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The Companies Act (2013) implemented in 2015 marked a turning point for the presence of women directors in corporate India. This Act required all listed firms to have at least one woman on their board. In a recent paper, Mahima Vasishth, Navya Srivastava, and I looked at the trends of female leadership in corporate India. We examined whether the presence of women in boards led to better firm performance and firm culture, and whether there were any positive spillovers to top management positions. We also scrutinized whether director characteristics of men and women such as age, education, and independence changed after the mandate.

In just a year after the Act was implemented, the percentage of listed firms without women on boards dropped from 53 percent to under 10 percent, highlighting the policy’s immediate impact. Moreover, the share of women on boards also doubled from 5 percent in a year.

Despite this progress, India still lags global benchmarks. By 2021, the average share of women on boards in India was just over 17 percent, lower than the global average of nearly 20 percent. It was significantly behind countries like France, where women held over 43 percent of board seats. More concerning is the representation of women in management roles. In 2019, only 17 percent of senior and middle management positions in India were held by women, a stark contrast to the global average of nearly 33 percent.

There is a lively ongoing debate on the impact of gender composition on corporate boards on firm performance, with diverging evidence based on different national and cross-country settings. A 2018 global study found a strong positive association between share of women in boards and firms’ financial performance.

Gender gaps in corporate leadership—stylized facts

We not only found a sharp increase in the share of women on boards across most firms within a year after the board mandate was implemented, but surprisingly, the average firm had hired well beyond the mandate over time. By 2023, the share of women in boards had reached nearly 16 percent. This possibly indicated the positive experience gained by firms by hiring more women directors, an issue we explore in our paper.

Unfortunately, the positive developments on boards did not extend to top management positions. The share of women in C-suite positions remained stagnant, ranging between 15 percent and 18 percent over the five years following the board mandate. Worse still, more than half of the firms listed on the NSE still had no women in their top management teams in 2023.

Female director profile following the mandate: who was being appointed?

A criticism of gender quotas is the potential for “tokenism”, where women are appointed as non-independent directors (for example, through familial connections) merely to fulfill a quota rather than for their qualifications or expertise. However, our data indicate that this concern is largely unfounded in the Indian context. The share of independent women on boards increased after the mandate, surpassing the share of independent men.

We also found that the women’s average education levels had caught up with men’s by 2012 and surpassed them in the following years. The education gap widened further in the year after the Board mandate. The implementation of the quota did not lead firms to compromise on the quality of women being hired, at least regarding education levels.

Even before the mandate was enforced, women appointed to boards were generally younger than their male counterparts, with an average age gap of around seven years. Following the mandate, this gap widened, as the women added to boards were significantly younger than both their male counterparts and the women already serving on boards. This suggests that the mandate may have led to a new generation of female leaders joining the corporate sector.

We also find that women directors were stretched thin post-mandate, holding significantly more directorships relative to men. This may indicate a shortage of qualified women or that firms were not casting their nets wider in their recruitment efforts to find women.

Regarding the degree of participation in board meetings, women directors attended fewer board meetings than men before the mandate. This attendance gap narrowed post-mandate, with meeting attendance improving for both men and women by nearly 7 percentage points and 15 percentage points, respectively, over the next five years. These developments suggest that a more gender balanced board facilitates better board monitoring and oversight of firms.

Women directors and firm outcomes—did financial performance and organizational culture improve or deteriorate?

In our sample of over 1,400 firms listed on the National Stock Exchange, covering the period 2006-20, we found a significant positive relationship between the presence of women on boards and financial performance, where the latter was measured by profits, returns on capital, debt-equity ratio. However, this relationship held for medium- and large-cap firms, but not for small firms. The improvement in financial performance for the larger firms persisted over time, whereas the positive impact on smaller firms dissipated quickly.

Regarding organizational culture, we collected data from over 2,000 firms by web-scraping employee reviews and sentiment scores, starting in 2017. Our analysis indicates that firms with sustained female board representation had better outcomes, but only if there was at least one woman in top management. Employee reviews indicated higher levels of job satisfaction, improved career growth opportunities, and better perceptions of job security, when women were present in both boards and top management.

Why do more gender-balanced boards lead to better firm performance?

There are a few plausible mechanisms identified in the literature that explain the positive relationship. First, gender-balanced boards may help substitute for weak corporate governance, with women directors potentially enhancing oversight and monitoring. Second, discriminatory hiring practices may result in women of higher quality being appointed to boards, contributing to better firm performance. Our analysis supports both mechanisms. Third, women bring diverse perspectives and networks that may improve boards’ decision-making, leading to better financial performance, risk management, and employee welfare.

Policy implications

As India’s experience shows, implementing gender-based quotas on board membership improves a firm’s financial performance. This makes a business case for creating more gender-balanced boards. Expanding the representation of women in top management in the presence of gender-balanced board, has the additional benefit of enhancing employee satisfaction. This makes the case for introducing gender-based quotas or targets for top management positions.

In the specific case of India, to maximize corporate performance, additional efforts must be made to cast a wider net to find qualified women. This should not be too difficult because women are attaining higher education levels in a wide spectrum of fields that are on par with men.

Ratna Sahay is an Honorary Professor at NCAER. Views are personal.

As India sets its sights on Viksit Bharat—a vision of becoming a developed and prosperous nation—one crucial factor could determine the success of this ambitious goal: the full and active participation of women in the workforce. Despite the nation’s significant growth since the economic liberalization reforms of 1991, the decline in female labour force participation (FLFP) is a troubling trend that could hinder the realization of Viksit Bharat. To achieve this vision, India must address the underutilization of its female talent urgently.

The statistics paint a concerning picture. Female labor force participation in India dropped from 31.2% in 2005 to just 20.3% in 2019, even as the economy expanded. This paradox threatens to derail India’s progress toward becoming a developed economy. Currently, India ranks 135th out of 146 countries in the World Economic Forum’s Global Gender Gap Report, highlighting the significant work that remains to be done.

A key issue lies in the changing dynamics of India’s economy. Historically, agriculture has employed most women, but female employment in this sector saw an average annual decline of 2.23% between 2011 and 2018. Mechanization and urbanization have displaced women from agricultural roles, yet many have not transitioned to industrial jobs, moving directly into the service sector instead. While the service sector has provided some opportunities, it cannot absorb the large numbers of women exiting agriculture.

The industrial sector, which could have been a vital source of employment for women, has underperformed. Female employment in industry grew at a sluggish 1.58% annually between 1991 and 2022, with a decline of 0.55% from 2012 to 2018. In contrast, female employment in the service sector grew by 2.38% annually over the same period. However, the manufacturing sector’s contribution to India’s GDP has stagnated at around 15%, well below the global average of 27% for emerging economies. This stagnation not only limits economic growth but also restricts viable employment opportunities for women, undermining the vision of Viksit Bharat.

The recent Union Budget 2024-25 provides some hope for addressing these challenges. A significant portion of the budget—around ₹7 lakh crore—has been allocated for infrastructure development, essential for industrial growth and increasing employment opportunities for women. Improved infrastructure could help tackle barriers such as inadequate transportation, which often limits women’s access to industrial jobs. Furthermore, the budget has allocated ₹1.6 lakh crore specifically for women-centric programs, including initiatives like Beti Bachao Beti Padhao, which support girls’ education and lay the groundwork for higher FLFP in the future.

The service sector, despite its growth, presents its own challenges. It often requires higher education and specialized skills, which are not accessible to many Indian women, particularly those from rural or economically disadvantaged backgrounds. In 2020, only 12% of Indian women aged 15 and above had completed secondary education, compared to 22% of men. This educational gap exacerbates the problem, making it difficult for women excluded from both agriculture and industry to find sustainable employment in the service sector.

To address this, the government has earmarked ₹45,000 crore for the Skill India Mission, focusing significantly on training women. This aligns with the need for policies that promote female education and create pathways for women to enter and remain in the workforce across all sectors. Additionally, the healthcare sector, which received a substantial boost with an allocation of ₹2.5 lakh crore, presents high potential for female employment, particularly in nursing and allied health services, supporting the call to expand and diversify the service sector to absorb more female workers.

Education is a critical factor. Women with higher education are significantly more likely to be employed in the service sector. Yet, despite these benefits, only 27% of Indian women hold wage-paying jobs compared to 74% of men. This disparity underscores the urgent need for policies that promote female education and create clear pathways for women to enter and remain in the workforce.

The economic cost of excluding women from the workforce is enormous. The McKinsey Global Institute estimates that closing the gender gap in the labour market could add $770 billion to India’s GDP by 2025. This figure represents the untapped potential of millions of women whose contributions could be crucial to achieving the vision of Viksit Bharat.

Policymakers must rethink their strategies. Investment in female education is essential, but it is equally important to create a conducive environment for women in the industrial sector. This includes addressing barriers such as inadequate infrastructure, restrictive social norms, and the lack of supportive work environments. Moreover, the service sector needs to be expanded and diversified to offer more sustainable and accessible employment opportunities for women.

The stakes for Viksit Bharat could not be higher. India’s large young population can either propel the nation to new heights or become a burden if the potential of its women remains untapped. In a global economy that is increasingly competitive, India cannot afford to overlook the talent and contributions of half its population. The vision of Viksit Bharat demands inclusive growth, where every citizen, regardless of gender, has the opportunity to contribute to and benefit from the nation’s progress.

Souryabrata is a faculty member at NCAER, and Surbhi is a PhD candidate at IIT Bhubaneswar. Views are personal.

Constitutional independence alone is not enough. It must be bolstered with strong public accountability and transparency.

Emerging market regulators face significant challenges in maintaining their credibility when domestic and external entities level allegations against them. The Hindenburg Report’s accusations against the Adani Group and India’s Securities and Exchange Board (SEBI) have thrust the integrity of financial regulators into the spotlight, highlighting the systemic hurdles that regulatory bodies in developing capital markets must overcome.

Without going into the specifics of this particular case, several instances have occurred in emerging markets where financial regulators have been scrutinised. These include Brazil’s Petrobras, South Africa’s Steinhoff, and Türkiye’s Turkcell. In all cases, the actions of financial regulators underwent scrutiny for potential biases influenced by corporate interests and the government’s overarching tactical economic agenda. It became clear that outside pressures only serve to make a bad situation worse. These incidents eroded public trust and necessitated years of reform to rebuild market and investor confidence.

While international firms such as Hindenburg Research are less common in emerging markets, the involvement of foreign shareholders, the global media, analysts, and credit rating agencies has amplified the attention paid to the regulatory environment in these markets. It underscores the international implications of regulatory actions undertaken by emerging market regulators and the need for a prompt and credible response.

In theory, regulatory bodies such as India’s SEBI operate independently, uphold high ethical standards, and resist undue influence. Their mission is to promote transparency and ensure fair play. But regulators sometimes find themselves trapped in the systems they oversee, serving the industry or political entities they should regulate rather than the public interest. International financial standard-setting bodies and the International Monetary Fund, as well as policy lessons from rounds of financial crisis, have strongly stressed good supervision and robust regulator governance as critical components of a stable financial system.

It is not as if advanced market economies have not experienced regulatory governance scandals. The United Kingdom (UK)’s Financial Conduct Authority (FCA) was severely criticised during the London Interbank Offered Rate (LIBOR) scandal for failing to prevent interest rate manipulation; similarly, despite numerous red flags, the Securities and Exchange Commission (SEC) in the United States faced intense scrutiny for its failure to detect Bernie Madoff’s ponzi scheme, and Germany’s financial regulator, BaFin, faced harsh criticism during the Wirecard scandal. In all instances, significant reforms to the framework governing the regulator ensued.

These demonstrate that regulatory bodies worldwide can face similar challenges in avoiding conflicts of interest, regulatory capture, and fairly and effectively policing financial markets. How the regulators react considerably depends upon the standards that govern the regulator itself.

The fortification of governance frameworks for regulators in emerging markets is paramount. One potential strategy involves constitutionally ensuring the independence of financial regulators, as Mexico has done with its central bank and other countries who have moved towards granting institutional independence to their regulators outside the executive and legislative branches of government.

Constitutional independence alone is not enough. Independence must be bolstered with mechanisms that will guarantee strong public accountability, and transparency. The role of stakeholders and whistle-blowers must be stepped up as a check and balance on regulatory governance standards allowing the reporting of unethical practices without fear of retaliation.

The following mechanisms could instill market confidence that financial regulators are operating under an accountable system of their own oversight.

One is parliamentary scrutiny (such as in the UK), where the parliament holds regulators accountable. Two, judicial review (such as in Brazil), where regulators operate within their legal mandates and the judiciary has a role in reviewing regulatory decisions. Third is active public engagement and transparency, through public consultations and transparent decision-making processes. Fourth, public disclosure of decisions and rationale where regulators regularly publish detailed and timely reports on regulatory actions. And five, engagement with stakeholders, where regulators foster open communication channels with market participants, investors, and the public to build trust and allow for feedback.

The design of the above mechanisms will be conditioned by the countries’ political culture, institutional context, and risk tolerance (in several markets, the highest importance is placed on reputational risk). Doing this is challenging in markets where political and economic institutions are weak, afflicted by State dominance, or are outmoded and in need of modernisation.

A relatively new element coming in the way of regulatory governance is the evolving financial landscape. The rapid pace of change in financial markets, the entry of new providers of financial services, and shifts in business practices, are increasing the complexity of regulatory mandates and generating new types of conflicts of interest and posing risks to a regulator’s integrity. As the economist and Nobel laureate George Stigler once said, agencies tend to respond to the wishes of the best-organised interest groups.

For SEBI, this means overcoming the public trust deficit and demonstrating its commitment to transparency and fairness. The situation with Adani and Hindenburg is special due to its international dimension. Swiftness and decisiveness are essential when a regulator like SEBI gets embroiled in a controversy or when foreign investors question its governance and integrity.

The response can take five forms. First, the regulator launches independent governance audits, makes findings public, and implements necessary reforms swiftly. Two, governments publicly reaffirm the regulator’s governance framework and independence when its credibility is threatened. Third, regulators are backed by the judiciary and legislature, particularly in contentious cases, for maintaining their governance integrity. Fourth, the regulator provides the public clear, factual, and timely information to address accusations. Fifth, regulators plan for potential crises and be prepared to respond to adverse spill-overs arising from the allegations.

The involvement of Hindenburg Research, known for its activism and short-selling strategies, is influenced by the practices followed in well-developed and internationally connected markets. Until now, such involvement was less evident in emerging markets. This was primarily due to the smaller size of companies and markets, lower levels of interconnectedness, and regulatory frameworks with a domestic bias. However, as the cross-border connections of India’s corporate and financial firms grow, and the Indian financial and capital markets integrate more with the global financial system, the likelihood of involvement of firms like Hindenburg Research will rise.

The allegations against SEBI are a stark reminder that financial regulators often are left alone to defend themselves. But, these also help regulators anticipate complex challenges. Emerging markets must construct resilient regulatory governance frameworks and put safeguards in place for regulators to act independently against the forces they oversee.

UdaiBir Das is formerly from the International Monetary Fund and currently affiliated with NCAER, and Kautilya School of Public Policy. The views expressed are personal.