Mahabharata in Polyester

by McDonald, Hamish

  There were many ordinary people, too: thousands of Reliance employees, dozens of former colleagues in Mumbai’s textile yarn markets and even a few from Chorwad village like Chandrakant Pathak, a childhood playmate of the Ambani brothers. ‘Dhirubhai was a visionary in the true sense,’ Pathak told one reporter. ‘He was destined for greatness. He managed to achieve what most people cannot even dream about. But he never lost his humility. He was a very humble man who never forgot his roots.’

  Thobanbhai Lodhia, a trader in dried coconut and ginger in the southern city of Calicut, who had been on a business visit to Mumbai and stayed on for the funeral, was one of the numerous small investors in Reliance shares. He had put Rs 5000 into the company a decade earlier and watched it grow. ‘Whenever I attended the annual general meetings of Reliance, Dhirubhai used to tell me: “It is not my company. It is your company.” That is the kind of commitment he had towards small investors like me,’ Lodhia told a succession of reporters, amid frequent bursts of tears. Even the merely curious were not turned away; like a ragged band of ‘gypsies’ whose only knowledge of Dhirubhai was that he was the father-in-law of a Bollywood starlet.

  Late in the afternoon, the iron gates of Sea Wind were closed to the public and Dhirubhai’s body was placed on the open tray of a truck and heaped with flowers. The gates opened and the cortège set off along the sweep of sea front where Dhirubhai had once gone on his early morning exercise walks, chatting to a retinue of colleagues and contacts. Mukesh and Anil paced alongside the body, followed by many of the celebrity mourners, along a route strewn with petals and arched by cloth banners praising Dhirubhai. It was reported that ‘many a tear-eyed investor present at the funeral hailed their beloved business wizard, saying: Dhirubhai amar rahe (Long live Dhirubhai).’

  After taking an hour to cover two kilometres, the procession stopped in a park where Dhirubhai’s body was transferred to a bamboo stretcher and carried on the shoulders of Mukesh, Anil and other male relatives to the Chandanwadi cremation ground, where it was placed on a pyre of sandalwood and ghee that was set alight by the two sons, as two Hindu priests chanted Vedic funeral rites. The next day Mumbai’s Mulji Jetha, the world’s biggest textile market, was closed in respect, but in line with Dr Pandey’s prediction, it was back to work at Reliance.

  • • •

  The initial evaluation of Dhirubhai came in a succession of tributes. Advani said Dhirubhai had embodied initiative, enterprise and determination. ‘He was one of the greatest achievers in the country and would remain an inspiration for others,’ the deputy Prime Minister told reporters on leaving Sea Wind. Prime Minister Vajpayee said, ‘The country has lost iconic proof of what an ordinary Indian fired by the spirit of enterprise and driven by determination can achieve in his own lifetime.’

  Some portrayed Dhirubhai in a saintly light, which might have amused him. The state governor of Maharashtra, P.C. Alexander, said, ‘The nation had lost one of the doyens of the modern Indian corporate community, a philanthropist and above all a great human being endowed with great compassion and concern for the underprivileged sections of the society.’ Indu Jain, chairman of the Times of India parent company Bennett Coleman, described Dhirubhai as a ‘model father and business genius, whose futuristic vision and spirit of entrepreneurship made him one of the world’s leading wealth emperors. We salute him equally for ensuring that his legacy as a master builder with a social conscience will be carried forward by his wife Kokilaben and sons Mukesh and Anil, who have already proved to be exemplary corporate citizens.’

  It was left to President K.R. Narayanan to sound a more quizzical note, appropriately enough for one who had been a student of Harold Laski at the London School of Economics, then a protégé of Jawarharlal Nehru in the early post-independence years: ‘[Ambani’s] emergence as a leading figure in the corporate world has been cited as a remarkable example, which needs to be studied in depth to highlight his important role in our country’s quest for economic growth and regeneration.’

  One of the first to take up this challenge was the economist C.P. Chandrasekhar of Nehru University in New Delhi. Gingerly running over the legends of Dhirubhai breaking both regulations and governments (‘Fables such as these, built often on a modicum of truth and sometimes from thin air, were testimony to the success of Dhirajlal Hirachand Ambani’), Chandrasekhar positioned Dhirubhai as a pioneer of capitalist renewal inside India. When he started out, the industrial licensing system was decaying. Intended to allocate investment evenly and prevent monopoly, licences had actually been cornered by existing oligopolists, whose position was further reinforced by import barriers. ‘This made the licensing system completely ad hoc and arbitrary, enabling new entrants to manoeuvre the system in their favour. It was here that Dhirubhai exercised his acumen to win favour with, manipulate and benefit from the power of the bureaucracy and the political class.’10

  By choosing the underappreciated sector of artificial fibres, Dhirubhai had been able to drive a wedge into a manufacturing sector protected against new entrants and had build up plants with greater economies of scale than existing producers, helped by his early grasp of the capital-raising potential of the sharemarket. The attack on domestic oligopoly produced a globally competitive group.’11

  A business journalist, Harish Nambiar, contrasted the huge public display of mourning for Dhirubhai with the more circumspect funerals for the representatives of earlier corporate achievement like J.R.D. Tata and Aditya Birla, when there had been no ‘weepy scenes’ in the streets. This seemed to signal a decisive shift in India’s thinking: ‘I think in the death of Ambani, Indian sensibility might have finally changed course irreversibly from being primarily a socialist country to become an unabashedly capitalist one.’ As Nambiar wrote, the ‘umbilical chords’ of Nehru’s socialism had been cut:

  He also did one thing that only a post-Nehru entrepreneur could conceive of: sharing his wealth with individual investors who bankrolled his dreams on the strength of Reliance dividends … In doing so, Ambani made a huge base of small investors partake of his profits. In that respect he was a Robin Hood to Indian investors; he may not be the most moral or even legitimate businessman, but he was generous to his hordes … Ambani may have broken all the laws of the land, manipulated all its politicians and priced each and every influential man in power to reach where he did. But much like Maradona’s hand of God goal, eventually … Indians will remember him and his company as the eventual winner and Reliance shareholders will revere him as their deliverer.12

  Much less ambivalent encomiums continued through to Dhirubhai’s seventieth birth anniversary on 28 December that year, when under the Communications minister Pramod Mahajan, an old ally of Reliance, the Indian post office issued a commemorative five-rupee stamp with Dhirubhai’s portrait. At a ceremony attended by the minister, Anil portrayed his late father as a humble karmayogi, someone who works devoutly at his lot in life. Soon afterwards, a new President of India, A.P.J. Abdul Kalam, awarded Dhirubhai posthumously the Bharat Ratna (Jewel of India), the country’s highest civilian honour.

  On the first anniversary of Dhirubhai’s death, in July 2003, Abdul Kalam also gave the inaugural speech at a memorial lecture. But an ancillary speech by Arun Shourie, the Disinvestment minister who had supervised the sale of the Indian Petrochemicals stake to Reliance, gained the most notice and sparked off a critical assessment of Dhirubhai’s career. Recalling the IPCL tender, Shourie declared that his attitude towards Dhirubhai had gone through an almost ‘180 degree turn’ over the years:

  I first learnt about him through the articles of my colleague S. Gurumurthy. The point in most of the articles was that Reliance had done something in excess of what it had been permitted to do: that it had set up capacities in excess of what had been licenced, that it was producing in excess of those capacities. Most would say today that those restrictions and conditions should not have been there in the first place, that they are what held the country back. And that the Dhirubhais are to be tha
nked, not once but twice over: they set up world class companies and facilities in spite of those regulations and thus laid the foundations for the growth all of us claim credit for today.

  Shourie then paraphrased the Austrian economist Friedrich von Hayek, a proponent of free enterprise capitalism, in saying: ‘By exceeding the limits in which those restrictions sought to impound them, they helped create the case for scrapping those regulations.13

  The minister was roundly castigated for his remarks. Paranjay Guha Thakurta, a business journalist and college lecturer, pointed out that while the Reliance bid might have given the government far more cash than it had expected, IPCL had cash resources of Rs 27 billion, far in excess of what Reliance had paid, and assets with a replacement value of Rs 100 billion (although it must be remembered that a 26 per cent stake would not give Reliance a free hand to plunder these). ‘The minister … is perhaps being a bit too naive. Surely he knew that there would not have been “unbelievable” pressures on him – from various quarters including from with the Union Cabinet – if so much had not been at stake for the Reliance group?’ Thakurta wrote. Reliance had been eyeing IPCL for at least four years. ‘Why? The reason is disarmingly simple. By being at the helm of affairs at IPCL, the Ambanis are now able to control at least two-thirds of the total Indian market for all kinds of petrochemical products.’14 The veteran Indian journalist T.J.S. George also disagreed with Shourie’s ideas, which ‘seemed to hold up as virtue precisely what he and his world had earlier exposed as vice’:

  … those who had even a vague memory of [Gurumurthy’s] 1986 articles would have marvelled at the classic example of suppressio veri, suggestio falsi [by suppression of the truth, suggestion of the false] that the Minister provided. He misled his audience about the contents of the articles and the intent of their author. S. Gurumurthy’s articles did not even remotely see Dhirubhai’s activities as a patriotic move to prepare the ground for Reform. On the contrary, he used an array of facts and figures to prove that Reliance was habitually breaking the laws of the land at the expense of the country.15

  In the Economic Times, senior journalist M.K. Venu noted some ‘serious problems’ with Shourie’s effort to fit Dhirubhai into the ‘Hayekian framework’ of entrepreneurialism:

  The way the regulatory framework is evolving in our country would make Hayek turn in his grave! In his seminal work, The Road to Serfdom, Hayek drew a clear distinction between the Rule of Law and Arbitrary Government … It will hardly be an exaggeration to say that in India the regulatory framework, whether in the telecom or energy sector, has failed to pass this fine Hayekian test. So there is also a flip side to allowing entrepreneurial spirit to test the limits of law. The key question is: how do you protect the Rule of Law and ‘known rules of the game’ from being subverted by big business?16

  Venu gave as a prime example the ‘inverted import tariff structure’ allowing big business able to enter raw material sectors to squeeze their smaller downstream customers while remaining protected by high tariffs against foreign competitors. Indeed, through to the end of the BJP-led government in 2004, downstream users of plastics and other petrochemicals were complaining of the Reliance–IPCL dominance of local supply and New Delhi’s slowness in reducing tariffs on the imported alternative. It was not until a new Congress-led coalition introduced its first budget in early 2005 that tariffs on basic chemicals and intermediates went below 10 per cent.

  If Shourie had handed Dhirubhai a bonanza and turned Hayek into a charter for breaking inconvenient regulations, he also gave a telling vignette of Dhirubhai’s attitude to political power and the rules. Some time in the 1990s Rupert Murdoch had called on Dhirubhai during a visit to explore opportunities for satellite and cable broadcasting in India. Dhirubhai asked whom he had seen in New Delhi before flying down to Mumbai. Murdoch replied that he had seen the Prime Minister, the Finance minister and a number of other ministers and officials. Dhirubhai then delivered what Shourie described as a guru mantra, or wise man’s precept: ‘Ah, you’ve met all the right people,’ he said. ‘But if you want to get anywhere in India you must meet all the wrong people.’17 Dhirubhai himself never quite became one of the ‘right people’ and was probably proud of it.

  18

  The polyester princes

  The polyester king was dead. What now for the polyester princes? At the height of the 1980s battle over the polyester market, the tabloid newspaper Blitz had used the Mahabharata analogy. That had lacked one crucial element, however: fratricide. That was about to be supplied.

  Mukesh and Anil had got an early warning about their father’s mortality with his first cerebral stroke in 1986. Barely returned from their graduate schools in the United States, they had been thrown into the leadership of Reliance in their twenties. Now, there seemed little debate or hesitation about the transition. Mukesh, as the older brother, moved to replace his father as chairman and Anil became deputy chairman. They shared the job of chief executive. It seemed a good mix. Things quickly became business as usual at Reliance.

  Even before Dhirubhai’s passing, the two sons were taking Reliance away from its long-standing doctrine of tight integration. Suddenly polyester, petrochemicals and even oil were looking like not the exciting new face of modern technology but ‘old industry’.

  Instead of making tangible products, the buzz was the information economy. The hottest stocks on the Indian sharemarket were the leading information technology houses, Infosys and Wipro, and a host of competitors in the southern Indian cities of Bangalore, Chennai and Hyderabad. Connected by overnight satellite data downloads from their customers in the United States, they worked on an entirely different plane from Reliance and its like. Set up in the 1980s, these software houses had flourished outside the jungle of industrial licensing in which Reliance and its rivals had to stalk official favours. They attracted India’s elite logical minds to university-like parks that were actually called ‘campuses’ rather than workshops or offices. These centres soon became the focus of an Americanised lifestyle for young professionals mostly living away from their parents and who wouldn’t be seen dead in polyester.

  Although annual revenues were only a fraction of Reliance’s sales, at around $3 billion for both Infosys and Wipro in the year to March 2007, their market capitalisations often exceeded that of Reliance. Founded by N.R. Narayana Murthy in 1981, Infosys by then had 75 000 employees worldwide, including many in China, and was dealing with hundreds of thousands of job applicants worldwide. Wipro had been a small producer of cooking oil and soap (the letters of its name taken from Western India Vegetable Products) until its owner, Azim Premji, took it into computer assembly and software in 1980. By 2007 it had 68 000 employees serving customers like Boeing, BP and Sony. In the new century, it was Infosys and Wipro that headed lists of the ‘best’ or ‘most admired’ companies in the business magazines. It was Premji and Naranaya Murthy who were turning up at global business conventions as the faces of the new India rather than the Ambanis, and their successes were being cited as reasons why the Indian economic tortoise might one day catch up with the Chinese hare.

  It must have rankled more than a bit with the intensely competitive Ambani brothers. The group was already dominant in many products and waiting on government divestments and oil exploration results to expand its upstream oil business. Jamnagar’s completion freed up massive internal cash flows. Dhirubhai’s old motto of ‘Stick to your knitting’, or vertical integration, had lost its appeal. Instead, the cash was poured into diverse new businesses only loosely related to the longstanding core activities of Reliance – assuming these are reckoned as being textiles, petrochemicals and petroleum. But an alternative view of Reliance’s ‘core competencies’ is abstracted from its record: time- and cost-effective completion of highly complex and advanced technology projects and unmatchable ability to manage relations with government. Both were called into play when, led by the sons, Reliance launched itself into telecommunications, electric power, financial services and
biotechnology.

  As explained later by Mukesh Ambani, the company’s leadership had been acutely aware of the IT opportunity being seized by Infosys and Wipro. Mukesh had lived close to Silicon Valley in his year at Stanford University and had mentioned the ‘arbitrage opportunity’ for Indian software houses – the huge gap between wages of American and Indian software engineers – in a speech in 1995. Reliance had signed a joint venture agreement with Microsoft, but had decided to let the opportunity pass. ‘I was very focused on building various competencies in Reliance and we were not ready to do two things at the same time,’ Mukesh recalled. ‘It was a big risk for us to get into IT, especially because it was hugely effort-intensive. In my language, I said we have too much soap on our body and we need to take a bath in the chemicals business.’ A few years later, with Jamnagar and Hazira nearly completed, the Ambanis felt able to think more boldly about new ventures. Mukesh recalled a meeting with his father at Maker Chambers.

  We had three thoughts. One was the fundamental belief that we will invest in businesses of the future and we will invest in talent. We clearly saw that from oil to fabric was a value chain of opportunity and it will remain so for many future decades. We executed that well and created enough disruptions in the polyester, plastics, refinery and the upstream business of oil and gas. We had very good cash flows. In late ’90s, we had two options. One was to make the current business more global, bigger and better. The other option was to use our cash flows to do something else. We were sitting right in this room and my father said, ‘Now it is your call. What you would like to do?’ I said, ‘We must use the competencies and cash flows to make a difference to millions of Indians.’ He said, ‘That’s exactly what I had mind. Let’s do it.’ The strategy was: while we strengthen our current business, we will use our cash flows to invest in the businesses of the future. That’s how Infocomm was born.1