The Polyester Prince (10 page)

Registered exporters who had entered firm import contracts up to 2 September would be allowed to import directly. But henceforth all other importers would have to take their licences to the State Trading Corporation, which would be the sole channel for imports of yarn.

It was not until March 1978 that the first supplies of yarn began reaching Indian markets through the
STC
. Over the six months till then, Reliance took delivery of all the
PFY
supplies for which it had contracted, and was able to squeeze a totally captive market.

The ‘Eleven Day Wonder’ as the 22 August-2 September interval came to be called, seemed tailor-made for the benefit of Reliance.

Whether or not bogus exports were made under the High Unit Value Scheme by Dhirubhai has never been proven, and certainly Reliance did make genuine efforts to sell its own products overseas. Its export manager, Rathibhai Muchhala, became a familiar figure around the trade stores of the Gujarati diaspora in East Africa, the Mid-East, and later the United Kingdom, trying to place stocks of Vimal artificial silks. S. B.

Khandelwal, the owner of the emporium Sari Mandir (Sari Temple) in the English city of Leicester where many Gujaratis settled after being expelled from East Africa, recalls a visit by Muchhala early in the 1970s. ‘They were very anxious to get into export business,’ Khandelwal said. ‘I took 200 saris on credit. No money was expected upfront.

Muchhala said: “Just say Shri Ganesh.”’ (Meaning: Just for luck.) Up until around 1977, exports took between 60 per cent and 70 per cent of the fabrics produced at Naroda, Dhirubhai noted to BusinessIndia in 1980. That exports ceased to be a significant activity of Reliance soon afterwards indicates that they were propped up by the High Unit Value Scheme and the artificial shortages for
PFY
created by import controls.

The new environment encouraged Dhirubhai to step up his domestic promotion of Vimal and to expand his franchised exclusive shops to more than 600 by early 1980.

Advertisements were plastered across newspapers and billboards. ‘Only Vimal offers you exclusive innovations in high-fashion wear,’ went one, listing products such as Disco Dazzle Sports Jersey or Supertex dress material.

It was a Rs 10 million a year advertising spend, then unprecedented in India and more than four times that of established textile producers such as Bombay Dyeing. And it worked. In 1979, Reliance Textile Industries raised its sales to Rs 1.55 billion (then US$190 million), making it the largest textile producer in the country.

Dhirubhai had meanwhile decided to help bring an end to the Janata government of Morarji Desai. The government had not been particularly friendly to him, after the initial favourable turn in yarn import policy, and Kantilal Desai had become too controversial a figure to be much help. A judicial inquiry set up by Morarji Desai in reply to charges of influence peddling by relatives of ministers did indeed find, in February 1980, a ‘prima-facie case for further inquiry’ that Kantilal Desai had influenced the government to relax its policy on
PFY
imports in August 1977.

Dhirubhai put his resources behind Indira Gandhi’s efforts to split the janata coalition, which focused on the ambition of the finance minister, Charan Singh, who had a huge powerbase among the prosperous Jat caste of farmers in Uttar Pradesh. Dhirubhai’s role was to provide the suitcases of cash needed to induce MPs to take the risk of leaving the government benches and joining the splinter group. In July 1979 the Desai government fell when Charan Singh’s supporters withdrew support in parliament. Charan Singh, pledged support by Indira’s Congress, was invited to form a government and demonstrate his support within a month. A vote of confidence was never taken: Indira demanded as a condition that Charan Singh agree to withdraw legislation setting up special courts to try herself and Sanjay for alleged crimes committed during the Emergency. This he was unable to do. In August, the President dissolved parliament and called elections for the first week of January 1980, with Charan Singh as caretaker prime minister.

Suresh Kothary, the Du Pont agent in Bombay, was in close contact with Dhirubhai over this period. ‘He used to tell me what was going to happen, and it always did,’ Kothary said. ‘I asked him once: “How do you know, are you an astrologer?’ He laughed and said:

“Yes.”’

With inflation raging as a result of two years of drought, Indira surged back to power.

The first big party staged to welcome her back in government was hosted by Congress MPs from Guiarat, and paid for by Dhirubhai, at the Asoka Hotel in New Delhi. Political observers took note that Indira spent over two hours sitting on the dais receiving weliwishers with Dhirubhai at her side.

Kothary remembers that several times during his turbulent climb to prosperity and influence, Dhirubhai would remark: ‘Everything that I have done has been kept in the ground, and a first-class fountain has been built over it. Nobody will ever know what I have done.’

Indira Gandhi’s return to power opened a golden period for Dhirubhai Ambani. In 1979, his company barely made it to the list of India’s 50 biggest companies, measured by annual sales, profits or assets. By 1984, Reliance was in the largest five. Dhirubhai himself had become one of the most talked and written about persons in India, gaining a personal following more like that of a sports or entertainment star than a businessman. It was also the period when Dhirubhai made the most rapid part of his transition, in the bitter words of a senior non-Congress politician in 1996, ‘from supplicant-the most abject kind of supplicant-to influencer and then to controller of Indian politics’.

Although it was not immediately obvious, Indira’s three years in political exile had reinforced a change in her thinking about state intervention in the economy. In large part due to the influence of her son Sanjay, who was to die in 1980 when the light aircraft he was plioting crashed during some acrobatics over New Delhi, she was less trustful of bureaucratic direction, and more inclined to give the private sector its head.

Indian business leaders were also calling for a drastic relaxation of the licence controls on capacity expansion and diversification vested in the Monopolies and Restrictive Trade Practices Commission. One was the head of the extensive Tata group, J. R. D. Tata, who along with others in the 1940s had willingly laid their heads on the block of state planning. By 1981, Tata was calling on New Delhi to ‘unfetter’ the big business houses.

The intellectual tide had turned in favour of economic liberalisation, though it would not be until a decade later that anything more than tentative policy change was attempted.

In Indira’s case, the disillusionment on the economic side was matched by a deeper cynicism in politics. Her second spell as prime minister was marked by callous manipulations such as the sponsorship of Sikh extremists in the Punjab, and by unapologetic extraction of political funds from businessmen expecting clearances from New Delhi.

Dhirubhai’s cultivation of Indira and other Congress figures during the Janata period certainly paid off.

In October 1980, Reliance received one of three licences given by the government for manufacture of polyester filament yarn, with the location stipulated as the ‘backward’ area of Patalganga in the hills of Maharashtra inland from Bombay. In a field of 43 contestants for the licences, Reliance beat many larger and longer-established business houses including Birla. Its licensed capacity of 10 000 tonnes a year was by far the largest (Orkay Silk Mills and J K Synthetics were each cleared for 6000 tonnes a year), and at the time close to India’s entire existing polyester fibre output.

Together with the Du Pont representative Suresh Kothary, Dhirubbai and his eldest son Mukesh had already been to the headquarters of Du Pont at Wilmington, Delaware, and persuaded the American chemicals giant to sell its technology, including a polymerisation process not previously transferred outside the United States.

The deal arranged through a New York-based firm called Chemtex Inc saw Reliance make a US$26.7 million order for its first
PFY
plant. Making polyester is a highly complicated chemical process, involving the reaction of one petrochemical intermediate-cither purified terephthalic acid (
PTA
) or dimethyl terephthalate (
DMT
) – with another, monoethylene glycol (
MEG
), in processes involving heat and then vacuum, using various catalysts along the way. The resulting polymer, a long molecule, is pumped in a molten state through fine nozzles to produce the filament. It was Dhirubhai’s first step in a process of ‘backward’ or ‘upstream’ integration that was to bring him many plaudits, and a step into the petrochemicals industry where the scale of business is vastly bigger than in textiles.

As well as an always-open connection to the prime minister’s office, he now had a close and sympathetic friend as minister of commerce, the Bengali politician Pranab Mukherjee. His ministry not only helped set trade policy, including tariff levels and anti-dumping duties, in conjunction with the Ministry of Finance, but conducted the system of import licences through the powerful office of the Chief Controller of Imports and Exports-whose corridors in New Delhi’s Udyog Bbavan were thronged with importunate businessmen and their agents.

At the beginning of 1982 Mukherjee became minister of finance, giving him charge of broad economic policy as well as the details of revenue raising and tax enforcement. The Ministry of Finance also supervised the Reserve Bank of India, the central bank, whose governor is often a recently retired head of the ministry. Through its banking division the ministry also effectively directed the 26 nationalised banks through highly politicised board and senior management appointments. It supervised the insurance companies and other financial institutions such as the Unit Trust of India, and controlled entry to the sharemarkets by Indian companies.

Under a series of secretaries that included Manmohan Singh (later finance minister in the 1990s), R. N. Malhotra, M. Narasimhan and S. Venkitaramanan, the Ministry of Finance engineered a revitalisation of India’s capital markets in the early 1980s. The key administrator of this sector was another Bengali, the energetic career bureaucrat Nitish Sen Gupta, who became the ministry’s Controller of Capital Issues and Joint Secretary (Investment) on 24 December 1979, just before the return of Indira.

Like his ministry head, Manmohan Singh, Sen Gupta had earlier been a diligent builder of the ‘Licence Raj’. He had been deputy secretary in the Department of Company Affairs from March 1968, just as government policy was changing from what he has called ‘benign aloofness’ to ‘massive intervention in corporate business’, most notably in the nationalisation of major Indian banks the following year.

In 1969, Sen Gupta had helped in the abolition of the managing agency’ system, whereby families such as the Tatas wielded control over affiliated companies with very little equity, and in preparing the Monopolies and Restrictive Trade Practices Act 1969 which intensified the industrial licensing regime first introduced in 1951. Other measures which followed included the ‘convertibility clause’, whereby the governmment’s financial institutions (development banks and insurance companies) were given the option to convert a proportion of long-term loans to companies into equity, and the Foreign Exchange Regulation Act 1973 which sharply restricted the freedom of Indians to hold foreign currency or assets.

On his arrival at the Ministry of Finance in 1979, Sen Gupta had already begun the transition in thinking that led him to write in his 1995 memoir, Inside the Steel Frame: The possession of vast unregulated power in the hands of the ministers and the bureaucrats inevitably led to complaints of extortion, inducement and enormous politicisation of the machinery From 1970 supreme power was appropriated by the Cabinet Committee on Economic Co-ordination which was headed by the prime minister and for all practical purposes the prime minister’s office became the main decision-making authority. No worthwhile project could be cleared without the prime minister’s approval. Those who managed to get industrial licences also managed to see to it that others did not. This was done by money, influence and political muscle power. A nexus came to be established between a section of industrialists, a section of politicians and a section of bureaucrats. The principle of market forces guiding or dictating investment, or of production targets being determined by demand and supply, was given the go-by, and everything was decided by administrative fiat.

Sen Gupta’s job was to set the rules by which companies could raise money by issuing shares or bonds, and then to adjudicate the prices they could charge for these offerings.

But up to 1979, India’s capital markets were quiet places. Stock exchanges had arrived in the major cities as part and parcel of the British capitalism imported in the 1880s. The exchanges were run by cliques of brokers, who set their own rules of trading and rarely punished one of their own brethren for abuse of clients’ trust. After periodic busts, the general public had learned to distrust the sharemarket. With only very small percentages of equity traded actively, the managements of listed companies were concerned more with dividend levels than with share prices. The bigger companies went to banks for their finance rather than to the market. Between 1949 and 1979, the average annual total of money raised by, Indian companies from capital markets was only Rs 580 million (US$71 million at 1979 exchange rates) and the highest in any year Rs 920 million.

By the end of 1983, the amount being raised had jumped to Rs 10 billion a year, with Reliance playing a prominent part. According to his memoir, Sen Gupta had taken up a study by an Indian economist with the World Bank, D. C. Rao, who was then on assignment with the Reserve Bank of India. Rao suggested greater use of convertible debentures paper which for a certain period had the character of bonds, earning interest, but which then were converted to shares earning dividends. For investors this meant earnings while the company or project was gestating, with the prospect of equity once it was a going concern. For companies, it offered a way to slash debt after the start-up and also to avoid going for loans from financial institutions, who might elect to convert part of the debt to equity and become major shareholders.