The Polyester Prince (19 page)

In its economic ideas the
RSS
family has been nationalist, but suspicious of big capital whatever its origins. The big company threatened the small shopkeeper and trader communities, a repository of traditional virtues. And more recently, multinationals with their universal products and their marketing science seemed to be imposing a western popular culture and lifestyle wherever they set up. ‘I regard communism and capitalism as two sides of the same coin,’ Gurumurthy told an interviewer some years afterwards. ‘Both regard human beings as economic creatures. The only difference between them is whether ownership of wealth should be public or private, and whether there should be profit or not. While communism will have a Chernobyl at any cost, capitalism will have it only if it demands high profit.‘2 In Dhirubhai’s case, Gurumurthy was opposed to the monopoly power Reliance had developed. ‘I would have rather had 100 Ambanis than just one,’ he put it.3

Still, it is ironic that Dhirubhai and Gurumurthy ended up on opposite sides. In the mid-1990s, Gurumurthy was the leading light of the Swadeshi Jagran Manch, a BJP-affiliate which actively opposed the entry of multinational consumer brands like Coca-Cola and McDonald’s. Dhirubhai was often projected as the new, fully Indian entrepreneur struggling against a business establishment left by the British, such as the Parsi companies, and later as a home-grown businessman fully in command of the latest technology and financial techniques: at last the authentic Indian corporate warrior.

Dhirubhai was of course closely identified with Congress by 1985, though he tried to maintain ties to opposition parties too. What set both Goenka and Gurumurthy against Reliance was their sense of excessive power, of business drive exceeding its proper limits, and of personal arrogance on the part of Dhirubhai himself. ‘… while other businessmen had some sense of guilt and shame about their wrongdoings, Ambani saw himself as an achiever against the law, the system,’ Gurumurffiy noted later.4

Gummurthy’s background in the
RSS
also helped immunise him against some of the ‘cultural’ defences of Dhirubhai’s business practices. The Hindu revivalists were happy enough to work through the modern political and economic institutions left by the British.

They were a movement of rule-followers, not rule - breakers. They wanted order, not anarchy. India was weak because its politicians could not make sensible laws and stick to them in the face of temptations put up by private interests. The rise of manipulators like Dhirubhai was not a result of Indians breaking out of their mental bonds, but a symptom of their weakness.

Personally, Gurumurthy had few chinks in his armour. He had got to work with important clients because of his own ability. Back in Madras he lived in a traditional extended family household, with everyone sitting on the floor at meals and eating with their hands. He dressed simply, usually with an open-necked shirt, and stayed in the Express guesthouse when in New Delhi or in a simply furnished room in the penthouse in Bombay. Periodically, Gurumurthy would make pilgrimages to Hindu temples and holy sites around India, reappearing with saffron or vermilion tilak daubs on the forehead. He had both a strong sense of probity and a detailed knowledge of corporate accounting and law. He was an inspired choice for Goenka.

The question, in November 1985, was where to start. By that stage, the published information on Reliance made up a substantial file—much of it adulatory profiles repeating the same anecdotes. Gurumurthy decided to work from the two cases where Reliance’s secrets seemed to have come close to the surface: the High Court petition by Reliance to enforce the
PTA
import contracts financed just before 29 May that year, and the 1983 controversy over the purchase of Reliance shares by the Isle of Man companies.

In the Indian Express organisation, Gurumurthy had direct contact with the chairman and the newspaper’s considerable resources within India itself. He found also that some of Dhirubhai’s opponents in industrial and trade conflicts also kept information about Reliance. Notable among them was a Sindhi textile trader, jamnadas Moorjani, who worked from a modest office in a back street of Bombay’s Kalbadevi district but whose knowledge of markets and judgement was respected all over town. As president of the All-India Crimpers’ Association from 1978 to 1982, Moorjani had led the campaign by the independent polyester texturisers against the duty hike on yarn in November 1982.

Though he found a pervading fearfulness about discussing Reliance, Gurumurthy also built up contacts with bureaucrats, bank officials and even Reliance employees who were uneasy about some of the company’s transactions.

When it came to pursuing inquiries overseas, the little-travelled Gurumurthy relied initially on names suggested by Wadia, drawing on business contacts kept by Bombay Dyeing and associated companies. The initial contact was a firm of solicitors, Lee Lane Smith, in London’s Lincoln’s Inn Fields, who undertook a legal search of the mysterious shelf companies with names like Crocodile and Fiasco in the Isle of Man. In mid-December, the solicitors engaged a private detective agency, King’s Investigation Bureau, to help them trace the ultimate owners.

By then, at Reliance, the atmosphere was becoming one of a seige as the Finance Ministry’s tax enforcement agencies and the Central Bureau of Investigation pursued their inquiries into the
PTA
letters of credit and the excise evasion charge. In February 1986, the years of living on adrenalin took their toll on Dhirubhai. He suffered a sudden stroke that left him partly paralysed down his right side and required immediate attention in an American hospital. For some weeks, the running of the company was left to the two boys, then aged 29 and 27 respectively.

Dhirubhai’s critics were also shaken, by a sudden, still unexplained attack on Jamnadas Moorjani. Sensing a more sympathetic government in New Delhi, the crimpers had renewed their agitation for the Rs 15 000 a tonne anti-dumping duty to be lifted. One evening in February, a gang of men attacked the unassuming Moorjani as he left his Kalbadevi office and walked to his car. He was slashed with long knives, with one arm nearly severed, but recovered quickly in hospital. Years later Moorjani pointed out that nothing linked the attack with the clash of interests between the crimpers and the polyester spinners,s but at the time the possibility of such a linkage was the subject of great speculation in Bombay.

In this vitiated atmosphere, the Indian Erpress launched its expose of Reliance with a misleadingly theoretical-looking piece on the merits of allowing conversion of the unconvertible security, carrying the modest by-line ‘By S. Gurumurthy’.

If the main rule prohibits something, get a sub-rule added which permits it. The main rule will no doubt exist in the book but the book alone. Business thrives on such rules. Touts make their fortunes, politicians enhance their power and bureaucrats their importance.

Rule of law at once becomes sub-rule of law and sub-rule eventually becomes subversive rule. Let us get down to specifics … 6

It was not the way a practised journalist would have opened, but Gurumurthy set out a powerful argument against the practice that had become a hallmark for Dhirubhai-raising debt by offering attractive interest rates and then converting it to cheap equity, by the ‘innovative’ path of converting supposedly non – convertible debentures into shares.

This risked destroying the whole principle behind the distinction between convertibles and nonconvertibles, reflected in the lower premium and higher interest rate on nonconvertibles, Gurumurthy pointed out. No one would bother with convertible issues if it were allowed as a general practice. ‘There is yet another mischief,’ Gurumurthy noted.

‘Those corporate managements which deal in their own securities can abuse this licence by buying these nonconvertible debentures at a lower price and thereafter announcing conversion. There were allegations of this abuse in the only case of conversion of the nonconvertible in recent stock market history’

Gurumurthy also pointed to a ‘risk of unforeseen foreign exchange outflows, a keen preoccupation of India’s economic managers at that time. The scheme of repatriable investment by non-resident Indians in the sharemarket put no limit on the proportion of nonconvertible debenture issues that could be taken up by
NRIS
. But
NRI
investment was limited to a maximum 40 per cent of convertible issues, in some circumstances to a maximum of Rs 4 million, so that the outflow from capital appreciation of the underlying shares was limited. If conversion of nonconvertibles were allowed, NRIs could take up the whole of an issue, convert to shares, and take 0 proceeds of a sale out of the country Getting to Reliance by the final stages of his article, Gurumurthy applied this to the company’s F series of nonconvertible debentures made in June 1985. Out of the Rs 2.7 billion subscribed in the private placement, Rs 1.08 billion or 40 per cent had come from overseas Indians or companies they controlled. Had the issue been convertible from the start, the NRIs could have subscribed only Rs 4 million under the current rules. But Reliance was now holding out the expectation of conversion of the issue, which would be a ‘clear distortion’ of the
NRI
investment rules. (Reliance’s advertisements for the F Series had mentioned that the conversion of a previous series had given investors a return of 180 per cent in eight months, including interest: the nonconvertible part of the debentures had been converted at Rs 71.43 a share, when the market price was Rs 122 a share.) For example, if Reliance were allowed to issue just one share for each Rs 100 debenture, the
NRI
investor would gain a share worth Rs 300 at the then market price. For their Rs 1.08 billion investment, the NRIs would be entitled to repatriate Rs 3.24 billion.

‘That the sub-rule has the potentiality to destroy the main rule is obvious and yet the sub-rule exists,’ Gurumurthy said in his final flourish.

It was introduced into the guidelines when different ministers and a different system of governance obtained. Whatever anyone may say of the present finance minister [V P Singh], no one disputes his bona fides and honesty of purpose. He has no use for such sub-rules. Will the government, particularly the finance minister, act to prevent examples of this kind becoming model practice? Investments based on such questionable methods will become a menace. The government must therefore act to prevent this prejudicial tendency from becoming a part of the system. A measure of avoidance is “er than compulsive surgery later.

A week later, Gurumurthy returned to the attack. He began in the philosophical style that became his hallmark:

Truth reveals itself, though often belatedly. This admirably suits the politician in power.
The interregnum between truth and its revelation is generally a period of manipulation.
In this interregnum alibis and half-truths rule. Finally, unless someone is alert, truth gets confined to the archives. Result: alibis masquerade as truth …

Gurumurthy recalled the grilling of the former finance minister Pranab Mukherjee in 1983 over the non-resident Indian investment in Reliance, and his defence that while black money could be involved this was not reason enough to MI a scheme bringing in much-needed foreign exchange. The figures, Gurumurthy wrote, showed that the NRI share investment scheme had brought in less than one per cent of the Rs 139 billion invested by NRIs in various deposit and investment schemes since 1981.

The Rs 225 million invested by the 11 Isle of Man companies in 1982, augmented by a further Rs 6 million for a rights issue of debentures, had grown into a share portfolio worth a repatriable Rs 1 billion. And if Reliance gave its standard bonus issue in 1986 and were allowed to convert the nonconvertible part of its October 1984 E Series debentures, the holding would grow to some 5.2 million shares worth Rs 1.67 billion. If the 11 companies had taken up their allocation of the June 1985 F Series, and conversion was allowed, the holding would grow to 26.8 million shares, worth Rs 8.58 billion. Then equivalent to some US$650 million, this repatriable amount was equal to 15 per cent of India’s foreign exchange reserves at the time.

This form of investment was a dangerous game for India, Gurumurthy argued. With the sharemarket index doubling in the year past, it meant the country could have to return twice as much foreign exchange as it gained, when-if it had needed to-the goverrunent could have borrowed at a small margin over the London interbank rate. Nor was the scheme very honest: ‘It appears to be tailor-made for motivated investment not altogether in the national interest.’

The arguments in these two articles were well made, and stirred up a subject that smelled from the start. But the scenario of capital flight that Gurumurthy depicted was contradicted by one of the implicit assumptions made by the critics of Mukherjee. If Dhirubhai was the ultimate owner of the Isle of Man companies, how could he sell off their Reliance shares without depressing his own share price?

A week later, however, Gurumurthy moved into new allegations. ‘Smuggling in Projects’

was the headline on the first of a two-part story. ‘Coastal smuggling is a traditional offence,’ he wrote. A more sophisticated form of smuggling thrives in the capital. It is a comparatively open affair. Five-star hotels and expensive guest - houses are its citadels.

The commodity in traffic is however different-it is licences, quotas, permits and other largesses by Government …’

Business controlled important government decisions through their lobbying operations in New Delhi. This was how a project had been ‘smuggled’ from the government sector to a private company. In 1980—8 1, the Petroleum Ministry had been working on plans for a petrochemicals refinery at Mathura, which included a 150 000 tonne a year purified terephthalic acid plant. In March 1981, Reliance had submitted its licence application for a
PTA
plant the same size. To overcome the Petroleum Ministry’s resistance, its Secretary was transferred in July 1983. In October 1984, Reliance got its preliminary approval for a 75 000 tonne plant. The proposed
PTA
plant at Mathura was cut back to 75 000 tonnes, and had been stalled in any case by lack of government funds.