The Polyester Prince (34 page)
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 tline plotting how to do the same to US.‘6
The government was soon failing 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, Chandrashekbar”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 mafia-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 Lai.
Then, in the pivotal decision of his prime ministership, Singh abruptly announced that, with inunediate 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 were some 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 of the well-off had no such inhibitions. The Mandal policy intensified their night - mare 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, some 260 people died, either in protest suicides or from police ire.
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. The
BJP
, and other groups spawned by the Rashtriya Swayamsevak Sangh, asserted that Ram was a historical character, and that a small mosque built by a general of the Muslim emperor Babar in 1532 in the northern town of Ayodhya had displaced a temple marking Ram’s actual birthplace. The ideal of Ram was supposed to cut across caste barriers-attributed to a later ‘distortion’ of true Hinduism-and to dispel residual defeatism among Hindus after their centuries of foreign conquest and colonisation. In September the
BJP
began a countrywide ‘march’ 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 of the 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, the editor of the Indian Express, was vehemently opposed to the new reservations.
As the Singh goverrunent 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 obliged to report mounting contingent liabilities over its customs and excise cases, Reliance was climbing back shakily from its setback 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 18-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 12 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 30 of the party’s MPs were listed as disaffected in newspaper reports. 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 over 30 October-2 November in a suicidal assault against Uttar Pradesh armed police ordered to defend the mosque by the state’s Janata Dal chief minister, Mulayarn 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, 55 of the party’s MPs, or about one-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, to Rs 240.
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 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 setup had emerged without theambani 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 nonconvertibles. This would replace the lost supplier’s credit from Larsen &L Toubro.
The new prime minister, Chandrashekhar, had gained a poisoned chalice, however. By allowing the Ram devotees to under - take 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 conimunal violence gradually tapered off. But the postponement of the economic reforms he had so opportunistically engineered 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 US$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 supporting unpopular measures. He feared 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 US$1 billion, less than two week’s 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.
Meanwhile’ the initial optimism about Reliance’s prospects under the Chandrashekhar government had been dissipating as Chandrashekhar showed little urgency in reversing the policy changes made by V P Singh.
Dhirubhai’s friends had begun to move back into positions of economic and financial control. The former finance secretary, S. Venkitaramanan, was made Governor of the Reserve Bank of India as a matter of priority, replacing R. N. Malhotra. Several accounts say that Dhirubhai’s lobbying was decisive. In November 1990, even before Chandrashekhar was sworn in, Dhirubhai had told one diplomatic visitor: ‘Mr Malhotra will be replaced shortly and the new RBI governor will be Mr S. Venkitaramanan.’
Dhirubhai indicated that it was his recommendations.
In March 1991, Venkitaramanan had in turn appointed the former Unit Trust of India chairman, Manohar Pherwani, as the chairman and managing director of the central bank’s housing refmance subsidiary, the National Housing Bank.
But Larsen & Toubro had remained outside Dhirubhai’s control, even though in January a junior minister assisting Chandrashekhar, Kamal Murarka, had observed that Larsen & Toubro was Ainbani’s company’. Reliance was holding back its new debenture issues because it saw a weak reception in the market, though ostensibly delays in approvals were cited. With cost overruns in the Reliance Petrochen-iicals plant at Hazira, let alone the future gas cracker, it still badly needed the supplier’s credit. To rub in the loss, Larsen & Toubro’s chairman, D. N. Ghosh, had started the new year by writing to Dhirubhai pointing out that Reliance was late in paying Rs 1 billion on bills for work done by Larsen & Toubro. MukeshAmbani lamely replied nearly a month later, claiming that Larsen & Touhro itself was behind schedule in some work.