The Polyester Prince (42 page)

From late 1994 the Indian sharemarkets had gone into a malaise. There were objective external factors: a rise in interest rates attracting money into deposits, a sense that the economic reforms had stalled, political uncertainties, the Mexican crisis and its impact on other emerging markets, the bull run on Wall Street. But a feeling that Indian markets had not got. their house in order, and perhaps a sense of exploitation by the country’s most traded company, had something to do with it as well.

Markets and sentiments turn around, but the widespread thinking in Bombay financial circles by the end of the 1995-96 crisis was that Dhirubhai Ambani and Reliance could no longer look either to Indian investors for the cheap equity capital that had financed their early growth or to the foreign portfolio funds that were so enthusiastic about them in 1992-93.

This is implicit in the company’s resort to debt-raising in a completely new market from the middle of 1996. In five issues of pure-debt securities in New York between June 1996 and January 1997, Reliance raised US$614 million from international investors, with terms ranging up to 100 years-making it the first Asian company and one, of a handful worldwide to raise debt of such long maturity. A notable trend was a resort to the American institutions, the pension funds and insurance companies, helped by an investment-grade rating from two agencies.

It would not be too cynical to say that the insularity of American investors and their relative ignorance of news from India helped greatly. But the announced plan to list these bonds on American stock exchanges has imposed new disciplines on Reliance, notably a requirement to shift its accounts to the ‘generally accepted accounting principles’ of the United States and Britain, rather than those followed up to then by Chaturved! & Shah, Bornbay. Its representatives abroad now insist that Reliance is a ‘different company’ from the Reliance of the 1970s and 1980s.

Early in 1997, in order to access even cheaper funds, the company was working out a way to lift its credit rating above the sovereign-risk rating of India itself. Most probably this would be achieved by means of a mechanism placing part of the funds back into high-rated investments outside India. This might seem highly artificial for a company so rooted in its own country, but it would be yet another source of pride within Reliance.

Among the critics it would only confirm fears that Reliance was more powerful than the Indian state.

Dhirubhai Ambani built his company through outstanding abilities and drive on many fronts: as an innovative financier, an inspiring manager of talent, an astute marketeer of his products, and as a forward-looking industrialist. The energy and daring that showed itself in his early pranks, practical jokes and trading experiments developed into a boldness and willingness to live with risk that few if any other Indian corporate chiefs would dare to emulate. His extraordinary talent for sustaining relationships, and sometimes impressing men of standing, won him vital support from both governments and institutions.

The dark side of his abilities was an eye for human weakness and a willingness to exploit it. This gained him preferential treatment or at least a blind eye from the whole gamut of Indian institutions at various times. Over decades in India, some of the world’s best minds had applied themselves to building a system of government controls on capitalism.

Dhirubhai Ambani made a complete mockery of it-admittedly at a stage when the system was decaying and corrupted already. The Ministry of Finance and its enforcement agencies, the Reserve Bank of India, the Central Bureau of Investigation, the Securities and Exchange Board of India and the Company Law Board proved timid and sometimes complicit in their handling of questionable episodes concerning Reliance. The public financial institutions that held large blocks of shares in Reliance and had seats on its board were passive and acquiescent spectators, rather than responsible trustees for public savings.

Dhirubhai Ambani cautioned about the ‘jealousy’ inherent in the Indian business milieu.

Reliance frequently, routinely, put any criticism or opposition to its actions down to motives of envy or a desire to pull down anyone achieving success. Throughout every crisis caused by exposure of alleged manipulations, its publicity took on a self-pitying ‘Why is everyone always picking on us?’ tone.

But the record tends to show that it was Dhirubhai and Reliance who often made the first move to put a spoke in a rival’s wheels, whether it was Kapal Mehra, Nusli Wadia or, latterly, the Ruias of the Essar group. Coincidentally with disputes with Reliance, various rivals were hit with government inspections, tax problems, unfavourable press reports, physical attacks and, in Wadia’s case, a damaging forgery, a deportation order and perhaps a conspiracy to murder him.

Reliance sought larger capacity clearances, lower duties on its imported chemical inputs, and higher duties on its finished products for itself-not for A players. It has been relentless in its use of monopoly or dominant market share.

The achievement of A these efforts has been the creation of an integrated industrial enterprise from the oilfield to finished textiles and plastics, certainly the largest in India’s private sector and in some products among the world’s biggest.. Dhirubhai has managed to stay in control of this growing, enterprise through his ability to master advanced technology and to come up with the funds to pay for it. By the end of 1996, the gas cracker at Hazira and its associated product lines were coming on stream. If the company continues to augment its capacities as planned, it should stay profitable as the external protection of the Indian economy is lowered.

There are several areas of risk. A combination of adverse business conditions, such as a simultaneous fall in petrochemical prices and drastic devaluation of the rupee, would make the foreign debt more expensive to service, and put the company in a squeeze if the actual physical investment it is intended to finance is delayed. No one outside the company’s highest management can be sure exactly what further funding the company needs in order to sustain its expansion as well as its treasury operations—one highly respected Bombay financier estimates that it needs US$1 billion a year in new funding. If so, an unfavourable turn in investor or lender perceptions about Reliance, India or emerging markets in general could create a squeeze.

Another wild card is contained in the political hostility that Dhirubhai and Reliance have built up within India. Every party has its Ambani men’ but this is no guarantee that no government will dare to take on Reliance or make an example of it. Most notably and ironically, Reliance is regarded with deep distrust at the senior levels of the Bharatiya Janata “, the Hindu nationalist movement that may well he the coming force in Indian politics-ironically because the
BJP
has positioned itself as the champion of the swadeshi or domestic capitalist (though like many clerical parties it is against monopolies). After 1996, Reliance may well be cleaning up its accounting practices and its share registry, but several investigations, tax demands and criminal prosecutions from the 1980s still remain open. Despite the settlement of the Company Law offences in the share-switching and duplicates cases, for example, it would still be possible for a government to launch prosecutions under the Indian Penal Code.

The danger could be precipitated by another display of hubris like Dhirubhai’s remark to Ramnath Goenka, or if his sons, when they take over the running of Reliance completely, overreach themselves. A split between the two sons, or between them and the professional management or with the big institutional investors now appears unlikely, but could emerge once Dhirubhai’s influence is gone.

The wider lessons about India would seem to include a caution to foreign investors about the effectiveness of India’s ‘British-style institutions and practices’. Investors might like to ponder how much help and protection they would get if put in the position of a Nusil Wadia against a well-connected Indian rival like Reliance. On the other hand, the
ANZ
Grindlays bank did get its disputed Rs 5.06 billion back from the National Housing Bank through arbitration in India. The controversy of the mid-1990s provided an impetus to improve financial market regulations and functioning. But, at the same time, Dhirubhai is reckoned to have inspired hundreds of ‘clones’ who have set out to win at all costs and by all means.

Some of India’s leftwing politicians and academics see a case for a return to tight controls, even tighter than those applied in the 1970s, and more sustained policing of them. The Reliance story would suggest that those controls were unenforceable in the absence of an entire administration of Plato’s guardians of the republic. It may seem a trite re-endorsement of the prevailing economic philosophy, but the fairest and most efficient environment would be created by dropping barriers to the movement of capital, industrial inputs and products in and out of India.

It is possible to draw several conclusions about India from the Reliance story There is the flowering of individual endeavour and entrepreneurship from a traditional, isolated backwater like Junagadh; the accumulated ethic of centuries of business and banking among the Bania castes being transferred into modern corporations; the amazing numeracy of Indians from the poorest street traders to the high financiers; the way in which the age-old trading links to the Indian Ocean rim have been extended into Europe and North America by the past 20 years of migration.

Indians love to tell the joke against themselves about the exporter of live frogs to ‘the kitchens of France. He didn’t need to put a lid on the crates, because as soon as one Indian frog tried to escape, the others pulled him down. Perhaps Ambani’s corporate war does show a tendency in the culture to blow the whistle when someone makes a run for wealth or success. jealousy can be strong in a crowded country with many qualified contenders for every opportunity, and where growth of those opportunities is slow or static. But the opposition that Dhirubhai stirred up was not always or even mostly envy, but often vigorous self-defence or a determination to extract the truth.

The country may never be an India Inc., but it has a certain self-correcting strength in its disputatiousness. The plurality of interests that its system acknowledges may prevent it attaining the high economic growth rates of more homogeneous and disciplined nations, but they provide safety valves and mechanisms for gradual adjustment which prevent violent revolution or cataclysmic misjudgements by unchallenged rulers.

Many of the popular books on the Asian economic ‘miracle’ or the proponents of ‘neo-Confucianism’ or Asian values’ seem to expect that India will progress only when it adopts the more or less enforced consensus patterns of East Asia. Some of the leading proponents of this idea in places like Singapore and Malaysia are themselves of Indian extraction. Others ignore India or rule it out of the Asian mainstream. It is tempting to draw a line down the Chittagong Hill Tracts, a rough racial divide between East and South Asia, and build a theory of Two Asias: one whose culture predisposes it to high economic ‘success’; the other condemned to a slower cycle. But this is an error of extrapolation from a narrow period, ignoring historical factors including the different experiences of Western imperialism, the Pacific War, the American interventions in the countries of East Asia after the war, and so on. It fails to address the question of creativity in the underlying culture, and its significance for leadership in an information-based economy.

The disputes surrounding the rise of Dhirubhai Ambani tell us something else about India: how it agonises over the morality of change, of success and failure. The snappy analogy made by the tabloid newspaper Blitz in 1985, comparing the erupting polyester industry battle to the epic Mahabharata, actually captured some of this dilemma.

On paper, the Mahabharata runs to millions of words and fills a dozen volumes, but the central story is that of the King Yudisthir,a who is torn between his innate sense of rightness and his earthly duty as a ruler in which cheating, lying, intrigue and espionage are expected under the dharma (law and duty) of that role. Against his conscience and inclination to withdraw from strife, Yudisthira allows his Pandava clan to enter a war of vengeance against the evil Kauravas, culminating in the bloodiest fight of A literature at Kurukshetra when millions are slaughtered on both sides-and a deception by Yudisthira turns the tide of battle.

Blitz hesitated to assign the roles of Pandava and Kaurava between Dhirubhai and his textile rivals in the ‘MahaPolyester War’. This might have been just expedient and cautious. Many of the protagonists who stood up to Reliance, by contrast, had little doubt in their minds that it was a clear struggle between probity and deceit.

But among the many millions of investors and newspaper readers who followed Dhirubhai’s ascent, there were probably very many who suspended judgement (and of course, many who were simply fascinated by the action, like the audiences of the Mahabharata who chat and smoke during the long philosophical dialogues). Was not a certain amount of deception just part and parcel of the dharma of a businessman? And just as Yudisthira’s warrior brother Muna shrank from the prospect of killing so many good men in the Kaurava ranks, there was little appetite for seeing Reliance fall and the savings of so many investors put at risk.

There perhaps the analogy ends. Dhirubhai and Reliance have not faced a corporate Kurukshetra, though at times it must have seemed as though they were heading for an apocalyptic showdown. The questions raised during their history are not unique to India.

What are the limits of ethical behaviour in a world full of surprise manoeuvres, innovation, inside connections and corruption?

And unlike the relentless order of the Mahabharata and other Hindu scriptures, modern capitalism does allow a process of redemption in the life of a corporation. Opium-traders, slave-owners, market cornerers, share raiders and all kinds of robber - barons have been able to transform themselves into establishment pillars by hanging on and consolidating during the system’s periodic crashes. It will be Dhirubhai Ambani’s greatest achievernent if his enterprise can move decisively beyond the shadows that fell on many of its middle years.