HVK Archives: The rights wrong here
The rights wrong here - The Financial Express
Rahul Bajaj
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27 August 1997
Title: The rights wrong here
Author: Rahul Bajaj
Publication: The Financial Express
Date: August 27, 1997
The debate set off by Rahul Bajaj in this newspaper and other forums about
the role of for foreign capital in India appears to have touched a raw
nerve among India's liberal elite. Many newspapers have taken a negative
view of Bajaj's call for setting equity limits for MNCs and protecting
Indian companies from external takeovers for some time.
They are worried because Bajaj is not exactly in a minority among Indian
industrialists in feeling like this: privately, 85 per cent of Indian
businessmen admit that they hold views similar to those of the Bombay Club.
But whether it is Asian Paints or other issues that concern them, they are
officially taking politically correct stands for fear of being branded
protectionist and being accused of being self-seeking businessmen.
Remember CII secretary general Tarun Das's views on "cowboy" MNCs last year
and how it got roundly denounced by the intelligentsia as being xenophobic,
anti-consumer and protectionist? That's what Indian businessmen are afraid
of being labelled. Though Das actually voiced the real concerns of his
constituency, no businessman wanted to publicly support him. Indian
businessmen have genuine fears about being run over by the sheer financial
muscle of foreign companies, but few government babus, and their media
admirers, seem concerned about how to help them get over this disability.
Bajaj's views have touched a raw nerve precisely because he asked the right
question: are we prepared to face a future where our best companies and
brands are owned by multinationals?
The liberalisers are uncomfortable with this question because if they
answer yes, they would suddenly sound anti-national. If they said no, they
would have to back policies that help Indian industry overcome their
disadvantages during a period when they have neither the money nor the
government backing necessary to safeguard their companies from takeover.
Since they can't say either yes or no, India's phony liberals are doing the
next best thing: taking a leaf out of the Marxists' book and labelling all
people who raise these questions as protectionist, xenophobic,
anti-consumer, anti-shareholder...
But these labels are wrong--at least insofar as they are referring to the
best Indian companies. No businessman in his right mind would oppose
liberalisation in India--he needs more of it. I am deliberately labelling
Indian liberals as fake because they espouse a cause that balls for more
freedom to MNCs but not the same for Indians. They think being sympathetic
to Indian business is infra dig.
Whether they like it or not, the fact is India today operates an
anti-national policy towards domestic business which, if implemented in any
of the south-east Asian nations or even Europe and America, would be
roundly criticised. If anybody has any doubts about the sweeping nature of
this statement they should ask themselves the following questions:
Can they think of even one major South Korean or Japanese company of the
domestic stature of a Parle or Asian Paints being taken over by a western
company?
If China tomorrow makes a bid for Microsoft, IBM or AT&T, do they think the
US government would allow this to happen? China, incidentally, has the
resources to do that.
Does any European or Asian company allow a foreign airline to operate on
domestic routes?
The honest answer of most of us to these questions would be no, no and no.
But replace any of these countries' names with India and the answer of our
liberals would be yes, yes and yes. That's what is fake about our
liberals-they do not want to acknowledge that protectionism cannot be
defined in one way for other countries and differently for Indians. Why
this double standard? Is nationalism all right for every other country
except India? Are our liberals ashamed of being Indians? Do they think
they need to curry favour with the western press by pretending to be more
liberal than their peers?
Each one of their arguments can be debunked. But let's just talk about the
business of shareholder value-a point which has been much belaboured in the
Asian Paints debate. The proposition: it does not matter to Asian Paints
shareholders whether the Danis, Vakils and Choksis run the company or ICI.
Whoever offers better shareholder value should run the company.
Which, in theory, is fine. The problem when you apply this yardstick to the
Indian context is simple: are we talking long-term shareholder value or
short-term? It is nobody's case that Asian Paints did not create
shareholder value-in fact, it was one of India's best value creators. ICI
in India, on the other hand, was a far poorer value creator. For two
decades it blundered along, first by merging disparate companies in itself,
and then selling them off one by one.
ICI has now zeroed in on paints as the area to grow-but it does not want to
do it the hard way. By working for it in the marketplace. So it ropes in
its British parent to do the dirty work by taking over India's best paints
company The markets, sensing the emergence of a new monopoly in paints, are
happy to push share prices up. And this is supposed to be evidence that ICI
brings better value to Asian Paints. The point is: if the reverse were
true-with Asian Paints bidding for ICI India-share values would rise too.
Take another example. Over the next five years, Telco cannot create
shareholder value because it has to invest heavily in its car project. So
payouts will be difficult to maintain and share prices may rule weak. At
this point, if Daimler Benz makes an open offer for Telco, share prices
would zoom. So can Daimler Benz be said to be creating more shareholder
value just because the market is enamoured of big foreign names? Sure,
Telco has to ultimately create shareholder value. but Ratan Tata will never
be able to do that if Telco gets taken over today-before his Indica can
deliver the goods. But Ratan Tata is much too conservative to say what he
feels. unlike Rahul Bajaj. He also fears the barbs of India's liberals.
Let's go back to another auto example. A few years back, Venu Srinivasan
of TVS-Suzuki was under pressure to give his Japanese partner a controlling
stake. The partner was squeezing him by refusing to help him bring out new
models, and TVS-Suzuki shares hit the trough. At this stage, India's phony
liberalisers would have said: "Since Suzuki is capable of giving better
shareholder value, why don't you hand over control? After all, what
technology do you have? Under your leadership, shareholders are losing money."
Now cut to the present. Venu Srinivasan has completely turned around the
company by launching a slew of two-wheelers without much help from Suzuki.
Today the TVS-Suzuki share is creating value like never before. Would it
still have been better to let Suzuki take it over?
Forget Indian companies. The markets think MNCs create great value.
Cosider Coke. It bought out Ramesh Chauhan's brands and then took a
foolish decision, born of its multi-national ego, that it would promote
Coke and not Thums Up. For its shareholders back home. Coke actually
destroyed value by not utilising the assets it bought in India-namely, the
Parle brands it bought. Now, several years and a thrashing by Pepsi later,
it is back to backing Thums Up.
Luckily for Coke's shareholders in the US, India is too small a market for
them to care if their management made a hash of its entry. However, it is
doubtful if India's liberalisers will be so charitable when it comes to
their own industrialists who goofed. If Indian businessmen want to succeed.
it is time they spoke up like Rahul Bajaj to make the Chidambarams of the
world listen. If they don't hang together, they will hang separately. By
seeming to agree with the empty rhetoric of the fake liberalisers, they
will end up with the cleaners.
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