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Yeh Coke Mange More

Yeh Coke Mange More

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.

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