The law is an ass

If the past is any precedent, the government will most likely agree to the soft drink major Pepsico India's proposal that it be exempted from complying with the condition it had agreed to when it bought out local bottlers in the country. This was that, after a certain period of time, it would divest 49 per cent of its stake in its bottling arms to the public. The US firm's case is that a similar exemption was given to its rival, Coca-Cola. The issue, however, goes beyond Pepsi and Coke. At its heart, it is about the sanctity of the government's approval process. The agency under test is not a soft drinks company, it is the government itself.

The experience so far has been that the government has had little conviction about its own actions when it imposed conditions while giving approvals. For instance, the telecom licences for fixed lines specified that firms would set up a certain number of phones in the rural areas. When the firms did not meet even a tenth of their obligations, the government chose to waive the obligations. In the case of the cellular mobile phone players, everyone knew the firms had worked out pyramid structures to bypass the 49 per cent FDI limit, yet for years the government did nothing; when it did, it hiked the limit to 74 per cent! When even this was breached (in the spirit of the law, though perhaps not in its letter), the government merely ratified what had happened. Indeed, reports suggest that the Essar Group wants to pledge its Indian shareholding overseas. The RBI objected to this as violating the 74 per cent FDI cap, but the finance ministry thinks the transaction is kosher. Similarly, the ink was not even dry on the Group of Ministers' decision to limit the size of SEZs when the commerce minister said the government could consider hiking the cap.

There are several such instances that can be cited (like export commitments made in return for customs duty concessions, which were honoured mostly in the breach, with little or no penalties being applied). The moral of the story is the same""if you have the guts or the chutzpah to challenge the system, the rules will be changed to suit your purpose. In the old licence-permit raj days, this meant setting up a petrochemicals plant way above the permissible limit, while others set up sub-optimal plants that were within what the law prescribed""the law-breaker gained from the economies of scale and, over a period of time, the government removed the limits by arguing that they were stupid in the first place (which they may well have been, but what about a thought for those who chose to go by the rule-book?). The moral of all these stories is clear: if the government wants to be taken seriously by those who come to it for approvals, it has first to take itself seriously.