The various cases against Reliance were revived. On 12 December the Central Board of Excise and Customs, through its member, K.P. Anand, issued a fresh order accusing the Bombay Collector of Customs, K. Viswanathan, of ‘inconsistent reasoning’ and ‘grave’ errors of judgement in his decision to drop the charge of smuggling in the extra polyester yarn plant. Reliance had illicitly imported four spinning lines and deserved ‘severe penal action’. Viswanathan was transferred on 2 January 1990. The new Collector in Bombay, A.M. Sinha, took the case up again before the Customs, Excise and Gold (Control) Appellate Tribunal early in February. This time the former Additional Solicitor-General, G. Ramaswamy, who had tried to nail Wadia in the Thakkar–Natarajan inquiry, was back in private practice (while a lawyer who had appeared for the Indian Express, Arun Jaitley, was now in Ramaswamy’s old role). Ramaswamy now pleaded for Reliance.
Another minor customs scandal was later unearthed. Investigators in the Central Customs and Excise Board found that in November 1982, when Reliance was assessed as owing Rs 312.8 million in duty and a court action had failed, the then Collector of Customs in Bombay, B.V. Kumar, had allowed the company to pay in 138 instalments over the next two years, resulting in an implicit interest cost to the government of Rs 30.3 million.2 Kumar was shifted in January 1990 from the Central Board of Customs and Excise.
In May 1990 the Bombay customs revisited the Reliance plant at Patalganga at less than a day’s notice and took detailed notes on machinery in the new purified terephthalic acid plant. On 11 May it issued a new show-cause notice of some 170 pages, alleging that Reliance had imported a PTA plant with a capacity of 190 000 tonnes, against its licensed capacity of 75 000 tonnes a year. The captive paraxylene plant, declared to have a capacity of 51 000 tonnes, could actually turn out about 400 000 tonnes a year, according to the customs evaluation. The under-declaration at the time of import was put at Rs 1.74 billion and the duty evaded at more than Rs 2 billion. The response from Reliance spokesmen was that the charges were part of the same vendetta, promoted by Nusli Wadia; the machinery was all covered by licences; and the excess capacity was authorised under the government’s ‘re-endorsement’ scheme.3
From January 1990 the new government had also been scrutinising the tariff protection given to Reliance. Officials from the Ministries of Finance, Textiles and Petrochemicals had been studying the import duties on polyester fibres and their ingredients, with a view to sharp cuts. According to the press reports, the government saw lower tariffs as the simplest way to cut Reliance down to size: it could be carried out almost instantly with few avenues of legal appeal and would be politically saleable as a move to cut cloth prices.4 On 25 February the government enforced a 25 per cent cut in the price of PTA.
But it was in the new corporate alliance with Larsen & Toubro that the Singh government managed to hit Dhirubhai the hardest. The financial institutions, which still had a combined 37 per cent holding as against the Ambanis’ 20 per cent, were instructed to remove Dhirubhai from the firm’s chairmanship. In early April 1990 the Life Insurance Corporation took the first steps towards calling an extraordinary general meeting of shareholders to have all the Reliance nominees removed from the board. On 19 April Dhirubhai bowed to the pressure and resigned, on condition that the three other Reliance men stayed on the board. A career manager with various public-sector enterprises and banks, D.N. Ghosh, replaced him as chairman. Ghosh’s first action was to get Larsen & Toubro to sell off the Reliance shares on which the firm had spent Rs 760 million a year earlier. The sale, at an opportune moment later in the year, actually made the firm a Rs 170 million profit. The second action was to reduce the limit on suppliers’ credit to Reliance to Rs 2 billion – and that only to cover work being done by Larsen & Toubro itself. The proceeds of the Rs 8.2 billion debenture issue, successfully floated in October 1989, were diverted to Larsen & Toubro’s own expansion in cement and machinery manufacturing.
The prize had been snatched away. Dhirubhai was left with a huge gap in his financing for his gas cracker at Hazira, for which costs had escalated from the original Rs 7.2 billion to about Rs 8.46 billion. The Indian financial institutions were talking about bridging finance, but insisting that Dhirubhai first tie up his technical agreements for the plant and get the land transferred from the Gujarat state government. They were also humming and hawing about the special funding for the flood clean-up and repairs at Patalganga. The Reliance share price sank even lower, to levels not seen since the company’s early days, hitting a low of Rs 50 in March.
Dhirubhai’s new newspaper, launched as the Observer of Business and Politics in December 1989, was not the influential voice that his son Anil and son-in-law Raj Salgaocar had expected. Dhirubhai had taken more direct control himself, as it became clear that the new government was going on to the attack against Reliance. He began to have suspicions about the paper’s editor, Prem Shankar Jha, who had been keeping company with Rani Jethmalani, daughter of Dhirubhai’s old legal and political foe Ram Jethmalani. Two trusted journalists, R.K. Mishra and B.S. Unniyal, were appointed as deputies. Jha himself had been approached by V.P. Singh in February 1990 about becoming the Prime Minister’s media adviser, but had asked for six months to make a decision. He returned from a trip to Kashmir late in March to find that two senior writers had resigned over Unniyal’s policies.
Jha warned Dhirubhai that fifty of the original fifty-eight journalists were also close to quitting. But within two weeks Jha himself had decided to quit and told Dhirubhai he was joining Singh’s office. ‘It was the only time I have ever seen him silenced,’ Jha remembered.5
The mood at Reliance became ever more defensive. For the public record, Dhirubhai and other figures put a brave face on things. But the tone of the company’s anonymous briefings to journalists became one of hurt pride, of a wrongly persecuted victim. Dhirubhai and his boys had recognised that the names Reliance and Ambani required some image work. Kirti Ambani had been hustled out of his public relations role after the murder conspiracy scandal the previous year. The ‘corporate affairs’ side of the company was greatly expanded, with the recruitment of skilled publicity managers in both Bombay and New Delhi.
In the capital, the vice-president handling government relations, V. Balusubramanian, was now working overtime cultivating politicians in the ruling coalition and the parties backing it from the outside. As in 1979, when Dhirubhai helped Indira Gandhi bring down the Janata government, he was now probing for weaknesses and susceptibilities. Both Dhirubhai and key figures in the V.P. Singh government saw it as a desperate fight to the death. ‘There was hardly a day when we did not spend several hours pondering how we might bring down V.P. Singh,’ recalled one senior Reliance executive, about 1990. ‘And I suppose that in his office there were people who spent as much time plotting how to do the same to us.’6
The government was soon falling apart by itself, in any case. Singh’s deputy Prime Minister, Devi Lal, had unilaterally announced a write-off by the nationalised banks of their small loans to farmers, a step that eroded the capital base of many banks to zero. Lal’s son, put in charge of Haryana, was proving a thuggish embarrassment. Thus compromised by his own deputy, the Prime Minister had tried to pick up the economic liberalisation he had begun under Rajiv Gandhi in 1985, through a drastic shift in the government’s investment priorities in the new five-year plan starting in April 1990. The weighting would shift from public-sector industry to agriculture and rural development, where the growth and employment response was greatest. Controls on private investment, domestic and foreign, would be relaxed. The tax system would be simplified and the tax rates eased to win greater compliance.
To help win support for reforms from the many defenders of state-directed industrial investment in the government, the economic adviser in the Prime Minister’s office, Montek Singh Ahluwalia, circulated a paper at Singh’s request in June which pointed out that India’s rising domestic fiscal deficits and increased dependence on foreign borrowings were taking it
towards an external payments crisis. India needed sharp remedial measures – including cuts in public-sector spending, a rupee devaluation and recourse to restructuring loans from the International Monetary Fund and the World Bank.
The debate was a political free-kick for the ‘bull elephant who had been pushed out of the herd, Chandrashekhar’,7 who still thought he was the rightful leader of Janata Dal. A former Young Turk of the Congress Party who had made his exit many years before Singh, Chandrashekhar was the ultimate Indian politico. From a similar upper-caste background to Singh’s, but from the gangster-ridden coal-mining district of Dhanbad in Bihar, Chandrashekhar was a man of deals and electoral trade-offs behind a conventional mantle of Nehruvian socialism. With gusto, he attacked the proposals of Singh and Ahluwalia as a sell-out of Nehru’s heritage and the enslavement of India to foreign capital. Singh backed down, and the resulting statement of policy did nothing to slow India’s drift closer to insolvency.
In early August the Prime Minister finally steeled himself to sack his deputy, Devi Lal. Then, in the pivotal decision of his prime ministership, Singh abruptly announced that, with immediate effect, 27 per cent of jobs and places in the central government, public-sector enterprises and colleges would be reserved for candidates from the ‘backward classes’ (comprising mostly members of the Hindu lower castes). This fulfilled an election promise by the Janata Dal to implement a report commissioned by the previous Janata government in 1979 from a former Chief Minister of Bihar, B.P. Mandal. It was potentially good electoral politics, as the lower castes comprised 51 per cent of the Hindu population. The other parties kept silent, knowing that Singh had beaten them to the biggest of all ‘vote banks’.
But the children of the upper castes and the well-off had no such inhibitions. The Mandal policy intensified their nightmare of finding jobs after graduating, as 22 per cent of places were already reserved for the former Untouchables and the ‘tribal’ population. Students staged anguished protests in New Delhi streets, provoking a brutal police reaction that saw several shot by volleys of rifle fire. Agitation and confrontations spread across northern India (southern India already had even greater lower-caste reservation policies at state level). In September students began immolating themselves. Over two months, 260 people died, either in protest suicides or from police gunfire.
By then, also, the BJP had resumed its own appeal to the hearts of Hindu Indians, through a cult built around the warrior divinity Ram of the Ramayana epic that was designed to cut across caste barriers. It targeted a small mosque built by a general of the Muslim emperor Babar in 1532 in the northern town of Ayodhya as having displaced a temple marking Ram’s actual birthplace. It began a countrywide mass ‘pilgrimage’ on Ayodhya to press for the mosque’s replacement with a new Ram temple. Murderous violence broke out between Hindus and Muslims through the next two months.
Singh had not prepared India for his new Mandal policy and failed to justify it afterwards. He looked remote and indifferent to the bloodshed in the streets. His timing looked opportunistic, designed to steal Devi Lal’s thunder. Many New Delhi journalists were themselves of upper-caste, privileged backgrounds and took strongly partisan attitudes against V.P. Singh. The Mandal reservations and the widening gulf with the BJP put Singh on opposing sides to key figures in his earlier attack on Reliance. Gurumurthy had become a close adviser to the BJP leader, Lal Krishan Advani, while Arun Shourie, editor of the Indian Express, was vehemently opposed to the new reservations.
• • •
As the Singh government was weakened, Dhirubhai’s fortunes revived. The turn could even be plotted on a graph of the Reliance share price, which began rising steadily from July 1990. The government was distracted by its numerous splits and battles. The customs cases had been successfully bogged down by petitions seeking a stay of proceedings in the Delhi High Court. It was clear that further legal appeals could delay a final judgement for a decade or more. Aides like Vinod Pande, who pressed V.P. Singh to make a concerted effort to expose and tame Reliance while he had the chance, found the Prime Minister abstracted and diffident. Dhirubhai had also won over a crucial supporter of the government, the Marxist Chief Minister of West Bengal, Jyoti Basu, by announcing plans for a big new polyester factory in his state under a newly created subsidiary called Reliance Bengal, although it was never built.
Although it was obliged to report mounting contingent liabilities over its customs and excise cases, Reliance was climbing back shakily from its setbacks of 1986 and 1987 as the Indian economy raced into high growth under pressure of big government deficit spending and raised imports financed by borrowing. After the eighteen-month ‘year’ of 1987–88, Reliance had had a nine-month year for 1988–89 (July–March) in which net profit of Rs 793.7 million was reported. In September 1990 Dhirubhai convened shareholders at a Bombay auditorium for his annual meeting. The profit for the twelve months of 1989–90 (April–March) was Rs 905 million, a drop of nearly 15 per cent in annualised terms, but due to the provision of Rs 440 million for the flood damage at Patalganga.
The meeting saw Dhirubhai paint his big pictures again. But for the first time, he faced hostile interjectors and heckling. Shareholders complaining about the recent lack of bonus share issues and shouting charges of financial wrongdoing by the management pressed towards the podium, which was soon full of security guards ringing the directors. The pandemonium forced an adjournment.
• • •
In September, as it became more obvious that Singh was losing support, Chandrashekhar began mustering support for a revolt within Janata Dal and making overtures to Rajiv Gandhi’s Congress Party. By early October nearly thirty of the party’s MPs were listed in newspaper reports as disaffected. On 23 October the Janata Dal state government in Bihar stopped the BJP leader Advani’s own march on Ayodhya, and the BJP immediately withdrew support from V.P. Singh’s government. The BJP continued to send thousands of devotees into Ayodhya, culminating between 30 October and 2 November in a suicidal assault against Uttar Pradesh armed police ordered to defend the mosque by the state’s Janata Dal Chief Minister, Mulayam Singh Yadav.
While all this was happening, Chandrashekhar and Rajiv Gandhi continued their efforts to split Janata Dal away from Singh. Dhirubhai was among four leading industrialists who financed their campaign, in which the going rate for a defection was said to be Rs 4.5 million. On 7 November fifty-five of the party’s MPs, or about a third of its parliamentary membership, voted against the government. After a day of stormy debate, Singh resigned, and three days later Chandrashekhar was sworn in as head of a minority government supported from the outside by Congress. Reliance shares leapt to their highest point in more than two years.
When Dhirubhai reconvened his adjourned shareholders meeting on 13 November, this time at the Wankhede Stadium where international cricket tests are held in Bombay, the more friendly political environment seemed to be reflected in his less defensive mood. The critics were still there, asking for a bonus, but Dhirubhai said their rights to debenture issues had been a kind of bonus. To questions about use of corporate funds in toppling the V.P. Singh government, Dhirubhai said such reports were ‘conjecture’. The new political set-up had emerged without the Ambani hand, he said.
First half results showed that Reliance was on the way to displacing Tata Iron and Steel as India’s most profitable company in 1990–91. To help build its new gas cracker, which would continue the growth, Reliance was now proposing two new bond issues, raising Rs 4.56 billion in convertibles and a further Rs 1.14 billion in non-convertibles. This would replace the lost supplier’s credit from Larsen & Toubro.
The new Prime Minister, Chandrashekhar, had gained a poisoned chalice. By allowing the Ram devotees to undertake token work on their new temple at Ayodhya, he put off the final confrontation (which was to take place in December 1992, when massed zealots demolished the mosque), and the communal violence gradually tapered off. But the postponement of the economic reforms he had so opportunistically engi
neered in mid-year now rebounded against him. The New York credit-rating agencies had lowered their rating of Indian sovereign debt in August. Iraq’s invasion of Kuwait sharply pushed up India’s oil import bill, while some three million Indian workers had to be evacuated from the Gulf at government expense, and their remittance income was then lost. Singh had approached the IMF for an emergency loan in October. In December Chandrashekhar took up the request and gained $1.8 billion in emergency credit, on condition that New Delhi took steps to cut its deficit and deregulate the economy. Always the pragmatist, Chandrashekhar swallowed the medicine that he had said would enslave India. His Finance minister, Yashwant Sinha, began drawing up a budget for 1991–92 (April–March), which had to include cuts in consumer subsidies and reduced public-sector investment.
Rajiv by then was alarmed, both at the appearance of competence Chandrashekhar was showing and at being seen to support unpopular measures. He feared that Chandrashekhar would take any political credit that was going and palm off the blame on to Congress. He decided it was time to make his own move for power. At the end of February 1991 Rajiv forced Chandrashekhar to postpone the budget for three months and to introduce a temporary finance bill, which made only minor fiscal adjustments. On 6 March Rajiv forced Chandrashekhar to resign. The President appointed Chandrashekhar as caretaker Prime Minister and set fresh national elections for late May.
The deferment of the budget caused the IMF to stall any further external financing until after the elections. Non-resident Indians began withdrawing their government-guaranteed foreign currency deposits with the Indian banks, a capital flight that was to take out a billion dollars by June. With foreign reserves below $1 billion, less than two weeks’ import cover, the caretaker government authorised the Reserve Bank of India to apply emergency measures, which it did in March by virtually halting imports and sharply raising interest rates to around 20 per cent. The economy shuddered into recession.
Mahabharata in Polyester Page 22
