India Inc's profit boom has a name: It's called the Herfindahl Index

Business Standard

17-07-2025

India's top companies are posting record profits. But beneath the surface of this post-pandemic boom lies a structural shift that's going unnoticed by most. It's not just operational efficiency or global tailwinds driving earnings — it's consolidation. And the most telling evidence of this power shift comes from a single number: the Herfindahl-Hirschman Index (HHI).
What is the Herfindahl-Hirschman Index (HHI)?
The Herfindahl-Hirschman Index, or HHI, is a widely used measure of market concentration. In simple terms, this is a way to quantify how competitive (or monopolistic) an industry is.
Albert O Hirschman developed an early version of the index in the 1940s, which was later refined and popularised by Orris C Herfindahl.
The tool is now commonly used by antitrust regulators, including the US Department of Justice and the Federal Trade Commission, to assess whether a market has become too dominated by a few large players.
How does the HHI work?
The HHI measures market concentration by squaring the market share of each firm in a sector and summing the result. The higher the score, the more control is concentrated in the hands of fewer players. The score break-up is:
Score below 1,500 indicates a competitive market.
Score between 1,500 and 2,500 is moderately concentrated.
Score above 2,500 means the market is highly concentrated, often raising red flags for regulators.
The maximum score is 10,000, which occurs when a single firm controls 100 per cent of the market (a pure monopoly). Conclusion: The more concentrated the market, the higher the HHI, and the greater the pricing power firms typically hold.
Why does this index matter?
A rising HHI suggests fewer firms are controlling more of the market.
When one or two firms dominate, they can set prices, influence supply chains, and shape consumer options, often at the expense of competition and innovation.
What's happening in India?
In FY25, the average HHI across eight major Indian sectors jumped to 2,532, crossing into the 'highly concentrated' zone for the first time in over a decade. That's up from 1,980 in FY15 and 2,167 in FY20.
It's not just a statistic — it's a story of India Inc's growing pricing power, shrinking competition, and rising profit margins.
Which industries have the highest HHI in India?
Sectors such as telecom, steel, aviation, and cement now show HHI levels at or near historic highs. In five of the eight sectors studied, including telecom, paints, steel, and two-wheelers, market concentration has reached thresholds considered 'high' by the index.
Only paints and two-wheelers have seen a modest decline in concentration over the past decade.
This shift has big implications. As competition fades, dominant players gain the power to raise prices and protect margins.
From FY20 to FY25, while net sales for India Inc grew at a compound annual growth rate (CAGR) of 12.7 per cent, profits surged much faster: profit before tax grew at 25 per cent, and after tax at 25.7 per cent. Even in the last two years, as revenue growth slowed to 7.6 per cent, profits grew 19 per cent annually.
Motilal Oswal analysts project that companies in their coverage universe will post 5 per cent sales growth, but 12 per cent Ebitda growth and 14 per cent net profit growth in FY26.
Where does India Inc's power come from?
As previously reported by Business Standard, the rising HHI scores are not accidental.
A combination of regulatory reforms and economic shocks has steadily tilted the playing field toward bigger players, who are generally better equipped to survive and even benefit from major economic and policy challenges.
That consolidation is now reflected in the numbers. For example, in aviation, just three carriers control the bulk of domestic capacity. In telecom, only two private players dominate the subscriber share. In steel and cement, a few conglomerates have gained ground through acquisitions and capacity expansion.
What does it mean for Indian consumers?
This leads to situations where consumers are grappling with higher prices but limited choices. This is because, as firms find themselves in concentrated markets, they can push through price increases without fear of losing market share, a phenomenon already seen with domestic flight ticket prices. In a few recent cases, the aviation ministry had to step in to control airfares. But what happens in markets that go unnoticed?
This trend also explains the widening gap between profit and revenue growth, a phenomenon largely observed in FY25 and expected to persist in FY26. The bottom line is India's corporate landscape is changing. Market share is consolidating, competition is thinning, and profits are climbing.
While this may look like a success story for Indian industries on the surface, the Herfindahl Index is a reminder that concentrated power can distort markets, limit consumer choice, and eventually invite regulatory scrutiny.