Guarding their turf

Business reacted with caution to the reforms of 1991, and demanded protection fr
om multinationals and imports. Twenty-five years later, traces of that demand ca
n still be found
Bhupesh Bhandari
August 31, 1991 was a hot and humid Saturday in New Delhi. While people went abo
ut their routines, businessmen started to queue up at 7 Race Course Road, the re
sidence of Prime Minister P V Narasimha Rao, in the morning.
This was Rao's first interaction with business after he had taken charge on June
21. He had inherited an economy that was a shambles: foreign exchange reserves
had depleted to precarious levels, growth had plummeted and inflation was high.
Rao, along with his finance minister, Manmohan Singh, had devalued the rupee in
two phases on July 1 and 3 and had, in the industrial policy of July 24, done aw
ay with industrial licensing, slashed the list of industries reserved for the pu
blic sector, allowed 51 per cent foreign investment in a whole range of sectors
and relaxed the dreaded Monopolies & Restrictive Trade Practices Act.
Now was the time to take stock. The political opposition to the reform, from out
side and within the Congress, had been quelled. Rao was noticeably relaxed for t
he meeting with the businessmen. For company, he had called Jairam Ramesh, offic
er on special duty in his office. The guests were from the country's top industr
y associations: Rahul Bajaj and Dhruv Sawhney from CII, SK Birla from Ficci and
Viren Shah from Assocham. Each association was allotted 75 minutes.
Among the first to oppose enhanced foreign ownership was auditor S Gurumurthy an
d the Swadeshi Jagaran Manch. Gurumurthy argued that India ought to liberalise f
irst before it opens up to foreigners. Businessmen gravitated towards him. "Many
people from industry were in touch with me," he remembers, but refuses to name
them.
Thanks to his role in exposing the Bofors payoffs, and the fact that the Manch h
ad RSS's support, Gurumurthy's plea wasn't entertained by the Congress governmen
t. "I had no connection with anyone at the Centre," he admits. "Why would Manmoh
an Singh listen to me?"
With no sign of relief, businessmen, otherwise reluctant to criticise the govern
ment, began to openly air their grievances. Ramesh in his 2015 book, To The Brin
k And Back: India's 1991 Story, mentions that Birla, the Ficci president, expres
sed his reservations about the red carpet being rolled out for foreigners. "What
I was pressing for was that foreign investment should be freed up but, followin
g the very successful Asean pattern, majority should always remain in Indian han
ds, at least till such time that Indian industry became competitive," Birla wrot
e to Ramesh on October 1, 2015 in reaction to the account in his book.
And at a Ficci seminar, Anand Mahindra argued for internal reform first and exte
rnal liberalisation thereafter, which made Ramesh tell him that he sounded like
a young Jawaharlal Nehru University student.
In an email, Mahindra's office says Ramesh has made, at best, a selective extrac
tion of his comments which suited the purpose of his narrative. "In most debates
, Mahindra would point out, as an academic illustration, the different models of
liberalisation followed by Japan and Korea in terms of internal liberalisation
preceding external liberalisation," the email adds, "but always took the stand t
hat once the die was cast, it was in the interest of business to use competitive
pressures to become more efficient and world class."
Nothing worked. In his February 29, 1992 speech, while presenting the Budget for
1992-93, Singh said in plain words that he wouldn't relent. "Concern is sometim
es expressed that the policy of welcoming foreign investment will hurt Indian in
dustry and may jeopardise our sovereignty. These fears are misplaced," he said.
"We must not remain permanent captives of the fear of East India Company, as if
nothing has changed in the past 300 years!"
Before that, another matter had begun to give businessmen serious heartache. In
his Budget speech of July 24, 1991, Singh had brought the peak rate of customs d
uty from 300 per cent to 150 per cent, and had indicated that more was on the wa

y. Then, on August 29, he appointed well-respected economist Raja Chelliah as th

e head of a committee to suggest tax reforms.
Businessmen now made a beeline to Chelliah and told him that if protection from
imports was withdrawn abruptly, they would all sink. "We showed to Chelliah that
there was negative duty protection in many sectors," says Arun Bharatram. "Our
infrastructure was backward, most industries were sent to underdeveloped areas w
here power plants had to be run on diesel, and the ports took one month to clear
consignments."
None of that moved Singh. In his budget for 1992-93, he cut the customs duty pea
k from 150 per cent to 110 per cent and said this was the "beginning of a proces
s in which our customs duties are gradually reduced, over a three- to four-year
period, to levels comparable with those in other developing countries".
The next year, he brought about sweeping cuts in customs duty, in line with Chel
liah's recommendations, and brought down the peak rate to 85 per cent. Singh ack
nowledged that this would put industry under pressure but argued that with the d
evaluation of the rupee and reduction in customs duty on raw material, it would
be able to stand its ground.
Those demanding protection were shaken. Sometime in mid-1993, top businessmen, i
ncluding Bajaj, Hari Shankar Singhania, Lalit Mohan Thapar, Birla, Ashok Jain an
d Keshub Mahindra, met at The Belvedere Club at The Oberoi in Mumbai to take up
the issue with the government. They came to be called the Bombay Club. Their dem
and was a level playing field vis-a-vis multinationals.
They perhaps decided to lobby on their own because the industry associations wer
e lukewarm to their pleas. "Our concern was not about the direction (of reform)
but the speed," says Jamshyd Godrej, who was an active participant in all CII de
bates on policy and reform.
The Bombay Club handed over a five-page memorandum to Singh. (It demanded an equ
al opportunity but didn't mention "protection" even once.) According to Ramesh,
Singh perfunctorily passed it on to Montek Singh Ahluwalia who "filed it". That
was the end of the matter.
It was clear to the members of the Bombay Club that the government was not too h
appy with their initiative. As a result, the group dissipated: they never met ag
ain. Birla, in his letter to Ramesh, insisted he was never a part of the group.
"Actually, I opposed them because they were not keen on many aspects of deregula
tion."
Bajaj declined to be interviewed for this report. In October 2014, he had writte
n in Business Standard: "All others kept quiet after the finance ministry asked
them not to go public after they made their representation - except me."
Did anything come out of all this? B K Modi says it did. Thus, when new sectors
like telecom, banking and insurance were opened up for the private sector, forei
gners were allowed only a minority stake. Modi wanted to start a bank (he had de
cided to call it The Himalayan Bank) but lost out to the Hindujas who launched I
ndusInd Bank. But he did manage to get the licence to operate telecom services i
n Punjab and Karnataka, which he subsequently sold and made his riches.
The Congress-led government made other conciliatory gestures towards business. T
hus, JRD Tata was in 1992 awarded the Bharat Ratna, the country's highest civili
an award. Singhania, a few weeks before his death in February 2013, had told me
how Rao offered to make him the Indian ambassador to the United States.
"Rao said we cannot remain enemies to the US all the time. It has to be made a f
riend. Diplomats will do what they can do for that. But you people can succeed b
etter," Singhania recollected. He had to decline the offer because his wife was
unwell and he didn't wish to leave her alone.
Sometime in 1998, Honda issued an ultimatum to its partner in India, Arun Firodi
a: either he should buy its 51 per cent stake in Kinetic Honda, or it will buy h
is 19 per cent shares. Eventually, Firodia bought out Honda but it set the alarm
bells ringing. Multinationals were now allowed to set up fully-owned Indian sub
sidiaries; that rendered their local joint ventures useless. Honda had another p
artnership in the country: Hero Honda.
Amit Mitra, the secretary general of Ficci and now the finance minister of West
Bengal, was at the forefront to seek protection for Indian businessmen against a

rm-twisting by multinationals. Jairam calls him the "greatest champion of protec

tionism".
The result was Press Note 18 of December 14, 1998. Any multinational that wanted
to come on its own would have to convince the Foreign Investment Promotion Boar
d that it wouldn't hurt its existing collaborations. The rule was in effect till
2005.
Deepak Talwar, who facilitated the entry of several multinationals, says this he
lped many Indian businessmen "negotiate better exits". Some Indians dusted out t
heir old technical collaborations and extracted their pound of flesh.
In August 1997, ICI, the British multinational, bought a stake in Asian Paints,
the all-Indian leader in the paints market. There was widespread alarm that a bl
ue-chip homegrown company would soon be gobbled up by a multinational. As ICI's
purchase required the nod of the Foreign Investment Promotion Board, the Asian P
aints promoters, Abhay Vakhil, Ashwin Choksi and Ashwin Dani, decided to challen
ge it.
According to Talwar, this prompted the government to put in place ground rules f
or cross-border takeovers, hostile or otherwise. The Takeover Code of the Securi
ties & Exchange Board of India made such attempts process-driven. The enactment
of the Competition Act protected smaller enterprises from monopolistic abuses.
On the face of it, the demand for protection has disappeared, except when domest
ic industry is hurt by cheap imports, especially from China. "The Bombay Club un
derestimated the resilience of Indian industry," says Suresh Krishna. Talwar say
s the only evidence of protection is the government's reluctance to sell the L&T
and ITC shares it owns.
Still, a section of industry craves for protection, instead of achieving product
ivity gains, to survive. It cheers loudly every time a safeguard duty is announc
ed.
Some believe foreigners shouldn't be given unfettered access. A C Muthiah says t
he Indian partners should be made to hold majority in automobile companies becau
se multinationals came with their own component suppliers and have therefore cre
ated only a handful of Indian multinationals, "We must have some control," he sa
ys.
Bajaj, the last man standing at the Bombay Club, has little to complain: Bajaj A
uto is India's most valuable two-wheeler maker. In 2010, when he was a member of
the Rajya Sabha, Bajaj raised issues like "duty-free car imports under Indo-EU
FTA" and "impact of Indo-Thai FTA." Old worries die hard.