The Film Industry in India: An IndiaOneStop synopsis


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India has the world's biggest movie industry in terms of the number of movies produced (around 800 movies annually). It is a great sector for foreign investment by corporatised entertainment companies. Though risks are high on a per-movie basis, the risk spreads out across a number of films. However, the domestic film-making industry, despite its prolificacy, is yet to acquire the character of professionalism on a large scale.

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Motion pictures came to India in 1896, when the Lumière Brothers' Chinematographe unveiled six soundless short films in Bombay (now Mumbai). This was just one year after the Lumière brothers (inventors of cinematography) had set up their company in Paris.

The first Indian on record to make a movie was Harishchandra Sakharam Bhatvadekar (nickname: Save Dada). He made one short film on a wrestling match at the Hanging Gardens in Bombay, and another on the playfulness of monkeys. Both these shorts were made in 1897 and were publicly exhibited for the first time in 1899 using Edison's projecting kinetoscope inside a tent which the film maker had himself erected.

India's first feature film – named "King Harishchandra" – was released in 1913. It was made by Dhundiraj Govind Phalke (nickname: Dadasaheb Phalke, 1817-1944). This was a silent movie.

By 1920, film making had taken the shape of an industry. 

The first talkie made in India was "Alam Ara" (produced by Imperial Film Company) released in 1931.

Until the 1960s, film-making companies, many of whom owned studios, dominated the film industry. Artistes and technicians were either their employees or were contracted on long-term basis. Since the 1960s, however, most performers went the freelance way, resulting in the star system and huge escalations in film production costs. Financing deals in the industry also started becoming murkier and murkier since then.


India has the world's biggest movie industry in terms of the number of movies produced (around 800 movies annually, mostly in the Hindi language. Tamil, Telegu, Bengali and Malayalam are the languages in which most of the non-Hindi films are made).

Today, the technology of film-making in India is perhaps the best among all developing countries though the films themselves remain mostly repetitive in storyline and content. Superior movies, in thematic and creative terms, are made in many developing countries with less sophisticated technologies.

According to unofficial estimates available in January 2001, the Indian film industry has an annual turnover of Rs. 60 billion (approximately US$1.33 billion). It employs more than 6 million people, most of whom are contract workers as opposed to regular employees.

The above statistics cannot however be used to calculate the movie industry's share in the GDP or employment generation. This is because a vast proportion of the turnover takes place outside the legal economy.

Though India’s overall entertainment industry is taking on professional colours (with the rise of TV production companies), India's movie industry per se remains highly informal, personality-oriented and family-dominated. 

Until the late 1990s, it was not even recognised as an industry. Even though it has since been recognised as an industry, banks and other financial institutions continue to avoid the industry due to the enormous risks involved in the business. Two banks, Canara Bank and Indian Bank, have reportedly lost heavily by financing films. However, the prospects of bank financing and risk insurance are becoming brighter, albeit at a slow rate (as explained further down this report).

As a result, the financing of films in India often remains shrouded in mystery.

Surprisingly, however, the oft-murky world of film industry’s finances has not tainted the film industry’s perception in the general public eye or in the government’s attitude. Even though many famous people from the movie industry have risen to positions of political and social responsibility, including seats in federal and state parliaments, none of them have cared to reveal – or have been under pressure to reveal – the truth about the industry's finances.

Some developments in the years 2000 and 2001 – including the arrest of a leading financier, Bharat Shah for his alleged links with a fugitive gangster – have not yet brought to public knowledge the inside economics of the industry. 

The rot or financial amorality of India's film industry seems to have set in since the 1960s. Until the 1960s, film producers would get loans from film distributors against a minimum guarantee: this meant that the distributors had to ensure that the film was screened in cinemas for a fixed minimum period. If this minimum guarantee was fulfilled, the producers had no further liability. Profit or loss would be the destiny of the distributors.

(There are exceptions, however. India's most celebrated film-maker, the late Satyajit Ray, is known to have pawned his wife's jewellery to part-finance his first film).

Star System: The financing pattern, centred on distributors, is suspected to have changed since the 1960s when the studio system collapsed and 'freelance' performers emerged. This gave rise to the 'star system' in which actors and actresses ceased to have long-term contractual obligations towards any studio or film production firm (such as the now defunct Bombay Talkies, New Theatres and Prabhat Studios). Rather, they began to operate as freelancers commanding fees in proportion to the box office performance of their recent films. This increased costs of film production since the more successful actors and actresses hogged major proportions of the producers' budget.

In the changed system, distributors would pay 50 per cent of the film-making cost leaving it to the producer to get the rest from other sources. 

The 'other' sources are: 
– conventional moneylenders (who lend at an interest rate of 36-40 per cent annually);
– non-conventional but corporate resources,
– promissory note system (locally called 'hundi' system): this is the most widely prevalent source, and
– underworld money: about 5 per cent of the movies are suspected to be financed by these sources.

Film production thus became a risky business and the relationship with usurious money-lenders strengthened over the years.

As at the start of 2001, a reasonable budget film in Hindi could cost US$1.75 million. A low budget Hindi film can be made for even as low as Rs. 15 million.

A big budget Hindi movie can cost in excess of US$30 million. The 'bigness' of the budget is attributable mainly to the high fees paid to 'stars', celebrated music directors, high-end technologies and expensive travel costs to shoot in exotic locations worldwide. 

At the time of writing, it is believed that 'stars' like Shah Rukh Khan and Salman Khan are paid Rs. 20 million (US$440,000) per film. In contrast, script writers and film editors remain poorly paid. In an interview, India's so-called 'superstar' Amitabh Bachchan (whose wax statue stands at Madam Tussaud's in London) attributed the lack of strong storylines to the poor money paid to writers. 

India has a National Film Development Corporation (NFDC)  which finances some films. A few film makers, who would find it hard to obtain finance from the regular sources, have been financed by the NFDC. However, NFDC cannot be considered to play a central role in the film industry because it finances too few films which, too, are not of the type that has made the Indian film industry so vibrant. It however goes to the NFDC's credit that, without it, some of India's best film makers wouldn't have got a break in the industry.

Another shortcoming with the NFDC is that it funds films only at the production stage while ignoring the just-as-important marketing stage.

The film industry is currently losing unestimated volumes of revenue due to competition from local cable operators who illegally beam newly released movies into the drawing rooms of their subscribers.


This is not intended to be a scare story, however. As mentioned above, the overall entertainment industry in India is taking on professional colours and this will change the culture of the film industry too. Some film production companies, such as Mukta Arts, have made public share issues, thus keeping out of the world of murky financing.

The Film Federation of India is actively seeking to make film financing a viable proposition for banks. It is likely that films would also be insured to offset possible losses for banks.

The granting of industry status to the film industry will eventually allow overboard financing of films, though this will result in production of fewer films than at present.

Stricter enforcement of copyright law will help the film industry in its fight with cable operators. 

Foreign entertainment companies, with steady revenue streams, can do good business if they invest in Hindi and other Indian language films. Despite high risks on a per-movie basis, the risk spreads out across a number of movies.

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