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Home > Business > Columnists > Paranjoy Guha Thakurta

Shourie's selective memory

August 11, 2003

Dhirubhai Ambani was an amazing entrepreneur who aroused extreme responses in people. Either you loved him or you hated him. There was little or nothing in between.

However, there is at least one important individual who had started out disliking the man who had founded the Reliance group of companies, India's single-largest privately owned corporate conglomerate, before becoming his admirer if not a faithful follower.

He is none other than Arun Shourie, former economist with the World Bank and one-time crusading journalist who is now the high-profile Union Minister for Communications, Information Technology and Divestment in the Atal Bihari Vajpayee government.

One should not expect anybody to speak ill of a departed person on the occasion of his death anniversary.

However, Shourie's explanation for his '180 degree turn' with regard to his acquaintanceship with the late Dhirubhai Ambani seems selective and incomplete.

Before one attempts to unravel a part of what is undoubtedly a complex and convoluted story, let us first go through what Shourie said on a rainy morning in Mumbai in the presence of a galaxy of luminaries from the world of Indian business and politics.

The occasion was a function held on July 6 for the delivery of the First Dhirubhai Ambani Memorial Lecture by the President of India A P J Abdul Kalam.

(For references to what Minister Shourie said that morning, one would be depending on the full text of his speech reproduced in the Indian Express newspaper on July 8.)

The minister stated that he first learnt about Dhirubhai through the articles of his former colleague S Gurumurthy, Chennai-based chartered accountant and convenor of the Swadeshi Jagran Manch.

(The SJM, an organisation espousing the cause of economic nationalism, is affiliated to the Rashtriya Swyamsevak Sangh, the ideological parent of the ruling Bharatiya Janata Party).

Shourie claimed the point of most of the articles written by Gurmurthy during 1986 and 1987 -- many of which he had co-authored -- "was that Reliance had done something in excess of what it had been permitted to do: that it had set up capacities in excess of what had been licenced, that it was producing in excess of those capacities."

The minister then stated: "Most would say today that those restrictions and conditions should not have been there in the first place, that they are what held the country back. And that the Dhirubhais are to be thanked, not once but twice over: they set up world class companies and facilities in spite of those regulations and thus laid the foundations for the growth all of us claim credit for today. . ."

Shourie then paraphrased what Austrian economist Freidrich von Hayek, the guru of most believers in free enterprise capitalism, had said: "…by exceeding the limits in which those restrictions sought to impound them, they helped create the case for scrapping those regulations…"

Before moving on to what Shourie reminisced about his meetings with the late Dhirubhai Ambani, let us briefly examine the minister's contention about what "most" of the Express articles written by Gurumurthy and him had stated about the Reliance group and the way it was encouraged by the government headed by Indira Gandhi.

In the humble opinion of this correspondent, Shourie and Gurumurthy's series of articles on the Reliance group contained much, much more about the Ambani family controlled corporate empire and the government of the day than the fact that Reliance group companies had often produced more than their licenced manufacturing capacities.

Besides, even if one does not agree with the thrust and tenor of the laws of the land as they existed at a particular point of time, the fact that a corporate group was accused of violating these laws cannot be denied.

1986 was a crucial year for Dhirubhai. He suffered a stroke in February that year. A few months later, the Express began publishing a series of articles by Shourie and Gurumurthy, which meticulously detailed a host of ways in which the Indira Gandhi government had gone out of its way to assist the Ambanis.

One article was on the subject of how the Reliance group imported "spare parts", "components" and "balancing equipment" of textile manufacturing machinery to nearly double its production capacities. The article provocatively claimed the Ambanis had "smuggled" in a plant.

Another story detailed how companies registered in the tax haven, Isle of Man, with ridiculous names like Crocodile Investments, Iota Investments and Fiasco Investments had purchased Reliance shares at one-fifth their market prices.

Curiously, most of these firms were controlled by a clutch of Non-Resident Indians who had the same surname, Shah.

Though the then Finance Minister Pranab Mukherjee had to change a reply he gave in Parliament on the investments made by these firms, an inquiry conducted by the Reserve Bank of India could not find any evidence of wrongdoing.

Yet another article detailed how the group had been the beneficiary of a "loan mela" -- a number of banks had loaned funds to more than 50 firms that had all purchased debentures issued by Reliance Industries.

Vishwanath Pratap Singh was one of the few politicians who took on the Ambanis. In May 1985, as finance minister in Rajiv Gandhi's government, he suddenly shifted imports of PTA from the OGL (Open General Licence) category. At that juncture, Reliance needed to import this product to manufacture polyester filament yarn.

It was found that the group had "persuaded" a number of banks to open letters of credit that would allow it import almost one full year's requirement of purified terephthalic acid (PTA) on the eve of the issuance of the government notification changing the category under which PTA could be imported.

It was hardly a coincidence that soon after V P Singh fell out with Rajiv Gandhi, various tax agencies of the Indian government raided the premises of the Express group.

Things got even more difficult for the Ambanis after Singh became Prime Minister in December 1989.

In 1990, government-owned financial institutions like the Life Insurance Corporation and the General Insurance Corporation stonewalled attempts by the Reliance group to acquire managerial control over Larsen & Toubro, one of India's largest construction and engineering companies.

Sensing defeat, the Ambanis resigned from the board of the company after incurring large losses. Dhirubhai, who had become L&T chairman in April 1989, had to quit his post to make way for D N Ghosh, former chairman of the State Bank of India.

The mid-eighties were also a period during which the Reliance group got locked in a bitter turf battle with Bombay Dyeing headed by Nusli Wadia.

The two corporate groups were producing competing products -- Reliance was manufacturing PTA and Bombay Dyeing, di-methyl terephthalate (DMT).

Wadia lost the battle and reportedly became the source of information for many of the Express articles against the Ambanis written by Shourie and Gurumurthy.

In 1985, the Mumbai police had accused a general manager in a Reliance group company of conspiring to kill Wadia, a charge that was never established in a court of law.

Eight years later, a newspaper owned by the Ambanis would accuse Wadia of illegally holding two passports and played up the fact that he was Mohammed Ali Jinnah's grandson.

By this time, Shourie had built his bridges with the Ambanis and the newspaper concerned, the Observer of Business and Politics, would carry a regular column written by Shourie for which he was suitably remunerated.

In May 2002, as Union minister for divestment in the Vajpayee government, Shourie presided over the sale of 26 per cent of the equity capital of the former public sector company, Indian Petrochemicals Corporation Limited (IPCL), to the Reliance group in May this year.

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By gaining managerial control over IPCL, the Reliance group has been able to dominate the Indian market for a wide variety of petrochemical products.

Speaking on the occasion of Dhirubhai's first death anniversary on July 6 this year, Shourie pointed out that Reliance's bid for IPCL was twice as high as that of its nearest rival, the public sector Indian Oil Corporation and this resulted in "immediate" as well as "huge" gains for both the government and the country.

The minister added that "there had been unbelievable pressures throughout to disqualify Reliance".

"The position that eventually prevailed within the government was that the Cabinet had earlier settled guidelines for qualifying and disqualifying bidders," Shourie said.

He stated that the "pressures brought not just this transaction…but almost the whole divestment process to a halt."

During this period, Shourie said that he had not been contacted by Dhirubhai "directly or indirectly" even once.

"But obviously he (Dhirubhai) was getting to know what was going on -- for which mere journalists like me don't even know there are places," the former journalist quipped in his ministerial avatar.

After it was formally announced on May 18, 2002 that Reliance's bid for IPCL had been successful, Dhirubhai called up Shourie and spoke to him in a voice "choked with emotion."

"I know what you have been put through. Anyone else would have given up. I will never forget. I don't care about business. I care about relationships. No one in my family will ever forget," the late Dhirubhai reportedly said over the phone.

Shourie then said: "Actually, I hadn't realised that the contest had meant that much to him. I had merely been implementing government policy."

The minister, in this case, is perhaps being a bit too naïve. Surely he knew that there would not have been "unbelievable" pressures on him -- from various quarters including from with the Union Cabinet -- if so much had not been at stake for the Reliance group.

The Reliance group had been eyeing IPCL, one of the government's navratnas (or nine jewels), for at least four years. Why? The reason is disarmingly simple.

By being at the helm of affairs at IPCL, the Ambanis are now able to control at least two-thirds of the total Indian market for all kinds of petrochemical products.

More significantly, the Reliance group is able to control between 70 per cent and 90 per cent of the market for specific products such as paraxylene, polypropylene, mono-ethyl glycol (MEG), poly-butadene rubber (PBR), poly-vinyl chloride, di-methyl terphthalate (DMT), low and high density polypropylene (LDPE and HDPE) and so on.

It had been reported in newspapers that the Cabinet was split down the middle on the issue of handing over managerial control of IPCL to Reliance.

It was even claimed that Prime Minister Vajpayee had to personally intervene to break the deadlock and support Shourie's position. There were also reports of senior officials in the Prime Minister's Office lobbying in favour of the Ambanis.

The Reliance group bagged the 26 per cent stake in IPCL for Rs 1,491 crore (Rs 14.91 billion) by bidding Rs 231 per share against Rs 128 bid by IOC, Rs 110 by Nirma and an official "reserve" price of Rs 131.

Why did the Ambanis bid as high as they did? This question is relevant since the market price of the IPCL scrip had stood at Rs 92 on April 17, 2002 and had thereafter gone up to Rs 133 on May 15 that year.

Having lost out earlier in its bids to acquire stakes in IBP (formerly Indo-Burma Petroleum) and Videsh Sanchar Nigam Limited (VSNL) to IOC and the Tata group respectively, the Reliance group made no mistakes on this occasion.

The Ambanis made sure their bid for IPCL was unassailable. In order to achieve this goal, the Reliance group was willing to pay a hefty premium on the market price of the share -- so that the group could completely dominate the Indian market for petrochemicals.

The country's market for petrochemicals is currently growing at roughly 15 per cent per year against an international growth rate of 5 per cent. India is expected to soon become the third largest market for petrochemicals in the world after China and the United States.

There are a few important questions relating to this episode that remain unanswered. Why did the IOC bid so low for IPCL's shares?

Did the public sector petroleum behemoth seriously contemplate tying up with the Oil & Natural Gas Corporation (ONGC) to put in a joint bid for IPCL? Why did a contest that was expected to have a photo-finish end up with the Reliance group yards ahead in the race?

As India's largest petroleum refining and marketing company, the government-owned IOC had lodged a strong protest when it was disallowed by the government from bidding for the shares of its smaller sisters, Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL).

The former IOC Chairman M A Pathan had argued that it would be clearly discriminatory on the part of the government if Reliance was allowed to bid for IPCL while denying IOC the opportunity to bid for HPCL and BPCL.

A monopoly is supposed to be bad, irrespective of whether it is in the private sector or the public sector.

As a matter of fact, many economists would argue that if a monopoly has to exist, it is better that it be controlled by the government (or the representatives of the people) than by private entrepreneurs.

Clearly, such logic did not cut much ice with Vajpayee and Shourie. The divestment minister claimed that a monopoly is not necessarily such a bad thing provided market dominance is not abused.

Further, he claimed that free imports would also ensure that domestic manufacturers remained "honest" and did not fleece consumers.

The effective level of protection the government has provided to imports of petrochemical products is currently at the peak tariff level, varying between 30 per cent and 50 per cent.

Given the clout wielded by the Ambanis in the corridors of power in New Delhi, it does not seem likely that customs duties on imported petrochemicals would be brought down in a hurry.

The relatively high import tariffs also help the group encounter consumer resistance to higher product prices at home.

IPCL will prove to be a veritable gold mine for the Reliance group. IPCL's free reserves in the region of Rs 2,700 crore (Rs 27 billion) were more than what the Reliance group had to shell out and the replacement cost of its existing assets would exceed Rs 10,000 crore (Rs 100 billion).

The divestment commission  headed by G V Ramakrishna had categorically observed that "care should be taken while pre-qualifying bidders to ensure that the strategic sale does not lead to market dominance."

All such arguments clearly did not cut any ice with Shourie and Vajpayee.

The government also ignored the opposition to the divestment from Keshavbhai Thakkar, president of the IPCL Employees' Association, which is affiliated to the Bharatiya Mazdoor Sangh (the trade union body that owes its allegiance to the RSS).

Thakkar had pointed out that it was inexplicable why the government did not appoint a proper chief executive of IPCL for almost two years before it was privatised.

The last full-fledged chairman and managing director of IPCL, K G Ramanathan, had left his job and the Indian Administrative Service to join the Reliance group together with a number of key executives.

The trade union leader had claimed that the employees' association at IPCL was "deliberately" kept out of the bidding process.

Shourie surely believes the decision to allow the Reliance group to acquire control over IPCL was in the interests of the nation. But not everyone agrees with him.

As M K Venu wrote in the Economic Times: "…many basic raw materials continue to attract peak tariffs. The government has not heeded the unorganized user industry's plea in this regard. (Friedrich von) Hayek may have had something to say on that!"

The doyen of free enterprise, Hayek had pointed out in his book The Road to Serfdom that a clear distinction needs to be drawn between the "rule of law" and "arbitrary government," Venu has pointed out, adding that the Austrian economist believed that the government should create a level playing field for all players.

Shourie says there can only be one cobbler in a village. It is, however, questionable whether this analogy is applicable to the giant petrochemicals manufacturing industry.

Be that as it may, Shourie in his speech on July 6 did acknowledge that Dhirubhai had taught him an important lesson.

Recounting a conversation between the late textiles tycoon and the media moghul Rupert Murdoch, Shourie quoted Dhirubhai telling Murdoch that he should not only have met all the "right" people during his visit to India but that he should also have met the "wrong" people.

Shourie quipped towards the end of his speech: "A guru mantra! And I can testify from personal knowledge, that one must follow it (Dhirubhai's advice to Murdoch). I face the cost of not following it every day as I try to implement the government's decisions on divestment."

The minister would indeed have encountered less opposition if he had bothered to listen to some of his political and ideological opponents on the government's privatisation policies.

Such consultations would surely have made the process of privatisation much smoother.

But then, I guess, one lives and learns.

One only regrets the fact that Shourie has been quite selective in telling the world how he turned "180 degrees" in his relationship with the late Dhirubhai Ambani.

For that, would we have to wait for the minister's biography?

 The author is Director, School of Convergence @ International Management Institute, New Delhi and a journalist with 25 years of experience in various media -- print, Internet, radio and television.



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Paranjoy Guha Thakurta




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Number of User Comments: 6




Sub: wrong terminology & wrong comparision

Mr. Guha is uses the term 'Loan Mela' but this term is used for loans which are provided to un-qualified applicant and where neither principal ...


Posted by M Patel





Sub: Socialism is dead; wake up and smell coffee!

Two words just about sum up this article: arrant nonsense. Does Thakurta believe that readers do not know his own leftwing leanings, and his own ...


Posted by RR





Sub: Government monopoly

I bet the author has never felt the full fury of government monopoly. Does he remember what the stiuation was when the government was in ...


Posted by Linus





Sub: It is the memory he may be regretting about.

However, one must remember, and remember especially well, that Gurumurthy and Arun were really made the scape-goats. The real player and the sponsor behind what ...


Posted by chanakya





Sub: Who cares

Your talk is typical of your roots.Crib, crib, crib.Crib about problems, crib about solutions, crib about everything under the sun.All this coz of the one ...


Posted by Nagi




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