KAAND: The First Mover Kaand TACTIC: Enter a sector before regulations exist, scale before rules arrive, lobby to ensure rules are written around your existing structure
THE TACTIC IN ONE PARAGRAPH The tactic is simple: identify a sector where demand exists but regulation is absent or ambiguous. Enter aggressively, exploit the regulatory vacuum to build scale, and then shape the rules that follow to protect your position. The sequence is mechanical—first-mover advantage is leveraged to create a de facto standard, making it costly for regulators to impose retroactive restrictions. Lobbying is not an afterthought but a core part of the strategy, ensuring that when rules do arrive, they grandfather existing players or impose barriers to entry that favor incumbents. The goal is not just to dominate a market but to make the market’s rules an extension of your business model.
HOW IT WORKS IN INDIA SPECIFICALLY This tactic thrives in India because of three structural features: regulatory fragmentation, judicial delay, and the political economy of licensing. First, India’s regulatory architecture is siloed—multiple agencies with overlapping or conflicting jurisdictions create gaps. For example, the Reserve Bank of India (RBI) oversees non-banking financial companies (NBFCs), but if an NBFC lists on the stock exchange, SEBI’s purview kicks in, often with different disclosure norms. This fragmentation allows players to arbitrage between regulators, exploiting the weakest link in the chain.
Second, India’s judicial system moves slowly. Even if a regulator eventually acts, the delay—often a decade or more—means the perpetrator has already extracted value, while victims (investors, depositors, or competitors) bear the cost. The Securities Appellate Tribunal (SAT) and courts are backlogged, and interim relief is rare. This creates a perverse incentive: the longer the legal battle, the more time to consolidate power.
Third, India’s political economy rewards scale. Large players can afford to hire former bureaucrats, fund think tanks, and shape policy through industry associations. The Companies Act, 2013, and the Insolvency and Bankruptcy Code (IBC) were both shaped by lobbying from incumbents to protect their interests. For instance, the IBC’s "related party" provisions were diluted after pressure from promoters, allowing them to retain control even in bankruptcy. The tactic works because the system is designed to accommodate, not challenge, entrenched players.
THE HISTORICAL RECORD The tactic has been deployed repeatedly, with documented outcomes. Consider the case of microfinance institutions (MFIs) in the 2000s. Before the RBI’s 2011 guidelines, MFIs operated in a regulatory gray zone, borrowing from banks at low rates and lending at usurious rates to the poor. When the Andhra Pradesh government cracked down in 2010, citing coercive recovery practices, the RBI stepped in—but only after the sector had already scaled to over ₹20,000 crore in loans. The new rules grandfathered existing players, while smaller MFIs struggled to comply. The outcome? Large MFIs like SKS Microfinance (now Bharat Financial Inclusion) survived, while borrowers in Andhra Pradesh faced a credit crunch.
Another example is the telecom spectrum allocation scam (2008-2012). The government auctioned 2G spectrum at 2001 prices, ignoring the Comptroller and Auditor General’s (CAG) estimate of ₹1.76 lakh crore in lost revenue. The first movers—companies that entered before the rules were formalized—secured licenses at throwaway prices, then sold stakes to foreign players at massive premiums. When the Supreme Court canceled 122 licenses in 2012, the incumbents (like Bharti Airtel and Vodafone Idea) were already too big to fail. The losers? The exchequer and smaller players who couldn’t compete.
A third case is the rise of digital lending apps (2018-2022). Before the RBI’s 2022 guidelines on digital lending, hundreds of apps operated without oversight, charging exorbitant interest rates and using aggressive recovery tactics. When the RBI finally acted, it banned first-loan defaulters from accessing credit, but the apps had already scaled to a ₹1.5 lakh crore market. The outcome? Many apps shut down, but the largest players (like Paytm and PhonePe) pivoted to compliant models, while borrowers were left with damaged credit scores.
THE INSTITUTIONS THAT ENABLED IT No tactic works in isolation. In each case, enablers looked the other way. Regulators—the RBI, SEBI, and the Department of Telecommunications—often acted only after public outcry or judicial intervention. Auditors like Deloitte and PwC signed off on financial statements without flagging regulatory risks, as seen in the IL&FS collapse, where auditors failed to question related-party transactions. Banks lent aggressively to first movers, assuming regulatory forbearance—State Bank of India and ICICI Bank funded MFIs and telecom players despite red flags. Rating agencies like CRISIL and ICRA gave investment-grade ratings to companies operating in regulatory gray zones, only to downgrade them after defaults. Boards of these companies were often packed with former bureaucrats or industry veterans who asked no hard questions. The system is not just complicit; it is designed to reward scale over compliance.
THE CURRENT STATE The tactic is alive and well. The buy-now-pay-later (BNPL) sector is the latest example. Before the RBI’s 2022 guidelines, BNPL players like LazyPay and Simpl operated as payment aggregators, avoiding NBFC regulations. When the RBI clamped down, the largest players (like ZestMoney) pivoted to partnerships with banks, while smaller ones shut down. The pattern repeats: first movers scale, regulators react, and incumbents adapt. The only change? The speed of regulatory response has improved, but the underlying incentives remain the same. Until regulators proactively monitor emerging sectors (rather than reacting to crises), the tactic will persist.
WHAT TO WATCH FOR Three warning signs that this tactic is in play: 1. Regulatory arbitrage in filings: If a company’s business model relies on exploiting gaps between regulators (e.g., an NBFC listing on the stock exchange to avoid RBI scrutiny), it’s a red flag. 2. Aggressive lobbying: If a company or sector is pushing for "self-regulation" or "light-touch oversight," it’s likely trying to preempt stricter rules. 3. Sudden regulatory U-turns: If a regulator reverses a decision after industry pressure (e.g., the RBI’s 2022 digital lending guidelines being diluted after protests), the first movers are already shaping the rules.
This newsletter describes documented business tactics and systemic patterns based on public records, regulatory orders, and published financial journalism. It does not make allegations against any individual or entity. Readers are encouraged to consult primary sources and form their own conclusions.