The Bombay Club Syndrome Can'T Be Ignored Away

The truth, however, does not lie in the answer to either of these questions. Neither have the demands voiced by the Bombay Club been met, nor has the movement lost its drive. Today the fact is the Bombay Club syndrome has spread itself far and wide. The concerns expressed by a few industry leaders in 1993 are today shared by a lot more people in different sections of the economy.

Even the present finance minister, P Chidambaram, shares them. How otherwise does one explain Mr Chidambaram's rationale for announcing in his 1996-97 budget that companies will be allowed to issue non-voting shares equivalent to 25 per cent of their issued capital. This will go a long way in meeting the demand for a level playing field, said Mr Chidambaram to justify his decision. Subsequently, the finance minister as well as his finance secretary, Montek Singh Ahluwalia, have defended the controversial decision on the ground that there was such a demand made by a section of Indian industry.

 

Take a look at the capital market. The sentiments that drove the Bombay Club in 1993 are now being expressed by senior functionaries of the Bombay Stock Exchange. A representative of a foreign institutional investor can get to fix an appointment with the country's finance minister without any difficulty. But an Indian merchant banker or a senior official of the stock market has to wait for days before he can see the finance minister or even the finance secretary, says a senior BSE functionary.

Even the fears recently expressed by the Bombay Stock Exchange will remind you of the Bombay Club concerns. In his presentation to the finance minister, the BSE President showed how the movement of the Sensex was overtly influenced by the transactions of foreign institutional investors. The suggestion was obvious. The FIIs are calling the shots even at the stock markets. If they increase their investment, the Sensex moves up and if they pull out of the market, the Sensex drops.

The BSE president even had a package of suggestions ready to ensure that the stock markets do not remain so vulnerable to FIIs' transactions. The prevailing mood in the stock market is no different. Everybody believes that the markets should not get influenced by the FIIs to such a degree. The revamping of the Sensex will be of some help, but the brokers and the BSE functionaries obviously want the government to do a lot more.

The corporate sector has also been gearing up rapidly to build safeguards against any foreign investor's intentions to increase his stake. A needless and a completely irrational scare over how foreign investors can acquire majority interests in Indian companies through FII investments and GDRs was recently created. That such a scare could be created even though there was no change in foreign investment norms shows that the Bombay Club sentiments are very much alive.

This is further corroborated by several promoters of companies recently going in for preferential issues to consolidate their control. Even before the rules could be changed, Bajaj Auto has got its shareholders' approvals for buying back its own shares.

This is once again a reflection of the Indian promoter's desire to retain his holdings. Similarly, Zandu Chemicals has obtained its shareholders' approval for issuing non-voting shares pending the formulation of the norms by the government. Common among all these moves by the corporates is the fear against the foreign investors.

Whether it is described as irrational or entirely baseless, the fear of losing control of companies is stalking Indian companies. The Bombay Club thrives on such fears. The finance minister, therefore, cannot afford to ignore such fears. Nor can he shove aside representations from the capital market representatives to make the stock market less dependent on FIIs. If the points made by the Indian companies and the BSE functionaries are illogical or incorrect, the finance minister needs to make that extra effort to explain to them how the government views such issues. The government's approach so far has been to ignore the reality of a Bombay Club that is gradually enhancing its appeal to not only Indian companies but also the capital market. The sooner it recognises the rapidly spreading Bombay Club syndrome and gets down to discussing the issues with leaders of the corporate sector and the capital market, the better for the Indian economy.