After becoming established in Bombay, Dhirubhai used to make frequent trips to New Delhi. He frequently went in the company of Murli Deora, a fellow yarn-trader who was then working his way up the Congress Party machine in Bombay. Deora later became the head of the Bombay Municipal Corporation – the city’s mayor – then for decades was representative for South Bombay, the area containing the business district and elite apartments, in the Lok Sabha (the lower house of the Indian parliament).
Dhirubhai and Deora used to catch an early flight up to Delhi and park their bags with a sympathetic clerk at the Ashoka Hotel while they did their rounds of politicians and bureaucrats to speed up decisions on import licences. Too poor to afford an overnight stay, they would collect their bags and any messages and fly back to Bombay the same evening. Later, Dhirubhai could afford to keep a room ready at the Ashoka, a government hotel built in a vaguely Mughal monumental style, and eventually appointed a full-time lobbyist for Reliance in New Delhi.
For the lesser bureaucrats, journalists and others who helped to promote the company’s interest in various ways, Dhirubhai’s standard gratuity was a suit or sari length of material made by his factory. Gradually Dhirubhai also learned the channels for large-scale political donations in the top echelons.
In 1966 Indira Gandhi had become prime minister following the sudden death of Lal Bahadur Shastri, India’s leader since the death of her father Jawaharlal Nehru in 1964. With her only ministerial experience being the Information portfolio under Shastri, but a lifetime of watching her father and her late husband Firoze Gandhi in politics, Indira was well versed in Congress Party machinations, although she had a shallow grasp of policies. Power steadily exacerbated a deep psychological insecurity and a melancholic nature that led her to place inordinate trust in unworthy people in her inner circle, as well as on her headstrong youngest son Sanjay.
Among the sweeping economic changes of 1969 was one small legislative amendment that had the effect of entrenching corruption, although its ostensible intention had been the opposite. A section of the Companies Act that allowed directors to make political contributions to any party was repealed in 1969. As one of the officials who supervised the amendment later admitted, this led to political payments by ‘black’ money. ‘Companies had to generate black funds by under/over invoicing, fictitious sales etc. A pattern of wholesale corruption and large-scale corporate malpractices, through double-accounting, over-invoicing and under-invoicing, came into being, creating massive unaccounted-for and therefore untaxed funds.’1
One of the conduits to Indira Gandhi was a private secretary named Yashpal Kapur, a Hindu refugee from the western Punjab in the 1947 Partition who displayed the financially grasping tendencies many members of this community brought to Delhi. In All These Years, her memoir of the Nehru and Indira Gandhi years,2 the well-connected magazine publisher Raj Thapar recalls Kapur and notes that, by 1971, his role had taken on a ‘weird’ shape. ‘Yashpal Kapur, that oily cupbearer, was growing in stature by the minute and his corruption was becoming legend and his ability to get Indira to sign on the dotted line became the bazaar gossip,’ she wrote. Thapar’s senior bureaucrat husband Romesh, who early had been a trusted confidant of Indira, felt duty-bound to tell Indira. ‘He sought an appointment, went to the office, gave her a run-down of what the average person was thinking, of how the PM’s office now harboured a nest of corrupt people led by the favoured Yashpal. She was furious. “You know I would never touch a penny.” “Maybe. But you are seen as the queen bee. The others do the collecting.”’ Thapar went on:
An unending string of stories were current about Yashpal’s power, how he was sought by the high and mighty, how he was well in with Sanjay who was beginning, bit by nibbling bit, to tamper with the administration in his favour. Yashpal was of course no longer in the PM’s office. His place had been taken by his nephew, R.K. Dhawan, who was rapidly to assume much vaster powers than his erstwhile uncle and together they were to manipulate patronage in this vast country.3
Dhirubhai not only cultivated Yashpal Kapur, says one old acquaintance, ‘he practically purchased him’. In due course, the relationship passed on to R.K. Dhawan, who moved eventually from the prime minister’s office under Indira and then Rajiv Gandhi into parliament and ministerial portfolios himself.
Over the years, Dhirubhai developed close ties with politicians in many parties. These included such figures as Atul Bihari Vajpayee, senior leader of the Hindu-nationalist Bharatiya Janata Party who became prime minister of a brief minority government in 1996 and later for a momentous six years, and several on the left such as Chandrashekhar, another short-term prime minister in 1990–91. But his strongest connections were always with the Gandhi coterie within Congress, even though he never liked Indira’s socialistic policy phase in 1969–70, then later with P.V. Narasimha Rao, who took over the Congress mainstream and prime ministership in 1991.
The links were not always based on money, however. Dhirubhai is widely acknowledged to have been a masterful exponent of his own business visions, which have generally been more far-sighted than those of almost anyone else among India’s business leaders. He was quick to grasp that many Indian politicians, officials and bankers could be captivated by intellectual excitement or flattery at being in the inner circle of such an emerging tycoon. Should such individuals later show signs of self-interest or personal financial difficulty Dhirubhai or one of his lieutenants would pick up the signals. A post-retirement job, a business opportunity for a child, indirect funding or a burst of inspired publicity might then result for the person concerned.
Dhirubhai also played on the perception that he was an outsider and ‘upstart’ who deserved help to break through the glass ceilings of vested interest and privilege in the business community. That there was an inner circle in the ‘Licence Raj’ – the allocation by New Delhi of licences to set up factories and expand production capacity – was evidenced in 1967 by a report by a Bombay University economist, R.K. Hazare, to the Planning Commission, which revealed that the Birla group of companies had received 20 per cent of the licensed industrial investment approved by the government between 1957 and 1966. The early support given by Ghansyam Das Birla to Mahatma Gandhi had certainly paid off in the independent India ruled by Congress. Writing in 1981 on Birla’s 88th birthday, the journalist T.N. Ninan noted that the Birla companies had multiplied from twenty in 1945 to about 150. ‘If any industrial house benefitted from the licence-permit raj’, wrote Ninan, ‘it was the house that Birla built.’4
Birla’s rapid expansion contrasted with the moderate growth of the Tata group, the Parsi-controlled empire that had grown strongly under British rule. In 1981 the then head of Tata, J.R.D. Tata, told an interviewer: ‘I think it wrong for a business to run newspapers [the Birlas had set up the Hindustan Times, the strongest paper in New Delhi], wrong for him to play a political role … But it does seem that others who do not mind mixing politics with business have done extremely well for themselves.’5
One of Dhirubhai’s earliest backers, the banker and politician T.A. Pai, falls into the category of intellectual sympathiser. Pai came from an extraordinary upper-caste family based in the tiny village of Manipal on the Karnataka coast, far south of Bombay. It is still an out-of-the-way place, on a barren hilltop overlooking a sweep of palm trees and exposed beaches fronting the Arabian Sea. In 1925 the Pai family had established the Syndicate Bank there. By the mid-1960s it was the tenth largest Indian bank, with 190 branches. As well as being bankers, the Pais used their wealth to found a college at Manipal in 1942. It has since grown into one of India’s largest private universities, attracting fee-paying students from Malaysia, the Middle East and the West Indies.
The Pais prided themselves on being discoverers and nurturers of talent. A small museum at Manipal is devoted to the family patriarch T.M.A. Pai (older brother of T.A. Pai) and his teachings. One cherished precept: ‘A pigmy nourished well can become a giant.’ According to K.K. Pai, a family member who be
came general manager of the Syndicate Bank, Dhirubhai was introduced to T.A. Pai in the mid-1960s by a former bank employee. The bank was interested in developing its foreign exchange activities and began handling some transactions for the young spice and textile trader. ‘Our first impression was that he was very enthusiastic, very enterprising, a man of ideas,’ K.K. Pai said. ‘From the beginning I had the impression he was a go-getter. He was very persuasive, very convincing in his arguments. He was able to present his case and business proposals very clearly. He gave me the impression he was reliable and knew what he was doing.’
The Syndicate Bank became the main financier for Reliance Textile Industries when it started manufacturing soon afterwards, in 1966, providing much of the Rs 1.5 million needed to buy its first four knitting machines. Another early backer was the Industrial Credit and Investment Corporation of India (ICICI), whose chairman Harkisan Das Parekh, another Gujarati, also took a shine to Dhirubhai’s big schemes.
Dhirubhai continued to impress the Pais by his insistence on the best equipment and personnel, as well as his knowledge of the market and its trends. He also made conspicuous donations to educational institutes run by the family. Throughout the late 1960s Dhirubhai kept in close touch with T.A. Pai, making sure he was among the first to call whenever the bank chief visited Bombay from Manipal and to give advance notice of any major initiatives. Pai’s nephew Ramdas Pai, who later became president of Manipal Academy of Higher Education, remembers Dhirubhai coming to Bombay’s airport in 1968 to greet him on his first trip back from studies in the United States. T.A. Pai in turn promoted Reliance where he could, even to the point of carrying samples of its Vimal-brand material in his briefcase to show others.
The bank continued to be the major lending institution for Reliance even after Indira Gandhi nationalised it and all India’s other leading banks and insurance firms in July 1969. Although the Pais were unhappy about losing their asset, family members continued to hold the top executive positions for many years. Their policy of directing credit to small entrepreneurs, agriculturalists and business new- comers – which built up a portfolio of very small but sound loans for the bank – were exactly what Indira had hoped to achieve by the bank nationalisation generally.
Ironically, the government takeover led to the steady bureaucratisation of management and to lending directed by political connections rather than commercial viability. This destroyed the soundness of the Syndicate Bank and all the other twenty nationalised banks. By the end of the 1980s the banks’ non-performing assets or bad loans greatly exceeded their capital base by a wide margin and, but for endless capital infusions by the treasury, almost all would have become insolvent. When private sector banking was again encouraged, after the 1991 liberalising reforms, the Pai family took over a small institution based in the south, Lord Krishna Bank. If offered the chance to buy back Syndicate Bank, family members said, they would refuse it.
Immediately after his bank was taken away Indira consoled T.A. Pai by drafting him to apply his ideas as the first chairman of the nationalised Life Insurance Corporation of India. Soon afterwards, he was inducted as a Congress member of the upper house of parliament (the Rajya Sabha, or States’ House) to enable him to become her government’s Minister of Commerce, handling trade matters. Later in the 1970s Pal became Minister for Industries, which gave him a decisive role in the allocation of industrial licences. He continued as minister during the suspension of democracy under Indira’s declaration of Emergency between 1975 and early 1977.
Pai died in 1981, having realised at the end – his relatives say – that his talents had been misused as a respectable cover by the corrupt circle around Indira and Sanjay. ‘The enterprise of adventurers always sucks in plain, decent men,’ commented the Indian Express’s editor, Arun Shourie, not long after Pai’s death. ‘The number of times men like C. Subramaniam [another of Indira’s ministers] and the late T.A. Pai lied on Maruti [Sanjay’s car project] far exceeded whatever Mrs Gandhi said about it.’
For Dhirubhai, Pai’s elevation meant that, as well as still having friends in a major bank, he now had a friend in a key position to approve import schemes and manufacturing plans. In the early 1970s the immediate pay-off was favourable changes in the import-export regime. Dhirubhai was not a law-breaker but had a creative attitude towards regulation. As one former colleague recalled: ‘He would say: “You should not do anything illegal. First of all, the law should be changed.”’ ‘He would not go into anything which was unlawful,’ agreed Kothary of the Silk and Art Silk Mills Research Association (Sasmira). ‘Everything he did was permitted to do by any other man. But his reading of the system! You have a law, the interpretation which you make – he would take advantage of a particular system in a way which others could not see. By the time other people started anything the government was also waking up and the system would be changed.’
• • •
The key to profits in the Indian synthetic textile business through the 1970s was access to supplies of the basic filaments and yarns. Influenced by Mahatma Gandhi’s notions of self-reliance and the virtues of home-spun cotton and by a strong lobby of cotton-growers, New Delhi had discouraged use of synthetics – regarding them as a textile for the wealthy.
India already had a few factories making rayon, nylon and polyester. But these domestic sources met only a fraction of the demand, particularly for polyester, as Indians began to appreciate its durability, lustre, colour-fastness and ease of washing. As well as in pure polyester fabrics, the fibre was in demand for blending with cotton at both the large industrial mills and the widely dispersed power-loom workshops. Former colleagues say Dhirubhai resisted any temptation to smuggle in supplies. ‘Everyone knew smuggling was there, but Dhirubhai would not want to get involved,’ one former Reliance manager said. ‘Government support meant too much to him.’ Instead, during the 1960s Dhirubhai had steadily become master of the trade in replenishment licences, which were entitlements to import yarn earned by exporters of finished textiles and garments. After the wars with China in 1962 and Pakistan in 1965, India’s external trade balances were under strain and the government was ready to entertain more contrived schemes to boost export earnings.
Dhirubhai’s coup was to persuade Pai in 1971 to authorise imports of polyester filament yarn (PFY) against exports of nylon fabric. Previously, nylon fabric exporters had earned some rights to replenish their stocks of nylon fibres through imports. Dhirubhai argued that if he could sell nylon or other manufactured textiles (known as ‘art silks’) at Rs 4.25 a yard, more than double the price stipulated in the old scheme, the exporter should be rewarded by permission to import PFY, which was in greater domestic shortage because local production was far below demand. This resulted in what was called the Higher Unit Value Scheme, which made Dhirubhai a fortune while it lasted. At that time, the domestic price of PFY was seven or more times higher than the prevailing international price. Even if the nylon or polyester exports fetched only a quarter or a third of cost, this was more than offset by the 600 per cent or more profit on the PFY imports.
Reliance went into a high-profile export drive, targeting some of the weaker economies of the world. Poland was one focus, with fashion shows being mounted in Warsaw and delegations of Polish trade officials lavishly hosted by Dhirubhai in Bombay. Another was Saudi Arabia, where Dhirubhai had another old Aden colleague, Bharat Kumar Shah, then working as a trader in Jeddah and acting as Reliance’s Mid-East ‘coordination manager’. Dhirubhai would take out full-page advertisements in the Times of India to announce special charter flights taking his export products to foreign markets.
But many senior figures in the textile industry were never persuaded that this export business was anything but bogus. ‘If these goods were not saleable at two rupees, how could they sell at four rupees?’ one remarked. According to this theory Dhirubhai would have provided his own export earnings, by sending the money out to the ostensible buyer overseas through the illegal foreign exchange cha
nnels known as havala (accepting the 20 per cent havala premium on the official exchange rate). The goods would be sent to a free port such as Singapore or Dubai, to avoid customs duty, then be disposed of at giveaway prices, left to rot on the docks or even dumped at sea. The effective outgoings would be the 20 per cent havala premium on the funds sent out and the 60 per cent of the same funds actually spent on buying PFY overseas for import back into India. The returns would be this 60 per cent multiplied by seven or more. The profit would be 425 per cent of the outlay. And, as long as Dhirubhai had the ‘export remittance’ arriving in his account in Bombay, he could claim credit for doing his bit for India’s trade balance.
In an interview with the magazine BusinessIndia in April 1980, Dhirubhai said Reliance Commercial Corporation accounted for more than 60 per cent of the exports made under the Higher Unit Value Scheme. ‘The schemes were open to everyone,’ he said. ‘I cannot be blamed if my competitors were unenterprising or ignorant.’ Textile trade sources familiar with that era say this was not exactly the case. The adoption of the Higher Unit Value Scheme was not widely publicised in 1971. Dhirubhai had a clear run of one or two years before other exporters began trying to take advantage of the same scheme, or putting up similar proposals for other categories of textile exports. One of these exporters, Bipin Kapadia, later recounted his experience to Bombay police who sought it as background to the sensational murder conspiracy case of 1989 (see chapter 13).
Over two years in the early 1970s Kapadia’s family company Fancy Corporation expanded its exports from Rs 2.5 million a year to Rs 15 million on the expectation of receiving import entitlements for PFY from the Commerce ministry’s Chief Controller of Imports and Exports. ‘On one pretext or another’ the authorities withheld the import licences over a 30-month period in 1972–74, causing Kapadia a huge loss. Between 1971 and mid-1975 Kapadia made many trips to New Delhi to plead with officials. At his hotel, Kapadia told the police, ‘I used to receive repeated calls on telephone offering me company of women, threatening me of dire consequences, if I were not to leave the persuasion of my import licences.’ During one such business trip, Kapadia was approached in the hotel parking lot at night by a knife-wielding man who called out to him. A friend pushed Kapadia out of the way and the man ran off.
Mahabharata in Polyester Page 6
