Biz beyond the line of control

TALK to anyone senior in the government these days and, if they’re not bitching about Musharraf, they’ll be moaning about the fact that there are no serious takers for the PSUs being sold, that the value of bids got for the fourth round of cellular licences is so low, that all this is because Indian business is in very bad shape. Forget selling a full-fledged PSU like Air-India, they’ll tell you, you won’t get a good price for even the Air-India building — after the furore over low valuations, various people have advised the government to sell off the real estate separately in PSUs like VSNL or MTNL where this runs into thousands of crore rupees.

Though certain to raise a furore, the solution to the problem of poor demand, and even poorer wealth, is to open the markets to foreigners. That is, allow MNCs to bid on their own for the PSUs, for telecom licences, and so on — none of the usual sham about Indians controlling 51 per cent or more of the company, like we’ve done in telecom, insurance, and so on. To use the lexicon of the Indo-Pak talks, let’s cross the Line of Control! If Qualcomm has to run the Reliance WiLL-mobile network, or if Singapore Airlines is going to run Air-India for the Tatas, why not let them bid on their own?

But this, you can already see the protests coming thick and fast, is completely anti-national, almost like giving into Musharraf’s demand that Kashmir is the ‘core’ dispute. And, if MNCs are allowed to take charge of India’s economy, what’ll happen to our local entrepreneurs?

Before we get into this argument, let’s recognise that MNCs are in control of several critical sectors already, and we aren’t the worse for it. The top car firm with a 60 per cent market share, Maruti Udyog, is for all purposes Japanese — others such as Hyundai are also foreign-owned. MNCs own top banks and finance firms; they’re to be allowed in the petroleum sector, and there are a lot more such examples. It is true we don’t allow fully-owned foreign firms in areas like telecom, but let’s not kid ourselves that our telecom firms are Indian-controlled. Hutchison got full control of Max-Hutch’s cellular operations in Mumbai many years ago by buying Analjit Singh’s 51 per cent share through a holding company controlled by it! This arrangement to get control of firms, any investment banker will tell you, is not unique to Hutch. And, as in telecom, it’s just a matter of time before ‘Indian-controlled’ insurance firms begin lobbying to allow foreigners to hike their stake, to bring in much-needed funds.

But what about developing Indian entrepreneurs? After all, they can’t possibly compete with MNCs with deep pockets when it comes to bidding for PSUs, or when it comes to running up huge losses to develop certain kinds of businesses. This is true but let’s understand that, with some honourable exceptions, most Indian entrepreneurs are nothing but contractors. That is, they assume very little risk for the projects they execute — most of the money is lent to them by state-owned financial institutions anyway. The Rs 80,000-odd crore locked up in non-performing assets of the banking sector is adequate testimony to just how easy our ‘entrepreneurs’ have it.

When’s the last time you heard of an entrepreneur going bust? How is it that despite not being able to pay licence fee dues of Rs 165 crore for their Uttar Pradesh (East) circle — and Rs 400 crore for other circles whose licences were cancelled — the Rais of Koshika Telecom are still in business, and have the gall to sell part of their telecom equity to an NRI called Chiranjiv Kathuria (who claims he dated Hollywood siren Salma Hayek)? That’s Indian entrepreneurs for you. If some die once MNCs come in, why should anyone shed tears, except for the politicians who’re paid to champion their cause.

What about national security? Won’t that get affected if MNCs have full access to our markets (which, the argument feels is akin to the border)? The most-hyped up reason, ironically, is the easiest to refute. If we can trust our security to guns and planes made abroad, why can’t we have our telephone lines or airlines owned by some of these very firms?

But having MNCs in control, the diehards don’t give up, will mean havoc for our balance of payments (remember the allegation that Suzuki didn’t produce gear boxes in India because it made a lot of money on this in Japan?); we won’t have any ancilliarisation; and so on. Possible, but that’s only if you allow the MNCs to take over our government as well. Keeping the import duties high enough, or giving tax breaks for higher local content, for instance, will ensure ancilliarisation. Moreover, if too many parts are imported, the costs will shoot up each time the rupee depreciates, as it keeps doing. So, even this fear is vastly exaggerated.

Restricting foreign investment is a bit like the licence raj of old — it’s basically just meant to protect those already in, and has little to do with either protecting the customer, or the economy. So let’s agree this is the ‘core’ problem, and move beyond the Line of Control, shall we?

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