Once the economy was liberalised 20 years ago and the floodgates were thrown open to multinational corporations, a group of Indian businessmen got together to lobby the government for protection. Multinational corporations, they argued, were ages ahead of them in terms of production efficiencies, technology, marketing shenanigans and financial firepower; so there was no way they would be able to survive the onslaught. Import duties, they alleged, were being brought down very steeply, without any reform in the domestic tax structure. It was the beginning, the worst pessimists among them said, of the second wave of colonisation, and Indian businessmen should count their days on their fingers. They, therefore, demanded from the government a level playing field vis-à-vis the foreigners. They were the Bombay Club.
On November 10, 1993, eight industrialists – Lala Bharat Ram, Lalit Mohan Thapar, Hari Shankar Singhania, M V Arunachalam, B K Modi, C K Birla, Rahul Bajaj and Jamshyd Godrej – handed over a note to this effect to Dr Manmohan Singh, the then finance minister. The note welcomed competition in the market but urged the government to take steps “to enable them [Indian businesses] to play their rightful role in the industrial development of the country”.
The government took the Bombay Club very seriously. So, in the mid-1990s, a few years into the new economic order, the government allowed Indian companies to raise preference shares of up to 25 per cent of their issued capital. Since such shares do not carry any voting power, this was a good way for Indian businessmen to raise money without giving up control. The government justified the protectionist move on the grounds that it provided a level playing field to Indians. It also admitted that it had received numerous representations from industry for this relief.
And when businessmen complained that they were being dumped by their partners from abroad because they weren’t needed any longer, the government made it mandatory for foreign companies to get a “no-objection certificate” from their local partners before they could go solo. There was some abuse of this provision as well; old technical collaborations were dusted out by many businessmen because this was easy rental income. The provisions have been diluted in the last few years.
Fears were also expressed that foreign institutional investors had come to dominate the market — the indices go up when they buy and go down when they sell. Everybody now realises that the global fund flow is very efficient and will always get diverted to markets that offer the best opportunities. The principal complaint of the Bombay Club was the rapid reduction in import duties. Arun Bharat Ram of SRF remembers meeting top government functionaries, including economist Raja Chelliah, with evidence that there was “negative protection” for domestic producers of nylon tire cord.
Twenty years later, hardly any businessman or industry association lobbies for protection. The expression “level playing field” has fallen into disuse. The last such attempt was some years back when domestic engineering companies, private as well as state-owned, wanted to block the entry of low-cost Chinese machinery that had become popular with power producers; but it met with little success. The only protection that industry seems to be seeking these days is from the free trade agreements that the government wants to sign. Otherwise, the debate is dead.
There are other signs too that the fear of the overseas predator has abated and India has become part of the global business community. Companies routinely discuss their numbers – performance, targets and so on – in dollars, though they may not be listed in the United States and are, therefore, not required to furnish their accounts in that currency.
At the forefront of the Bombay Club was Rahul Bajaj. Today, his son, Rajiv, has reshaped Bajaj Auto in such a way that all threat perceptions have dissolved into thin air. Thus, he has got out of the low-volume and low-margin business of scooters, and is confident that he has the products to take on the best in the world. The technology accessible to Bajaj Auto, he recently told Business Standard, is not much different from the Japanese motorcycle makers’. What matters, he says, is the right imagery for the products and salesmanship — something Bajaj Auto has mastered in recent years. Or take the example of the Munjals. Even ten years ago, life without Honda was unthinkable for them. Today, they are happy to part ways! This is a serious mindset change in less than a generation. Helplessness has given way to supreme confidence.
In some cases, protection has helped. Or take the example of K K Modi of Godfrey Phillips India, the cigarette maker. In the years after liberalisation, nobody would have given him any chance. Twenty years later, he talks of feeding the economy segment of the world cigarette market from his factories in India, and is drawing up plans to eat into market leader ITC’s market share. He has bought 11 per cent from Philip Morris, his partner, and the 36-36 joint venture (the rest is with the public and institutions) has become 47-25 in his favour. He has also reworked the agreement with Philip Morris — it cannot ever recall the brands it has given to Godfrey Phillips India (Four Square, Red & White, Cavenders etc). He is able to dream big because the country does not allow fresh foreign investment in tobacco.