History of Corporate Governance in India

Pre-Liberalization: After the British rule in 1947, it
possessed with laws regarding “listing, trading and settlements.” From Great
Britain, the country turned away from its capitalist past and embraced
socialism. The 1951 Industries Act was a step in this direction, requiring
“that all industrial units obtain licenses from the central government.” The
1956 Industrial Policy Resolution stipulated that the public sector would
dominate the economy. To put this plan into effect, the Indian government
created enormous state-owned enterprises, and India steadily moved toward a
culture of “corruption, nepotism and inefficiency.” The absence of a corporate
governance framework exacerbated the situation. Government accountability was
minimal, and the few private companies that remained on India’s business
landscape enjoyed free reign with respect to most laws; the government rarely
initiated punitive action, even for nonconformity with basic governance law.

 Post-liberalization: In 1999, the Indian Parliament
created the Securities and Exchange Board of India (SEBI) to protect the
interests of investors in securities and to promote the development of and to
regulate the securities market.” In the years leading up to 2000, as Indian
enterprises turned to the stock market for capital, it became important to
ensure good corporate governance industry-wide. In 1998, the Confederation of
Indian Industry unveiled India’s first code of corporate governance. However, since the Code’s adoption was
voluntary, few firms embraced it. Soon after SEBI appointed the Birla Committee
to develop a code of corporate governance. In 2000, SEBI accepted the
recommendations of the Birla Committed and introduced Clause 49 into the
Listing Agreement of Stock Exchange.