements to leave their briefcases and materials in storage at the Ashok Hotel. Eventually Reliance joined Birla and the other great business houses in establishing a permanent mission in New Delhi. India’s bureaucrats were often petty tyrants—the kind of people who would deny you what you wanted if you failed to append a respectful “sir” to the end of every sentence. The older business houses, maintaining their disdain for the license raj, sought to remain above the bureaucracy, appealing to their friends in politics when the bureaucrats put up obstacles. Dhirubhai had no problem doing whatever the license raj required of him. “Selling the idea is the most important thing, and for that I’ll meet anybody in government,” he said. “I am willing to salaam [bow down to] anyone.”

While the Tatas and the Birlas maintained a love-hate relationship with the license raj, for Reliance, it was love-love. As one Reliance executive vice president later explained, when one of the company’s founder-directors “went on his usual rounds to the textile minister’s office, he would sit with the peons on their bench and inquire about their families.” It was a matter of humility; it was a matter of the human touch. The cultivation of such relationships was crucial not just for influence, but for information. As one Reliance executive put it, “they know what is happening in every single corridor of the government ministries.”

At times, Reliance’s reading of the Indian government’s intentions seemed almost clairvoyant. For instance, in August 1977 the Higher Unit Value Scheme was abruptly canceled, enabling any business with a license to import polyester. But Dhirubhai showed a steely nerve. As the value of licenses crashed, rather than retreating, Reliance acquired more licenses at the knockdown prices. Then, only days later, the policy was changed again, so that any business that was not an exporter had to make use of the State Trading Corporation to obtain polyester imports, while exporters could continue to import as they liked. The State Trading Corporation took its time about setting up operations, and for nearly nine months Reliance, which had acquired a huge number of licenses during the crash, was importing and selling to a nearly captive market. In 1970, Dhirubhai had said to a colleague: “Do you know who the Tatas and the Birlas are? We have to get past them one day.” But if Reliance was going to outdo the Tatas and the Birlas, the company would need to build factories on an industrial scale. And for that it would need money. A lot of money. And Dhirubhai did not have that kind of money. In India, even for successful businesses, finding capital was a challenge. Dhirubhai had obtained some financing from state-owned banks, but it wasn’t going to be enough to enable him to get big quickly. Dhirubhai’s solution to this challenge was characteristically unorthodox. Reliance went public, and Dhirubhai began to make appeals for shareholder investment.

It was an unusual strategy, because at the time it was especially hard to raise a sizable amount of money in the stock market. Most well-connected businesses, including Reliance, tended to rely on state-owned banks for funding. And businesses that were not well connected generally could not raise money at all.

The Bombay Stock Exchange, established in 1875, was one of the world’s oldest, but volatility, fraud, insider trading, and market manipulation schemes remained serious risks until the 1990s. Those company managers that did list tended to be far more interested in enriching themselves than in enriching their investors (like Carnegie in his days at the Pennsylvania Railroad), and these problems kept investors away. So Dhirubhai decided to try something different. “The performance orientation started with Reliance,” as a financial markets analyst I met in Mumbai put it. That is to say, Reliance was the first company in India to focus on the way in which its equities performed, particularly for small investors. Earnings were remarkably consistent, delighting investors by providing reliable dividend payments. When the company’s profits did suffer, the company paid dividends regardless. Reliance also arranged numerous bonus share issues to reward loyal shareholders. Annual general meetings for stockholders took on the atmosphere of festivals, with Dhirubhai firing up the crowd by promising he would make them all rich. One meeting, famously held on the Bombay Cooperage Football Ground in Mumbai (the same football field on which a few years later his son would be married), attracted some twelve thousand shareholders, a world record.

The number of Indians owning shares exploded from less than a million in 1980 to about four million by 1985. Many were drawn specifically because of Reliance: by the middle of the 1980s, an astonishing one in four Indian share investors held Reliance shares. The company had by this point raised 940 crore rupees ($4.2 billion) from the investing public, a record for any Indian company. Perhaps because of his own rags-to-riches background, Dhirubhai knew how to appeal to middle-class dreams. Like Rockefeller but without the sanctimony, he offered his early backers an ark that would float them to financial security.

In 1980, Dhirubhai took his next big step toward large-scale production, winning a license to manufacture polyester filament yarn. Reliance already dominated import licenses for polyester yarn and operated power looms that wove yarn into fabric, but domestic production of this coveted material—in keeping with his backward-integration vision—would prove to be a lucrative next step. This was an industrial production process, turning chemicals into thread, and thus required substantial factories. Some four hundred companies applied for government licenses to produce polyester filament yarn. Forty-three were waitlisted. Only two companies won. Reliance was awarded a license for production of 10,000 tons per year; Orkay Mills was awarded a license for 6,000 tons per year. One of the unsuccessful suitors for licenses was Birla. It was a spectacular coup. From the beginning, by government fiat, Reliance would be the dominant player in domestic polyester production. But demand was estimated at 50,000 tons, at that point primarily satisfied by imports, so he had not yet sewn up the market.

The plant, at Patalganga, began production in November 1982. The technology involved was licensed from DuPont. Construction was supervised by Dhirubhai’s eldest son, Mukesh, aged twenty-four, fresh from graduate study at California’s Stanford University. Many said he was too young to take on such a critical job. “I delegate, I do not abdicate,” Dhirubhai reassured them. Mukesh demonstrated his youthful stamina and devotion to the cause by camping out at the worksite for several months during construction.

In 1984, Dhirubhai added a license to produce 45,000 tons of his lucrative yarn’s slightly less showy sibling, polyester staple fiber, which produced a less glossy fabric than polyester yarn. At the time, domestic production of polyester staple fiber was about 37,000 tons per year, mostly in small facilities. Imports were about 10,000 tons per year. Hence Dhirubhai had obtained a license that would enable Reliance to produce, in this niche market, everything the country needed. At last he was operating at scale. Perhaps the plant’s outsized capacity reflected Dhirubhai’s irrepressible optimism that demand would grow over time. But it was also a classic strategy of the period—applying for licenses so large that competitors would be shut out.

Yet Dhirubhai executed this strategy with a twist. Unlike those business groups that had used dummy licenses to “preempt capacities,” Dhirubhai intended to produce everything his licenses allowed and more. So why would this be a wealth secret? you might ask. The answer is that, in industries characterized by economies of scale, having the largest production license would guarantee that Dhirubhai would be the lowest-cost producer (provided he could manage his operations with a reasonable degree of efficiency). Dhirubhai, in effect, blended the economics of natural monopolies and government-awarded monopolies to make a deliciously profitable concoction. And just in time: by this point the Higher Unit Value Scheme had been abolished.

Most of Dhirubhai’s competitors in India were tiny, producing no more than 10,000 tons of polyester staple fiber per year. International producers typically had a scale of some 100,000 to 150,000 tons, but this did not concern Dhirubhai, given the existence of high import duties. Hence, with his new license, Dhirubhai would be operating at about four times the scale of his main competitors, which a World Bank study suggested could have saved the company roughly 25 percent in production costs. Twenty-five percent is a healthy profit margin. Reliance’s sales increased by 458 percent between 1979 and 1985. Its profitability increased much faster, rising from 8 crore 21 lakh rupees in 1979 ($57 million today) to 71 crore 30 lakh rupees ($299 million) in 1985, an 869 percent increase in rupee terms. Before 1980, Reliance, despite its dominance in textiles, was not among the fifty largest companies in India. By 1984, it had sprung into the top five. Indeed, its domestic production of polyester filament yarn had by this point become the largest earner for the company, exceeding earnings from woven fabric.

In 1984, Dhirubhai sketched out a plan to grow Reliance’s revenues by a factor of nine over the next ten years—which would make the company the largest in India. His colleagues, it must be said, were deeply skeptical.

THE FALL

One could understand their skepticism. Even if Dhirubhai owned one of India’s largest companies, the Ambani family was still a minnow compared to the Tatas or the Birlas. Each of these industrial houses owned tens of major companies and enjoyed dominant positions in several industries. Moreover, Reliance’s rapid growth was bound to be noticed by someone. And when that happened, the question of whether Dhirubhai was by now shaping the maze, or was just another rat, was going to be put to the test.

The inevitable conflict came to pass in the mid-1980s. Dhirubhai’s opposition was the Wadia group—not so mighty as the Tatas or the Birlas, perhaps, but unquestionably a titan of the license raj. The group was founded in 1736 by Sir Lovji Nusserwanjee Wadia. Today it owns an airline (Go Air), Britannia Industries (which has roughly 40 percent of the Indian biscuit market), and Bombay Dyeing, a major textile producer—which was itself founded in 1879.

In the 1980s, Bombay Dyeing—which, as the name suggests, focused on the dyeing, spinning, and weaving of cotton yarn—was the group’s flagship firm. The textile sector was highly politicized; as mentioned earlier, some parts of the sector were reserved solely for small businesses. Running a major operation in this sector therefore required constant political battles. Indeed, in 1971, the Wadias had contemplated giving up and relocating to Switzerland. But Nusli Wadia had, at the tender age of twenty-six, wrested control of the firm from his father (with some help from the Tatas) and kept it in India. It was worth doing: the crackdown on textiles, which the Wadias narrowly survived, had the effect of all but wiping out much of their competition. By the 1980s, Nusli Wadia was well established as the group’s patriarch and had a formidable reputation. He was also hungrily eyeing the synthetic fabrics sector. Because production processes for polyester were factory dominated, there was no risk of the government attempting to reserve the sector for small firms.

Wadia knew how to play the license game. The Wadia group made a great success of National Peroxide Limited, which manufactured another chemical precursor to synthetic fabrics. Industry demand for this chemical was about 6,000 tons per year; Wadia’s company had a license to make 4,800 tons per annum. He did have one major competitor, but since Wadia had a license to produce just about everything Indian industry needed, the other company was forced by the government to export all but a quarter of its production. Hence Wadia, in addition to being the lowest-cost provider, held a near monopoly by virtue of his licenses.

In 1978, he applied for a license to set up a plant to manufacture dimethyl terephthalate, a main component of polyester. Had he received his license promptly, the battle with Reliance might have been over before it started. But it was not until 1981 that Wadia was at last able to wrest the license from the hands of the bureaucrats. Wadia then had a great deal of difficulty setting up the plant, and it was not until 1985 that he was ready to begin production. By this time, Dhirubhai had chemical production licenses of his own. In 1984, Dhirubhai had received letters of intent stating that he would be awarded licenses to produce 75,000 tons per year of terephthalic acid and 40,000 tons per year of monoethylene glycol.

Wadia and Dhirubhai were, of course, producing different chemicals. But dimethyl terephthalate and terephthalic acid are both precursor chemicals to polyester. The two men were after the same market: to supply not only their own polyester factories, but all the polyester producers in India. And thus there would be trouble. The resulting battle would be astonishing in its ferocity and stretch to the highest levels of power.

Dimethyl terephthalate and terephthalic acid are close substitutes, but not perfect. To convert a polyester factory from using one chemical as an input to using the other usually takes a few months. Hence Reliance and Bombay Dyeing could have—and, in most countries, would have—comfortably divided the market. There would have been some competition between the two, but since converting a plant from one feedstock chemical to the other was expensive, there was room for profitability on both sides.

But when masters of wealth secrets compete, they do not compete in the market. From the beginning, it appeared that Dhirubhai and Wadia were out to destroy each other. Estimated demand for the precursor chemicals across all of Indian industry, including Wadia’s polyester plants, Dhirubhai’s plants, state-owned plants, and others was 80,000 tons in 1984. Wadia had a license for 60,000 tons of chemicals; Dhirubhai wanted a license for 75,000 tons. Perhaps both expected demand to grow very rapidly. More likely, they thought that if the majority of the synthetic fiber factories in India converted to “their” chemical, their opponent would be forced into bankruptcy.

Meanwhile, someone began rearranging the maze. On May 29, 1985, the Indian government placed terephthalic acid, the chemical Dhirubhai intended to produce, on the controlled import list. Since Dhirubhai’s polyester factories ran on supplies of terephthalic acid, an inability to obtain imports would mean either shutting down his operations or switching to Wadia’s chemical. Dhirubhai, said to know what was happening in “every single corridor of the government ministries,” outplayed this opening gambit easily. There was a loophole in the law—a ninety-day grace period—and during that period imports previously arranged would be allowed to land. It soon emerged that Dhirubhai had presciently arranged for the import of 114,000 tons of terephthalic acid just before the restrictions went into effect, enough to supply his factories until his own licensed chemical plants came online.

The Indian authorities then struck again, claiming that all 114,000 tons would need to arrive during the ninety-day grace period. Dhirubhai fought back directly, taking the government to court. The government raised import duties on all precursor chemicals to polyester, which had the effect of helping Wadia, whose own factory had already gone online. On the counterattack, Dhirubhai managed to land a blow of his own. On November 26, after tense negotiations, a compromise with the government was reached, allowing users of terephthalic acid to import sufficient feedstock for their own needs. Dhirubhai’s imports then flooded the market, forcing Wadia to shut his chemicals factory temporarily.

The battle had only just begun. Ramnath Goenka, a personal friend of Wadia and editor of the India Express, India’s largest-circulation newspaper, entered the fray on Wadia’s side. He hired a young chartered accountant to investigate the business activities of Reliance and publish a series of exposés on the company. With a titan of the license raj and India’s largest newspaper joining forces against him, Dhirubhai’s position now looked dire. Meanwhile, India’s Central Bureau of Investigation began an inquiry into the possibility that the planned change in import policy had been leaked to Dhirubhai in advance. The finance ministry weighed in with claims that Reliance had avoided more than 27 crore 20 lakh rupees ($114 million) in excise taxes by underreporting production. This was the largest excise tax evasion charge in India’s history. India waited on Dhirubhai’s next move.

Suddenly, it appeared there was not to be one. In February 1986, Dhirubhai, until then in good health, suffered a stroke that left him partially paralyzed on his right side. He was fifty-three years old. His family denied that the stroke was stress related, attributing it to a hereditary condition. Even if you know it’s just a maze, it can still kill you.

The day-to-day operations of Reliance were immediately taken on by Dhirubhai’s sons, Mukesh, by then age twenty-nine, and Anil, age twenty-seven.

THE MURDER PLOT

Despite an initially poor prognosis, Dhirubhai began to recover, regaining his mental capabilities although physically he remained weak. He spoke to his sons from his bed, and they rushed to carry out their father’s wishes.

There was no mercy from Dhirubhai’s opponents. The exposé articles in the India Express were published. They were lengthy and typically opened with vitriolic editorials denouncing Reliance. The first and second articles focused on the company’s capital-raising activities. On June 10, 1986, perhaps in response to these articles, the government announced a ban on a key financing technique used by Reliance. The third article argued that Dhirubhai’s plans to open chemical factories violated India’s antimonopoly laws. The fourth article focused again on Reliance’s financing arrangements, and especially on its use of offshore vehicles based in tax havens.

Soon, Reliance’s opponents appeared to be closing in for the kill. On June 17, the finance ministry reduced the import duties on polyester yarn, causing a 20 percent drop in yarn prices and pummeling Reliance’s profitability. Even more worryingly, responding in part to the political furor unleashed by the exposé articles, the Reserve Bank of India announced that it was investigating Reliance’s capital-raising activities. And the India Express had another exposé to publish. It would be the most damaging yet. This alleged that the reason Reliance had exceeded its licensed production capacity was that, interspersed among its permitted imports, the company had smuggled in additional production equipment. The relevant government ministries launched an investigation of these allegations on August 20, 1986. The Bombay customs authorities joined in, alleging that Reliance could owe customs duties of a staggering 120 crore rupees ($471 million), and possibly a large fine in addition, on undeclared production equipment. Meanwhile, the director of enforcement at the ministry of finance launched a detailed investigation into the offshore vehicles identified by the India Express, engaging a U.S. investigations firm, the Fairfax Group, to assist.

At this point, just when it appeared that Reliance’s position was hopeless, something changed. Precisely what changed, or how this change was accomplished, is unclear. Whether effected by Dhirubhai, his loyal sons, or someone else entirely, is also unknown.

Rajiv Gandhi, the prime minister of India, apparently received two letters printed on the letterhead of the Fairfax Group. These suggested that the firm had been commissioned to investigate not only Reliance but the personal dealings of the prime minister himself, and that Wadia and the India Express were guiding the investigation. Admittedly, this seemed profoundly implausible, and the letters were considered by many to be forgeries. Meanwhile, the India Express published a letter from India’s president reprimanding the prime minister. Bizarrely, the draft that the paper published differed from the letter the prime minister actually received, suggesting that the paper had received a copy of the letter in advance.

At about this time, and possibly in relation to the above developments, the relationship between Rajiv Gandhi and V. P. Singh, his finance minister, soured. Singh’s troubles were probably good for Reliance, as the finance ministry had been driving the investigations of the company’s financial arrangements. Perhaps the letters from the Fairfax Group convinced the prime minister that Wadia and the India Express were targeting him. Perhaps the publication of what appeared to be an early draft of a confidential letter further soured the prime minister on the role of the Express.

Whatever the case, the maze again began to change, and this time in Dhirubhai’s favor. The finance ministry’s investigation quickly cleared Reliance of wrongdoing. The Indian government began to investigate charges that government reports on Reliance had been leaked to the India Express. The author of the exposés on Reliance was arrested and questioned. It was now the turn of Dhirubhai’s opponents to face charges of tax evasion. The finance ministry accused the India Express of evading customs duty and owing 2 crore 75 lakh rupees ($10 million) in back taxes.

On May 7, 1987, the restrictions on imports of polyester staple fiber were put back in place and import duties were returned to their original levels, restoring the profitability of Reliance’s domestic polyester production. The higher output at Reliance’s plant was retroactively approved. In July 1989, Wadia was detained following an overseas trip and threatened with deportation on the basis of questions regarding his citizenship status (he had been a British citizen).

And then, on August 1, 1989, the story took a bizarre turn. Detectives arrested Kirti Vrijlal Ambani, a general manager at Reliance, on charges of a conspiracy to murder Wadia. The details of the authorities’ case served only to mystify the public. It turned out that Kirti Ambani’s name was originally Kirti Shah, but that he had changed his name to “Ambani” in a slightly unnerving effort to honor Dhirubhai (an act of hero worship that did not stop him from retaining his position in the company). The coconspirator in the claimed murder plot, Arjun Waghji Babaria, was revealed to be a bandleader who played under the name Prince Babaria and His Orchestra. These unlikely conspirators had allegedly engaged the services of a Mumbai hit man, Ivan Leo Sequeira, nicknamed Shanoo, to carry out the deed, but their efforts had descended into farce, and no assassination attempt was ever made. It then emerged that the bandmaster Babaria lived in housing provided by the Mumbai police. Babaria’s parents and grandparents—indeed some six generations of the family—had been police informants.

This alleged underworld conspiracy between a descendant of police informants and Dhirubhai’s frighteningly devoted employee mystified everyone. Had some member of the Ambani family, at the moment when all hope appeared lost, attempted to arrange a corporate hit? Or had a devoted employee made an ill-judged attempt to please his leader and personal hero? Or was the entire murder scheme a bizarre effort to frame Dhirubhai?

After decades of delay—admittedly not unusual in India’s creaking justice system—the trial has yet to be heard.

Following the involvement of India’s prime minister, the revelation of the murder scheme, and Dhirubhai’s return to relative good health, the political battle between the polyester titans eased. Perhaps the stakes were too high. Very likely they had fought to a standstill. In India the saga came to be known as “the Mahabharata in polyester,” a reference to a Sanskrit epic poem telling of an ancient war among gods and kings.

PLASTICS

In that bizarre summer of 1989, Reliance was struck by another unexpected blow: monsoon rains poured down on the polyester plants at Patalganga. Some twenty inches of rain fell in only eight hours, flooding the facility and the region. There were 304 dead and 264 missing in the surrounding area. None of them were Reliance workers, but the plant was buried in debris—some 50,000 tons of it, from mud and machinery to dead animals. The company had no flood insurance. DuPont, after inspecting the damage, said it would take at least four months to restart production.

It took three weeks. “We lived inside the plant for days thereafter,” said a senior Reliance executive. It was not only an astonishing work ethic that made the recovery possible. Some six thousand workers were mobilized for the effort. This ability to hire a vast, temporary labor force, apply them to a complex task, and somehow prevent them from tripping over each other became something of a Reliance hallmark. It would have been possible only in India, of course. The country’s official labor force statistics hid vast underemployment. Even at the end of the 1980s, almost a third of India’s labor force—rural and urban combined—operated in the unregulated informal sector without legal employment, like the subsistence fishermen in the village of Dhirubhai’s birth.

As a result, when Reliance suddenly, unexpectedly, needed to call on six thousand workers for a Herculean task, it was entirely possible. The underemployed masses poured in, cleared the debris in record time, and then returned to the subsistence jobs from whence they had come.

This does beg the question: why didn’t Reliance and the other leading firms of the license raj go into labor-intensive industries, in which India, with its abundant underemployed, unskilled labor force, might have been globally competitive? With something of a tin ear for the needs of India’s legions of underemployed workers, Reliance executives would often boast that their plants were among the most automated in the world. And it wasn’t just Reliance: the titans of the license raj tended to flock to capital-intensive sectors, like Birla in automobiles and Tata in trucks and steel.

Over the years, many reasons have been put forward to explain this puzzle. One of these reasons directly involves wealth secrets. Capital-intensive industries like steel, cars, and chemicals tend to be characterized by large economies of scale, unlike labor-intensive industries, which don’t require expensive production machinery. For steel or chemicals, the bigger the factory, within reason, the more efficient it is. This means that, even without bribery or political influence, one could make a strong and credible case to the government bureaucracy that a production license for a single enormous operation that satisfied most of the country’s demand was the most efficient way to hit plan targets. “Bureaucrats need to be convinced by numbers and details,” explained one Reliance executive. “[Dhirubhai] Ambani and his team never went to Delhi without these.” The bureaucrats would be happy, knowing that they had picked, at least in theory, the most efficient operation. The winner of the megalicense would be happy, knowing that its large-scale operation would face little competition. And thus rake in the profits.

Of course, even with such advantages, Reliance’s commercial progress was not wholly without setbacks. The struggle with Wadia had taken a financial toll. Worse yet, following the inconclusive political battle, both companies were still in business. Demand for polyester and its production inputs was expanding fast. But competition on price put limits on profitability. In 1988, Reliance switched its calendar year for accounting purposes to end in April, enabling it to report results over a period of fifteen months. It then extended the calendar year for a further three months. This allowed Reliance to report a “record” result, but only by comparing an eighteen-month accounting year with prior twelve-month years. On an annualized basis, Reliance’s profits were below what it had earned in 1985.

But the setback was temporary. Reliance had obtained permission and financing for its next great leap forward, a petrochemicals plant at Hazira, located on the coast of Gujarat, not too far from the village of Dhirubhai’s birth. The huge site, on 280 hectares of land, would produce high-density polyethylene and polyvinyl chloride (often known as PVC), among other chemicals. In other words, it would produce plastics. India, where people shipped everything from sugar to cement in jute sacks (a basis for the fortune of the Birlas), was now ripe for the plastics revolution. The second phase of the plant would be even more ambitious. This would be a gas cracker, a major industrial plant that would produce ethylene, propylene, and butadiene—key chemical components of plastics—from natural gas.

Dhirubhai Ambani with his sons Mukesh and Anil. In the midst of the polyester war, the sons were suddenly forced to take charge of the day-to-day running of Reliance. (Raghu Rai / Magnum Photos)

Reliance tackled the task of construction with characteristic speed and the application of mass labor. When monsoon rains put a stop to welding work, laborers swarmed the site and within three days had installed a temporary roof of nearly three thousand square meters. Executives from ICI, the foreign chemicals company providing its production technology to Reliance, arrived at the plant with a checklist of issues to be verified. Its executives expected results within a few months. According to the president of the Hazira Works, “1,000 fellows got down to work,” nearly the entire staff pulled an all-nighter, and about 50 percent of the requirements were met by the following morning. The first phase of the plant, plastics production, went online during 1991 and 1992. Executives from Shell, the company providing technology for the gas cracker, estimated it would take four months to complete the piping and instrumentation for the plant. It took seven weeks.

Within two years, Reliance had a 73 percent market share in propylene. Indeed, it was well placed in nearly all the markets in which it operated. As of 1993, the company had a 26 percent market share in polyfilament yarn, a 30 percent share in polyester staple fiber, a 100 percent market share of terephthalic acid (the precursor chemical for polyester), and a 39 percent market share in polyvinyl chloride (a plastic). Considering that Indian antitrust law had at one point set a benchmark of a 24 percent share as indicating a dominant undertaking requiring investigation by antimonopoly authorities, Reliance was doing pretty well. Perhaps unsurprisingly, by the 1993–1994 financial year, Reliance Industries had eclipsed Tata Iron and Steel to become India’s largest private sector company in terms of both sales and profits. Dhirubhai had achieved his objective of surpassing even the titans of the license raj.

The Reliance corporate headquarters at Maker Chambers IV, on Nariman Point in Mumbai, had become one of India’s most famed corporate addresses. Dhirubhai, wholly in keeping with his love of scale, bought a gleaming white seventeen-story apartment building called Sea Wind to serve as the family home. The first five floors housed parking lots; the sixth and seventh a gymnasium; and the rest were devoted to quarters for the extended family and guests. The food and beverage manager from the famed Taj Mahal hotel was brought in to deal with catering for the village-size home. In this happy, extended household, there was no doubt who was the top dog. Not only the children but the grandchildren and great-grandchildren called Dhirubhai “papa.” One father recalled being rebranded as “kukumummy” as a result. The extended family’s arrival resulted in some Beverly Hillbillies moments, as when neighbors complained about buffaloes, goats, and a horse being kept in the backyard.

Sea Wind, Dhirubhai’s seventeen-story skyscraper home, today. The helipad was added as Mumbai traffic worsened. (Sam Wilkin)

Dhirubhai, meanwhile, retained a certain humility. He empathized with the dreams of the small investors who put their life savings into Reliance stock. At one annual general meeting, an investor hearing Dhirubhai speak about “greenfield” or “grassroots” investments—a term meaning a new investment as opposed to an upgrading of an existing plant—stepped to the microphone and asked whether Reliance was therefore getting into agriculture. The assembled shareholders broke into laughter; Dhirubhai remained straight-faced. The laughter quickly died away. Dhirubhai answered the question thoughtfully.

By the 1990s, Dhirubhai was slowing down. Still weakened from his stroke, he would arrive at the office at about noon and leave at 3 p.m. Despite this, he still had one winning card left to play. He would need it. The license raj, the system that had at first oppressed him and then enabled his spectacular ascent, was about to be swept away.

THE REFINERY

When American captains of industry gather in their undersea lair just off Manhattan—a secret society that is way more secret than Skull and Bones—their meetings are attended by the embalmed corpse of their hero, Ronald Reagan (or so the story goes). When British bankers, the Trilateral Commission, and the Knights Templar assemble to arrange the bankruptcy of yet another southern European country, they open the dark proceedings with a toast to Margaret Thatcher, even before they salute the queen.

After Reaganomics swept the United States and Thatcherism the United Kingdom, a capitalist revolution of deregulation and privatization would eventually reach India as well. In 1991, India suffered an economic crisis and turned, cap in hand, to the International Monetary Fund for a bailout. The IMF demanded that India undertake extensive economic reforms, and a technocratic, reformist government under Prime Minister P. Narasimha Rao duly took charge. While the grip of the license raj had been loosening for at least a decade, under Rao the guiding hand of government all but vanished. Production licenses would be required in only eighteen sectors. Import licenses on production machinery were completely abolished. Restrictions on foreign investment were reduced. Import duties were cut drastically.

And yet, if there is a secret society of Indian industrialists, I am not sure Rao is toasted before each meeting. For the aristocracy of the license raj, Rao’s capitalist revolution was a mixed blessing. On the one hand, there was more money to chase. Between 1993 and 1997, the Indian economy grew at an annual rate of 7.1 percent. An Indian middle class was on the rise. On the other hand, there were suddenly many more Indian companies chasing this money. Foreign competitors poured like the monsoon rains into previously closed industries, quickly soaking up any patches of profit. Many aristocrats of the license raj were struggling to keep their heads above water as new sectors (notably IT services) rose around them.

A comparison of the companies among India’s top 100 firms in 1991—when the license raj was dismantled—with those still standing in 1999, less than a decade later, gives a sense of the deluge. In 1991, six families, each of whose business groups dated from the preindependence era, controlled 37 of the top 100 firms. These were titans of the license raj: Tata, Birla, Thapar, Singhania, Mafatlal, and Modi. By 1999, all the businesses owned by Mafatlal and Modi had dropped out of the top 100. One Thapar business clung to its spot (down from four businesses). Singhania saw two of its four high-ranked businesses plummet from the top slots. Even the Tatas, known for their good management, struggled—despite some hard graft that turned their uncompetitive flagship steel enterprise into the lowest-cost steel producer in the world. The Birlas suffered perhaps worst of all. Birla Jute, in the top 100 in 1991, had fallen out of the top 250 by 1999 (thanks in part to Dhirubhai’s rising plastics businesses). The same fate befell Mysore Cements, also owned by Birla. Century Enka, another Birla enterprise, dropped fifty places. Orient Paper, Century Text, Kesoram, and Hindustan Motors (makers of the Hindustan Ambassador), all Birla-owned firms, all fell from the top 100. Some Birla companies, especially those belonging to the Aditya Birla Group, managed to stay in the game. But an economic order that had persisted for more than four decades was falling.

Reliance was not going down without a fight. The company’s financial reports tell the story. Prior to liberalization, Reliance spent little on research and development. It had no need to. Foreign companies like DuPont, ICI, and Shell were all but excluded from the Indian market and therefore eager to hand Reliance whatever technologies it wanted, in exchange for modest license payments. After liberalization, Reliance would need to develop its own technologies. Its former partners could now become its competitors. By the 1992–1993 financial year, Reliance’s research and development spending was 2 crore 40 lakh rupees ($5.4 million). By the 1998–1999 financial year this spending had grown to 75 crore 10 lakh rupees ($104.5 million)—an increase of some 3,100 percent in only six years, in rupee terms. The 1998–1999 figure was not a large expenditure by international standards, but it was the largest proportionate increase of any Indian firm over the period and put Reliance among the top three Indian firms in terms of aggregate research and development spending.

Reliance was fighting back, but the very fact of having to fight in the marketplace was a costly and altogether unwelcome development. It was not the wealth secrets way. There were even some worrying signs that Reliance might crash like Circuit City rather than simply descend quietly into mediocrity. As competitors poured into the weaving industry, Reliance announced a comprehensive restructuring of its textiles business—the business that had launched the company into the world of licensed production more than two decades before. Beginning in April 2001, more than four thousand Reliance workers were laid off.

But Dhirubhai had one last visionary move to make, one that would satisfy the dream he had kept alive from the earliest days of his career in Yemen: to build an oil refinery. And what a refinery it would be. It was built a few miles away from Jamnagar, a dusty town on the Gujarat coast. A giant billboard stands out front, on which a beatific Dhirubhai proclaims it to be “the world’s largest refinery.” And indeed, if moved from its present location the refinery would cover an area half the size of London or Mumbai. When built, it accounted for more than 25 percent of India’s refining capacity. At 24,000 crore rupees (about $32 billion today), it was the largest corporate investment ever undertaken in India. The refinery alone accounted for 5 percent of the Indian corporate sector’s gross assets, 4 percent of its turnover, and 7 percent of the nation’s tax revenues. It leveraged everything that Reliance had built into one massive throw of the dice, aiming for a scale that, even in liberalized India, no other private company would be able to replicate.

To be honest, though, it wasn’t that much of a gamble. Even after further rounds of liberalization, production in the refining sector was still governed by licenses. And even if these licenses were swept away by further liberalization, Reliance had not only India’s but the world’s largest refinery in hand, so the likelihood of anyone entering the market on a larger, more efficient scale was essentially negligible.

Reliance employees set about their task with characteristic resolve. A jetty was needed to land equipment, and this threatened to hold up construction. “We worked twenty-four hours for the next four months,” explained the president of Reliance Petroleum. And thus the jetty was completed on time, which the foreign company providing the technology (in this case Bechtel, a willing participant since the industry was still licensed) had said was “impossible.” Once again, Reliance drew on the vast, underemployed Indian workforce. Some eighty-five thousand temporary workers took part in the construction. “It might be worth checking whether more workers were present at the site of the pyramids,” one Reliance executive said with pride. And yet, also typically, the Reliance refinery was said to be the most automated in the world, needing only two thousand employees on an ongoing basis.

Dhirubhai had put his company in a very good place to survive the downfall of the license raj. Even after scaling back in textiles, in the early 2000s Reliance still had a 51 percent share of the polyester fiber market, an 80 percent share of the markets for key chemical intermediates used to make polyester, and about 52 percent of India’s plastics (polymers) market. And these were not even the company’s main line of business: by 2000, oil refining had replaced polyester fiber as Reliance’s largest source of revenues. Reliance’s profits grew by 29 percent per year on average during the 1990s, following the dismantling of the license raj. In March 2001, Reliance earned 30 percent of the total profits of the entire Indian private sector. And it accounted for about 12 percent of the total market capitalization of Indian companies.

And then, on July 6, 2002, shortly after his youthful dreams had at last been realized, Dhirubhai had a second stroke. He fell into a coma. Twelve days later he died.

After lying in repose in the lobby of Sea Wind, his body, covered in lilies and white roses, was taken via open truck and then cane stretcher to the funeral site. Family, admirers, employees, and the curious thronged to the funeral. The attendees included a former prime minister, the serving deputy prime minister, numerous business leaders, and some of Bollywood’s leading stars. The massing crowds surged forward, nearly throwing the pallbearers off balance. To the sound of Vedic chants, Dhirubhai’s sons lit the funeral pyre of sandalwood and ghee, and the flames consumed their father’s body. Born a pauper, he died a titan of Indian business. “We are all born into an orbit,” Dhirubhai had said. “Very few of us ever break out of our orbit. My life has gone from one orbit to another. As I have gone higher, changing orbit, people have resented me.… But it does not matter. I am no longer part of their orbit. There is nothing they can do to me now.”

Dhirubhai’s approach to business was unorthodox. He did not read business books or management journals, his son Anil explained. “He won’t read the Harvard Business Review. He will say, ‘Let my management chaps read that!’” The books Dhirubhai did recall reading were the books on world history by Jawaharlal Nehru, India’s first prime minister. Liking these books was, of course, patriotic, but also practical. “They taught me that nothing could ever be achieved without money, influence and power,” Dhirubhai said. Dhirubhai had also, his wife later recalled, frequently borrowed impressive-sounding phrases from the books when he wrote letters to bureaucrats appealing for those very first licenses he needed.

However much of an iconoclast he was, though, India was changing. Would Dhirubhai’s way still be relevant in a new India, and would it provide a path to success for his sons?

NO MOAT

The equity research group at Morningstar, a U.S. investment research company, takes an unorthodox approach to evaluating the commercial prospects of the companies it covers. Morningstar assigns each company a “moat rating” that reflects the degree to which the company has succeeded in erecting barriers against competitors. The moat concept comes from the great investor Warren Buffett (we’ll hear more about Buffett in chapter 7). Since many of the wealth secrets covered so far in this book involve erecting barriers to competition, you might think of the moat rating as a wealth secrets rating of sorts. The best possible moat rating is “wide moat,” reflecting competitive barriers Morningstar expects to persist for at least fifteen years.

In 2014, Reliance Industries was rated “no moat,” the worst possible rating. A few years after Dhirubhai’s death, his wealth secrets had come undone. But how? Had his sons failed to heed their father’s lessons?

Over the course of the 1990s, the eighteen sectors still subject to licensing were reduced to fourteen and then to nine. By the new millennium, the only major Reliance operation still sheltered from competition by a licensing regime was the oil refinery. But even as the maze was progressively dismantled, Dhirubhai’s sons, Mukesh and Anil, tried to cling to the old ways. They had perhaps learned their father’s lessons too well. They invested heavily in the few industries that were still highly regulated. And they were not alone. Most of the elite business houses that had survived the 1990s adopted the same approach, pouring money into telecoms, power generation, oil and gas, and finance. As India’s Economic Times put it, in the 1990s “the corridors of Udyog Bhavan [referring to the ministry responsible for industrial licenses] may be empty after the dismantling of the ‘license raj’… but the crowd of industrialists, touts, and agents has merely shifted to other ministries—power, telecoms, surface transport, civil aviation and petroleum.”

At first, seeking shelter from the rising competitive tide in the last redoubts of the maze seemed like a good strategy. In 2001, Reliance pulled off a maneuver with Dhirubhai-like panache. The Indian government was auctioning off licenses for “local-loop” telephone services, as an alternative to fixed-line telephones. Local-loop telephones, like fixed-line telephones, operated via trunk lines that ran to villages or neighborhoods, but in the case of local-loop telephones the so-called last mile of the service was then provided by a radio transmitter. Such a network cost much less to construct than a fixed-line network. Reliance joined 131 other companies in bidding for local-loop licenses (in deregulated India, licenses would be allocated via auction rather than bureaucratic fiat). Reliance won the largest share, covering eighteen of India’s twenty regional “circles.”

But why had Reliance (or more accurately its new subsidiary, which came to be called Reliance Communications) put such an effort into winning in the fairly obscure and unexciting market for local-loop telephony? The name Reliance gave to the venture, IndiaMobile, was a crucial hint. Reliance had no intention of competing with fixed-line services. It was going mobile. Reliance had taken advantage of the fact that the end user on a local-loop service had, in effect, a type of mobile telephone (linked by radio to the transmitter). Typically, a local-loop telephone worked only with a particular local transmitter. But because Reliance had won licenses covering nearly all of India, it could build a network of compatible transmitters enabling it to offer, in effect, a nationwide mobile telephone network. To be sure, the service was not entirely “mobile”—the call would drop if the user moved from one transmitter to another. But while the fees other companies had paid for mobile telephone licenses were expensive, Reliance had paid relatively little for its local-loop licenses. It could therefore offer a mobile service on the cheap.

There were howls of outrage. The local-loop services were supposed to offer an alternative to fixed-line telephones, not serve as a Trojan horse for launching a national mobile network. Eventually the government issued new rules on pricing and interconnections, and in October 2003 penalized Reliance for violating its licenses, as well as requiring it to buy a new “unified” license covering all telecoms services—a total expense of 1,096 crore rupees ($1.3 billion). Reliance’s cost advantage was wiped out, but by then it had already taken the lead. By the end of 2003 Reliance claimed to have six million subscribers, thus leapfrogging the previous market leader.

It was a great start, but by the mid-2000s, the brothers were stumbling. The obvious problem—the problem that made headlines—was that Dhirubhai had died without leaving a will. Eventually, Mukesh and Anil began a public battle over who would control Reliance. At first it seemed the war between the brothers was going to be over before it started. A relatively equable split of the business was agreed upon in a deal announced by their mother. Mukesh took charge of Reliance Industries, and thus the core businesses in polyester yarn, petrochemicals, and oil refining. Anil took charge of Reliance businesses reflecting new investments in telecoms, electric power, and financial services. But following the split the battle continued to rage, involving a nasty legal contest over gas prices that eventually reached India’s Supreme Court.

The battle between the brothers also produced some amusing revelations. In 2008, Mukesh gave an interview to the New York Times in which he in effect acknowledged that Reliance maintained an “intelligence agency” in New Delhi to gather information on bureaucrats, competitors’ lobbying efforts, and the interests of political leaders. It was, of course, common knowledge that India’s dominant firms had maintained permanent political offices in New Delhi to liaise with the government. But to see the rumors regarding Reliance’s extensive political operations confirmed as hard facts in a foreign newspaper was a little shocking. Mukesh’s objective appeared to be to discredit his brother, whom he claimed had managed the “intelligence agency” and taken it with him when the group split. “We de-merged all of that,” Mukesh told the New York Times. Anil sued for defamation.

But behind the scenes, Dhirubhai’s empire faced a far more profound problem than sibling rivalry. This problem was that the maze no longer mattered. By the late 2000s, the telecoms venture, now in Anil’s hands, had lost its cleverly won early lead in the face of rising market competition. By 2012, Reliance Communications had dropped to third place in the Indian mobile phone market. Anil’s investments in toll roads and electric power had also stumbled. The company’s stock price plummeted.

Mukesh’s operations, anchored by the refinery, at first appeared more robustly insulated from competitive pressure. From its listing in 1977 to 2007, a thirty-year period, Reliance Industries was consistently one of the nation’s best-performing equities. Indeed, in 2007, Mukesh briefly became the world’s richest man, as stock markets in Western countries plunged following the global financial crisis. The world’s largest refinery became even larger, adding a facility licensed for export production.

Mukesh also achieved a degree of global fame, or perhaps infamy, for his construction of a new home. This twenty-seven-story luxury residence took Dhirubhai’s Sea Wind concept to new heights. Dubbed Antilia, Mukesh’s tower has three helipads (Mumbai traffic is miserable) and room for more than 150 cars in six stories of parking lots. It reportedly houses a health club, a dance studio, hanging gardens, a ballroom, and a fifty-seat movie theater, and when seen in the right light is capped by the unblinking eye of Sauron (sorry: it’s a Lord of the Rings reference). Even without a lidless eye of flame on top, it is an impressive sight. “All that for five people,” said an Indian oil industry analyst I interviewed, pointing from his office window to Mukesh’s skyscraper, visible in the distance.

Mukesh Ambani’s twenty-seven-story skyscraper home, Antilia, in Mumbai (center tower). It has three helipads. (Sam Wilkin)

But even atop his mighty tower, Mukesh could not escape the onrush of market competition. The refinery now faces global challengers. As Piyush Jain, an equity research analyst in Morningstar’s office in Navi Mumbai explained, “The ‘no moat’ rating applies to refining and petrochemicals, which is now the core business [for Reliance Industries].” Following the global financial crisis and a slowdown in China, global petrochemicals demand has softened, even as new refineries across Asia and the Middle East continue to come online, producing a global capacity glut. “Operating margins that were reliably at 12 to 13 percent have fallen to 6 to 7 percent,” Jain said. “Right now Reliance’s return on invested capital, which drives investor return, is less than the cost of capital.” That is to say, while the company may be profitable on paper, from an economist’s perspective it is not profitable at all.

To his credit, rather than retreating deeper into the tattered remnants of the maze, Mukesh has come out fighting, attempting to use his company’s vast wealth to buy other wealth secrets—wealth secrets you may recognize from elsewhere in this book. “They [Reliance] go with huge capacity. They seek to enter the market, and define the market,” as Chirag Dhaifule, a research analyst at LKP Securities in Mumbai, put it. In 2009 and 2010, Mukesh made huge investments in two areas: telecoms and retail. Mukesh’s new megainvestment in telecoms will produce a nationwide 4G (fourth-generation) mobile network, India’s first. Not only will this leapfrog India’s existing 3G networks (including his brother’s) in terms of data speed, it will also be more extensive. India’s largest 3G network currently reaches 500,000 of India’s roughly 650,000 villages. Mukesh’s next-generation network will reach 600,000 villages in two to three years. Characteristically, Reliance managed to gain the required licenses at a good price, via a maneuver that involved turning data-only 4G licenses acquired in 2010 into unified licenses by 2012. But to win in the long run will require advantages that regulatory maneuvering cannot provide. Mukesh is going for scale: “they are spending eleven billion dollars in telecoms, which is a quarter of their overall market capitalization,” notes Jain. “A launch [on that scale] has no track record anywhere in the world.” But will it be enough? “Reliance will be competing with the likes of Airtel, Idea, and Vodafone, with the latter having significant cash on its balance sheet,” says Dhaifule. “We believe Vodafone will ramp up its investments in India once the tax issue [the company is embroiled in a tax dispute with the government] gets resolved.”

In retail, Mukesh has been equally ambitious—replicating Circuit City’s gambit, as deregulation enables corporate retailers to use scale to crush India’s legions of mom-and-pop stores. Reliance is now India’s number one retailer, with some 1,700 stores operating today (mostly Reliance Fresh, a grocery store), and more than 1,000 more expected within three to four years, on the back of billions of dollars in investment. Here again, the remnants of the maze help a little: foreign chains face obstacles to their entry, which has allowed Reliance a head start. Even after foreign chains eventually enter the country, it will take years for them to identify sites, negotiate leases, and establish a product mix that appeals to Indian consumers. By that time Reliance could have a thoroughly dominant position (and, as Circuit City CEO Richard Sharp noted, dominance in retailing can be a very exciting thing). Still, if this was a sure win, it would be reflected in Reliance’s valuation, which it isn’t. As another senior industry analyst I interviewed in Mumbai pointed out, Flipkart.com (an Indian competitor to Amazon) has achieved a valuation that is better than that of Reliance’s retail arm, at a fraction of the investment cost and development time. The stock market, at least, seems skeptical that Reliance is the retailer of the future. Overall, I will grant that Mukesh, who seems undaunted by the prospect of gambling on high-risk ventures with everything he has, is clearly his father’s son. But on Mukesh’s bold efforts to find wealth secrets outside the maze, the jury has yet to deliver a verdict.

That said, there is at least some reason to think Reliance might survive. According to Surajit Mazumdar at Delhi’s Jawaharlal Nehru University, the end of the license raj has by no means swept away the advantages of established firms in India. According to Mazumdar, outside of new industries (notably information technology services) and a few sectors where international firms have entered consequent to easing of restrictions (for instance, cement or automobiles), the rate of entry of new competitors since the end of the license raj has actually fallen.

DHIRUBHAI’S WAY

Mukesh’s brief stop at the top of the Global Rich List during 2007 did not last. Microsoft’s Bill Gates (see chapter 6) and a Mexican telecoms magnate, Carlos Slim Helú, have dominated the top slot for the past decade. Prior to 2010, Gates usually held the top position. Between 2010 and 2013, Slim was dominant. In 2014, the two swapped places at least twice.

Slim’s wealth secret was almost comically simple: he secured a legislated monopoly on fixed-line telephone services in Mexico. To be fair to Slim, he won this monopoly fair and square, via an open and transparent privatization process. Furthermore, Slim, together with two foreign partners (France Télécom and Southwestern Bell Corporation), paid $1.76 billion to acquire their controlling stake in Telmex, the state-owned telephone monopoly. The total amount raised in the privatization was unprecedented and widely seen as a good deal for the Mexican treasury. Prior to the takeover by Slim, Telmex had been poorly run, and it sometimes took years for Mexicans to receive telephone connections. Slim quickly changed that, bringing down the waiting time for a new telephone from months to days.

It was an amazing deal for Slim as well, though. He had won the sole right to operate fixed-line telephone services in Mexico—an exclusive monopoly—for six years, with few restrictions on pricing. Facing little competition, he could charge whatever he wanted for telephone services. And so he did. By 1994, Slim was the richest man in Mexico, with a $6.6 billion fortune.

By the time the six-year monopoly expired, his position was untouchable. He had turned his government-awarded monopoly into a natural monopoly. Indeed, as of 2012, Slim still had 80 percent of the nation’s fixed-line business, and had added a 70 percent share of the country’s mobile phone market as well as a large share of the Internet market (estimated, by some sources, at nearly 90 percent). Facing little obvious competition, Slim did what any right-thinking businessperson would do: he charged a lot. A 2012 study by the Organisation for Economic Co-operation and Development found that Mexican telecommunications costs were among the highest in the OECD (the OECD is composed primarily of countries much richer than Mexico). Compared with countries at a similar level of income, Mexican telephone rates tend to be multiples of the rates charged elsewhere. For instance, Telmex’s business rates were, in the mid-2000s, roughly three times the fees charged in Argentina and four times those charged in Brazil. The average Mexican was estimated to be paying Slim $1.50 per day (add all Mexicans together and that amounts to $67 million in total, every day of the year).

This made Carlos Slim the world’s richest man, but at a cost. The 2012 OECD report does not mince words, concluding that, over five years, the “welfare loss attributed to the dysfunctional Mexican telecommunication sector is estimated at… 1.8% GDP [1.8 percent of the country’s entire economic output] per annum.” According to the OECD’s calculations, the majority of this loss (about $130 billion in aggregate) reflected the high costs of communication services paid by Mexican consumers and businesses. And yet, if you are searching this book for moral lessons, it is not entirely fair to blame Slim. The Mexican government was almost certainly well aware what was going to happen when it handed Slim a monopoly; it auctioned off the right to, in effect, overcharge the Mexican people because it was hoping to raise a huge sum at the privatization (which it did).

Mukesh and Anil Ambani are unlikely to reach Slim’s level of wealth. Carlos Slim had won a license (a national government-granted monopoly) that exceeded even the dreams of the political entrepreneurs of the robber baron era. While Reliance does have a (natural) monopoly on domestic production of one or two types of specialty chemicals, the Ambani brothers are not likely to reach a monopoly position in any market that matters.

Yet long before Carlos Slim’s monopoly was even a gleam in his eye, Dhirubhai had shown the way. Dhirubhai was an outsider, facing a system that was spectacularly hostile to the success of outsiders. Most Indians of his position might have thought that they could never hope to scale the heights reached by the Tatas or the Birlas and assumed that such titans of industry were a class apart. Most Indians might have thought that the country’s bureaucratic maze offered only dead ends, posing an insurmountable obstacle to their dreams of becoming obscenely rich.

Dhirubhai proved that this was untrue. He showed that the wealth of the Tatas and the Birlas was achievable by anyone who had sufficient ambition, understood the system, and could make it work for them. Dhirubhai understood that the Tatas and the Birlas were not rich in spite of the system; they were rich, in part, because of it.

Dhirubhai’s success in India also provides a perfect demonstration of the general principle that the more hostile a country’s economy is to the growth of private business, the more profits are available to any business that survives. That is his wealth secret. It is also Carlos Slim’s wealth secret. It is part of Mukesh’s and Anil’s wealth secret even today. Indeed, it is the wealth secret that dominates the Forbes list of global billionaires. Dhirubhai said: “If one Dhirubhai can do so much, just think what a thousand Dhirubhais can do for this country. There are easily a thousand Dhirubhais, if not more.” And indeed he was right: today people have followed in Dhirubhai’s footsteps all over the world.

Not long ago, the Forbes list of U.S.-dollar billionaires around the world was a relatively short list and consisted primarily of billionaires from rich countries (which seemed, at the time, logical). As recently as 1991, there were only 273 billionaires worldwide, and the five countries home to the largest number of billionaires were all among the world’s richest (the United States, Japan, Germany, France, and Canada). By 1993, Mexico (with 13 billionaires, including Slim) and Hong Kong had forced their way into the top five. By 2000, there were 470 billionaires; by 2005, there were nearly 700 billionaires; by 2010, there were more than 1,000, and by 2014, there were 1,645 billionaires. Among these 1,645 are 152 Chinese, 111 Russians, 65 Brazilians, 56 Indians, and 16 Mexicans. In other words, those five emerging market countries alone are now home to almost one in four of all the billionaires in the world. In 1991, there were only about 55 emerging market billionaires; in 2014, there were 729.

In sum, there has been a vast expansion in the number of billionaires, and this is attributable in large part to the rise of the emerging markets. It is in these countries where the conditions that produced the American robber barons—rapid economic growth, weak regulation, and difficult business environments—combine to create superprofits in the modern day. In fact, if one calculates how many billionaires a country has per dollar of economic output and then ranks the nations of the world on this scale, twenty-two of the top twenty-five countries where billionaires are most concentrated are in the emerging markets (including India at twenty-second). The only advanced economies in the top twenty-five are Cyprus (which some would call an emerging market), Sweden (think IKEA and H&M), and Switzerland.

Dhirubhai showed that emerging markets, especially those where the business environment is challenging, are the places to look for billions. This strategy applies even within economies: the industries where Dhirubhai found his wealth secrets were those where it was most difficult to establish a new business. In Dhirubhai’s day, this meant the industries where production and import licenses were required. These obstructions enhanced profits because a clever businessperson could use these licenses to prevent competitors from entering—whether by applying for licenses and then holding them in reserve (as the titans of the license raj tended to do) or by applying for licenses on a scale that would ensure cost advantages at the very least, and ideally industry dominance (as Dhirubhai often did). Mukesh and Anil, of course, followed in their father’s footsteps, investing heavily in the most highly regulated sectors of the Indian economy. Slim, of course, went one better, obtaining (for several years) an exclusive license covering an entire industry. But there are political battles for Slim as well. As of this writing, Slim has responded to the threat of antitrust action by the Mexican government by preemptively breaking up his business empire.

Dhirubhai showed why today’s Forbes Global Rich List looks like it does and why, counterintuitively, if your ambition is great wealth, you are better off moving to a poor country. He also showed that, given sufficient determination and good luck, an outsider can break into even the most closed system. Perhaps you are a citizen of a rich country and are reading these words with despair, as you now worry that the thriving, open economy of your home country may bar you from obtaining the billions you deserve. But do not lose hope: you can still try your hand at emerging market riches. Foreigners are by no means prevented from making a play for these opportunities. Sonia Gandhi, who served as president of India’s ruling political party for almost two decades and thus became the most powerful person in Indian politics, was born an Italian (she married an Indian man who would become the country’s prime minister). Carlos Slim is the son of a Lebanese immigrant to Mexico. One of Brazil’s billionaires is named Ming Chung Liu (he is ethnically Chinese); one of Hong Kong’s billionaires is named Michael Kadoorie (he is the grandson of an immigrant from Iraq). Even in emerging markets, immigrants can rise to the top, so do not let your citizenship block your ambitions. (The billionaire CEO of the U.S. fund management company BlackRock, Larry Fink, recently opined that U.S. millennials might be better off trying their luck in Mexico.)

But perhaps this kind of thing seems risky to you. Or perhaps you don’t like Indian food. In that case, you will appreciate the next chapter, which brings the story to the cutting edge of wealth secret innovation—the global technology sector, responsible for about a quarter of the twenty largest fortunes in the world, and one remarkable man whose wealth secret started it all and who three decades later is, remarkably, still in the lead.