Author: Seshadri Chari
Publication: Organiser
Date: April 28, 2002
Introduction: It is nobody's argument
that we can on with our economy and live in exclusion. But in a market
driven economy proper controls are not just necessary but their absence
will ruin the whole economy. When it comes to policy matters one case cannot
be decided on the merits and de-merits of that case alone
Even as the new Chairman and CEO
of the Coca-cola, Douglas N Daft was addressing shareholders at its AGM
in New York numerous organisations gathered outside the meeting venue to
protest Coke's treatment of its employees. These organisations were demanding
that Coke should negotiate a worldwide pact to protect workers' rights
and safety. Back home at New Delhi, Coca-cola was actually addressing the
concern, though only of the management. The company has approached the
Government for a five-year moratorium on the divestment clause in its foreign
collaboration agreement. Under this agreement the company has to disinvest
49 per cent of equity through Initial Public Offer (IPO) by July 2002.
The company has requested for a waiver from the clause of the entry agreement.
A similar effort made in October last year citing mounting losses as the
reason was rejected by the Government. The latest request, however, has
raised many eyebrows and questioned the wisdom of the policies on the operation
of MNCs in India. Clearly, the Coke is asking for more.
Coca-cola seems unwilling to list
its equity on the Indian bourses, as it does not want to share the gains
of its value addition and build up an Indian shareholder base. Needless
to say, instead of stating the obvious the company has cited two reasons.
The company's balance sheet, according to the management in India is lossridden.
Going for a public issue at this stage would mean that the company would
have to actually offer their shares at a NAV that could be much less than
the face value. Only then they would be keeping within the SEBI guidelines.
The second, and a more important reason the Coke has cited is that its
rival, Pepsi, is not bound by any such law.
The company has shown that till
March 2001 it has accumulated a loss of Rs 2178 crore. However, Coke reported
operating profits for the year 2001. It seems inexplicable how the company's
prospects went downward in such a short period of time without hitting
any major roadblock not only in India but also anywhere in the world. Sources
suggest, that the heavy loss may be due to the huge advertisement bill
that the company had to foot to outclass its rivals, both Indian and foreign.
As things stand, every FDI proposal
is evaluated and cleared by the Ministry of Commerce and Industries on
a case-to-case basis. Companies are granted permission to operate in the
country under a contract that is binding on both the Government and the
company. Such contracts must be seen on standalone basis.
What remains concealed is a different
picture. A company that sells a less than a rupee product at ten times
its value without having to share its profits with any one would not like
to give-up its advantage easily. Expectedly, it will try every trick in
the trade to prevent any move that would make it part with the booty. Moreover,
Coca-cola volunteered to decide to divest 49 per cent through IPO only
to gain entry into the lucrative Indian market.
Analysts see the Coke strategy in
the context of the ensuing cola war. India's largest trade union, Bharatiya
Mazdoor, Sangh (BMS) shot a missive to the Commerce Minister pointing out
the fact that never in history any company, Indian or otherwise has been
given relaxations on the commitments. If Coke is losing out to Pepsi in
the market race, blame the competition and not the agreement, points out
Uday Patwardhan, General Secretary, BMS.
Some market observers point out
that favouring Coca-cola at this stage would have farreaching policy implications.
"The MNCs want to grow at the cost of Indian entrepreneurs with not too
fair terms. Every Indian company, except a closely held company, has to
get listed on the bourses and follow the SEBI guidelines. If MNCs are not
required to be listed, then it amounts to not allowing Indian companies
the same turf to play", points out a financial expert.
Given the reason, it would be apt
if the Government comes out with a clear policy on FDI. Why the Ministry
should don the mantle of a regulator when there could be standard law on
investments?
Getting listed in the stock exchange
and carry out business within the framework of the law of the land is the
prerequisite of a transparent economy. Such a transparency would not only
boost the sagging confidence of the investors, it would also benefit them.
In fact the investors confidence can be said to be at its lowest ebb as
of now. When the control on capital issues was scrapped in 1991 every one
thought that the markets would shoot up and soon stabilise. But the uncontrolled
entry of a large number of loot and scoot companies mopped up a large chunk
of the investment and cheated the public. As though this was not enough
scam after scam hit the market, which was by now a dirty word. It was the
fabled IT revolution that not only lend credibility to the stock market
but also actually enlivened it. Sadly, even that is history now.
It is nobody's argument that we
can carry on with our economy and live in exclusion. But in a market driven
economy proper controls are not just necessary but their absence will ruin
the whole economy. When it comes to policy matters one case cannot be decided
on the merits and de-merits of that case alone. The argument that denial
of IPO waiver to Coke would scare the foreign capital away does not hold
much water. Most of the large MNCs are in the fast moving consumer products
markets and they are eyeing India only as a market. What is wrong in setting
our rules right and correct the anomalies of the past? All the MNCs operating
in India should be prepared to tap the Indian market on a common operational
agenda. In fact the same laws are applicable to Indian companies and it
is wrong to suggest that there is no control over domestic companies delisting.
It is not as though going through a revolving door.
All the foreign banks operating
in India are being told to comply with the RBI regulations and generally
keep to the operational guidelines provided therein. In such a case what
is wrong if a similar norm is followed in case of the MNCS? There is no
reason for the industry ministry to go in for a volte face and relax die
norms for the sake of a few dollars or a few bottles of Coke. Every one
should learn to live with the financial discipline.
