2024-2025 EIB Module II: Struggling for Stability PDF

EIB Module II: Struggling for Stability (1950- 1980) 1 Post-Independence – The Nehru Era Jawaharlal Nehru became the PM of a young India. Indian business interests were more inclined to exploiting the opportunities that freedom had brought. The agenda of th...

EIB Module II: Struggling for Stability (1950- 1980) 1 Post-Independence – The Nehru Era Jawaharlal Nehru became the PM of a young India. Indian business interests were more inclined to exploiting the opportunities that freedom had brought. The agenda of the new government was also to accelerate economic development. In this environment, the old business houses progressed: Tata’s – TISCO, TELCO, Tata Chem Birla’s under the helm of G D Birla Thapars Kirloskar Mafatlals Lalbhais Walchand’s (or Doshis) Some new business houses also entered into the picture. Here is a list of a few: Bajaj’s Mahindra’s Godrej’s Singhania’s Bangur’s Goenka’s Kalyani’s Khaitan’s Ruia’s Chowgule’s Salgaonkar’s Dempo’s Dhirubhai Ambani 2  Mammen Mappillai Brij Mohan Lal Munjal Ramanbhai Patel Uttambhai Mehta Raunaq Singh Hari P Nanda Bhai Mohan Singh Mohan Singh Oberoi Diverse industries were covered and business activities picked up across the country. In 1948, the Nehru government came up with the Industrial Policy Resolution. A very important pronouncement was made that lead to long term repercussions for our nation. This resolution stressed progressively greater participation of the state in economic activities while recognizing the role played by private capital in the industrial development of the country. Under this policy, the state would have exclusive right to establish new undertakings in certain specified fields (primarily basic industries) but the private sector was left free to operate in the remaining spheres. This is what we today recognize as mixed economy. The Planning Commission was established to undertake systematic economic planning and make sure that all economic activities (in the private and public sector) were undertaken on the basis of planned projection of the nation’s needs. Banks, Airlines, Insurance companies which were till then under private ownership, were nationalized. The system of industrial licencing was introduced to achieve the objectives of industrial policy. LICENSE RAJ1 In 1947, India was a new country racked by pains of the Partition and the dire poverty of her people. Nonetheless, the Indian Constitution bestowed the right to vote to every adult, making her the first democracy to guarantee universal adult franchise at birth. The Constitution protected basic personal freedoms of movement, assembly, conscience and expression. So in terms of political and personal freedoms, India was a constitutional republic or a liberal democracy from her birth. This was a great achievement. For economic arrangements, the Constitutional Assembly considered the idea of declaring India a socialist nation. However, it rejected the idea, largely on the argument by Dr Ambedakar that economic system should be left free to adjust to the changing demands of the people and the Assembly should not bind the people to any one type economic system forever. However, socialism was not just in the air but also in the hearts and minds of most intellectuals and political leaders. Unlike in the Soviet Union and China that abolished private property and 1 http://indiabefore91.in/license- raj#:~:text=Rajaji%2C%20the%20founder%20of%20the,the%20Indian%20model%20of%20socialism. Accessed on July 14, 2023 at 7.45 pm 3 put the government directly in charge of all economic affairs, India followed a middle path. The Indian state implemented central planning with myriad controls over prices and quantities to achieve a “socialist pattern of society.” Rajaji, the founder of the first market friendly political party, the Swatantra Party, in late 1950s coined the term “Quota-Permit-License Raj” to describe the Indian model of socialism. Development of the License Raj:  Industrial Policy Resolution, 1948: government monopoly was established in armaments, atomic energy, railroads, minerals, iron & steel industries, aircraft, manufacturing, ship building and telephone and telegraph equipment  Industrial Policy Resolution, 1956: extended the preserve of the government from 17 industries to a further 12 industries.  1956: Life Insurance business nationalized  1969: Large commercial banks nationalized  Monopolies and Restrictive Trade Practices Act, 1970: designed to provide the government with additional information on the structure and investments of all firms with assets of more than Rs 200 million, to strengthen the licensing system. This was done in order to decrease the concentration of private economic power, and to place restraints on business practices considered contrary to public interest.  1973: General Insurance business nationalized Over the years, the central and state governments formed agencies and companies engaged in finance, trading, mineral exploitation, manufacturing, utilities and transportation like Hindustan Insecticides, Ashoka Hotel Corporation, Tyre Corporation of India, Air India, GAIL, SAIL, ONGC, etc. 14 commercial banks nationalized in 1969 Key features of the License Raj:  Licenses were required for starting new companies, for producing new products or expanding production capacities.  Businesses had to have government approval for laying off workers and for shutting down 4   Virtually shut off imports with high tariffs, low import quotas and outright banning of import of certain products. For example, the import tariff for cars was around 125% in 1960.  India in 1985 had the highest level of tariffs in the world. Nominal tariff rates as percentage of values in 1985 were: 146.4 percent for intermediate goods; 107.3 percent for capital goods; 140.9 percent for consumer goods and 137.7 percent on manufacturing goods.  In addition to over-regulating the private sector the Government of India nationalized heavy industry (the commanding heights of the economy) and built new state-owned enterprises (SOEs) in areas as diverse as jute mills to hotels to steel plants. Impact of the License Raj: The following table shows the difference in growth rate of the Indian economy as compared to that of other countries in Asia: Comparative Growth Rates of Developing Economies Average Annual Rates 1960-1988 Country Growth Rate of GDP Industrial Production 1960-1980 1980-1988 1960-1980 1980-1988 India 4.6 7.6 3.5 5.4 South Korea 15.2 12.6 8.8 10.1 Taiwan 12.8 7.2 9.6 7.4 Singapore 12.1 4.5 9.2 6.9 Pakistan 8.0 7.2 4.4 6.3 Thailand 10.3 6.6 7.4 6.5 Hong Kong 10.3 7.5 9.9 7.4 Indonesia 8.9 5.1 5.9 5.7 5 Era of Emergency and business houses Emergency is a failure of social system to deliver reasonable conditions of life. Circumstances arising suddenly that calls for immediate action by the public authorities under the powers especially granted to them. There are three types of Emergencies under the Indian Constitution, (1) National Emergency, (2) Failure of constitutional machinery in states and (3) Financial Emergency The emergency of 1975 falls under the purview of National Emergency. Article 352 of the Indian Constitution talks about the national emergency. National emergency is imposed whereby there is a grave threat to the security of India or any of its territory due to war, external aggression or armed rebellion. Such emergency shall be imposed by the president on the basis of written request by the council of ministers headed by the Prime Minister. National emergency has been imposed thrice in India: in 1962 at time of Chinese aggression, in 1971 during the India - Pakistan war and in 1975 on the grounds of internal disturbances. National Emergency in India -1975 Just before midnight on 25 June 1975, the then Indira Gandhi-led government declared a state of emergency in India. Issued by then president Fakhruddin Ali Ahmed, the Emergency lasted 21 months and has come to be known as one of the darkest periods in modern Indian history. The backdrop of the emergency of 1975 was the political unrest against the government began brewing in 1973 because the opposition saw Indira Gandhi as too powerful, even as corruption allegations began to mount. In 1974, leaders like Jayaprakash Narayan and George Fernandez organized widespread protests against the government. Student protests intensified too. The unrest called for Indira Gandhi to step down as prime minister, eventually culminating in the Emergency. The event that triggered the Emergency took place on 12 June when the Allahabad high court found Indira Gandhi guilty of electoral malpractice. Raj Narain, rival in the Rae Bareilly constituency for the 1971 general elections, had filed a case against her – alleging bribery and the use of government machinery to manipulate the election. Found guilty, she was disqualified, and barred from holding an elected office for six years. On 22nd June opposition leaders addressed a public rally, after calling for daily anti-government protests after the high court judgment. On the 24th of June the Supreme Court granted a conditional stay on the high court ruling. It allowed Indira Gandhi to remain as prime minister until her appeal was reviewed. Let us look at the timeline of the events: 25 June: Led by Jayaprakash Narayan, a large protest took place in Delhi. A few minutes before midnight, a state of emergency was declared by President Fakhruddin Ali Ahmed. The supply of electricity to major newspaper offices was cut and opposition leaders were arrested. 26 June: The Union Cabinet ratified the decision to impose the Emergency. 6 28 June: The Times of India published an obituary for democracy, The Indian Express carried a blank editorial while The Financial Express printed the Tagore poem ‘Where the mind is without fear’. 30 June: The Maintenance of Internal Security Act (MISA) was amended through an ordinance to allow the detention of any person who may pose a political threat by voicing opposition, without a trial. 5 July: 26 political organisations, including the Rashtriya Swayamsevak Sangh (RSS) and Jamaat-e-Islami, were banned. 23 July: The Rajya Sabha approved the Emergency. 24 July: The Lok Sabha also passed the Emergency. 5 August: The Maintenance of Internal Security Act was imposed Over the course of the year, the Constitution was amended to protect 64 laws from any judicial scrutiny, and thousands of people were arrested for opposing the government. 1976, 4 May: As a result of fallout with Sanjay Gandhi, Kishore Kumar’s songs were banned from playing on the All India Radio and Doordarshan. Artists like Kumar and Dev Anand, who were vocally critical of the Emergency, later faced unofficial bans from government and state broadcasters. 1977, 18 January: Indira Gandhi called for fresh Lok Sabha elections. Political prisoners were released. 20 January: The Lok Sabha was dissolved. 24 January: Several members of the opposition united against the Indira Gandhi government to form the Janata Party, with Morarji Desai as its leader. 11 February: President Fakhruddin Ali Ahmed died, while still in office. 16 March: Both Indira Gandhi and Sanjay Gandhi lost their seats in the elections. The Janata Party and its alliance partners won 345 seats and came to power. 21 March: The Emergency was officially withdrawn. 24 March: Morarji Desai was sworn in as the Prime Minister of India. In 1978, Indira Gandhi insinuated that she imposed the Emergency because external forces posed a threat to India’s stability. She said her government would have won “hands-down” had elections been held in 1976, but they were avoided because of the state of the economy. She also justified the arrest of leaders like Desai saying they were “destroying democracy”. Indira Gandhi eventually returned to power in 1980. The 21 months of the Emergency had a lasting impact on India. For the first time, a non-Congress government came to power at the Centre, and it was during this period that several contemporary leaders became politically active. 7 The Indian Economy during the Era In the 1960s, the Congress in India had succeeded in creating a state-controlled and regulated economy. It was centrally planned. Industry was dominated by over two hundred state-owned enterprises. The private sector - which had, on the eve of independence, strongly endorsed Congress economic plans - was held down by a complex system of regulation, which the state could either rigidly enforce or relax at will. Ostensibly, this was designed to check the rise of monopolies. In fact, it gave the state control over business expansion. Eventually, the state would attempt to bar large business groups from key sectors of the economy.4 As a leader of the Federation of Indian Chambers of Commerce and Industry (FICCI) wrote later, 'The private sector had been encircled not only by a wide range of legislation but by a variety of countervailing power.' The state-run economy was stagnating by the late 1960s. The Indian state's refusal to open up to the world market and the bureaucratic obstacles to the expansion of private industry it had erected indicated that the Indian economy was a standard-bearer of the national economies. In the February 1967 elections, Congress sustained serious losses at both Union and State levels. Its seats in the Lok Sabha were reduced from 361 to 283. Business was confident that electoral setbacks would make Congress more amenable to its demands. But their expectations were to be disappointed. Mrs Gandhi's wing of the Congress leadership decided that what was needed was a return to Nehruvian economic principles. In May 1967 the Congress Working Committee was presented with a 'Ten-Point Programme' from Indira Gandhi which included 'social control' of the major banks, nationalisation of the general insurance industry, curbs on business monopolies and the concentration of economic power, rapid implementation of land reform and abolition of the princes' remaining privileges. Despite opposition, the Working Committee adopted the Ten Points. Following the AICC meeting, the government decided to nationalise fourteen major banks - 83% of the total banking system. To achieve this, Mrs Gandhi dismissed Moraiji Desai, as Finance Minister3.Later in the year, the government moved to block further expansion of big business houses in many areas of industry through the Monopolies and Restricted Trade Practices Act. By 1974, India was once again in economic difficulties. The war for Bangladesh in 1971 had ended in victory -but it pushed ten million refugees onto the Indian economy and produced a substantial budget deficit. In 1972 and again in 1973 the monsoon failed, producing not only drought but a shortage of food and an increase in its price. Power generation declined, as did agricultural production and the demand for manufactured goods. Unemployment followed. Finally, the decision of the Arab oil producers to raise prices in 1973 drained India's foreign reserves and deepened what was now a serious recession. Once again, as in the mid-1960s, the siren voices of the world market were heard - the World Bank and the IMF - serenading India with promises of aid, but simultaneously demanding changes in Indian economic policy. 8 Officially, the cost of the 1971 war for Indira Gandhi's government was around 200 crore a week. It was a huge cost given the scale of economies of the day. It impacted the GDP growth rate for 1971-72 as economy grew by 0.9 per cent only. There was additional cost of feeding over 1 crore Bangladeshi immigrants. Budgetary deficit has climbed up. How did Indian business respond to these events? India's leading business houses were strong supporters of the general thrust of Congress economic policy. Business support for Congress was not however a oneway affair. From 1966 to 1975, 'the total assets of the twenty largest industrial houses increased by 150 percent'. Thus the approach of big business in 1975 to the twin economic and political crises was very similar to that of the Congress leadership: strengthening the political power of the state while pursuing opportunities thereby unleashed for the internal liberalisation of the economy. Big business declared immediate support for the Emergency. FICCI welcomed both the Emergency and the 20-Point Programme. Consider the economic dimensions of the Emergency. Few now recall the economic backdrop to the story. In the run up to the Emergency, the Indian economy was buckling under a set of cumulative strains caused by the Bangladesh refugee crisis and war with Pakistan, the ensuing termination of aid by the United States, the recurrent failure of monsoons, and the international oil crisis following the Arab Israeli war of 1973. The oil shock made a deep dent on the Indian economy. There was a rapid slide in balance of payments and rampant inflation from mid-1973 to September 1974. At its peak during this period, inflation touched 33 percent. This spiralling inflation played a significant role in triggering popular protests against the government - protests that widened into the JP movement and subsequently led to the imposition of the Emergency. This period also witnessed the beginnings of important changes in Indira Gandhi's economic policy. Following the Congress party's poor performance in the elections of1967, Mrs. Gandhi had sought to move further to the Left in her politics. This was aimed at cementing both her personal appeal over that of the party's bosses and at securing the parliamentary support of the Left parties once she moved to split the Congress. These political considerations had led to her to adopt more "radical" economic policies such as nationalizing banks, insurance companies and the coal industry, passing the Monopolies and Restrictive Trade Practices Act to closely regulate businesses, and the Foreign Exchange Regulation Act to comprehensively control foreign investment in India. This "socialist" phase in economic policy continued until 1973, when the mounting economic crisis forced Mrs. Gandhi to adopt a more pragmatic stance. From mid-1973, the government began pruning its expenditure and tightening monetary policy. In July 1974, Mrs. Gandhi introduced a rather tough package of anti-inflationary policies - fiscal, monetary and income policy measures - by means of a supplementary budget and ordinances. Many of her senior colleagues and Left-leaning advisors warned her that these measures would prove politically costly for her. Yet she chose to back her team of liberal 9 economic advisors and officials, including a certain Dr. Manmohan Singh. By the end of 1974, inflation was reined in. To stabilize the current account of balance of payments, Mrs. Gandhi also sought assistance from the IMF. Perhaps the clearest indication of the end of "socialist" phase was the brutal crackdown on the Railway strike of May 1974. In the road leading to the Emergency, then, Mrs. Gandhi was turning to the Right in economics as well as politics. She now lent her ear to advisors like BK Nehru, who urged her to abandon " garibihatao " for " utpadhanbarhao " or increased production, and called for more business-friendly policies. After the Emergency was imposed, Mrs. Gandhi announced a Twenty Point Programme of economic and social change. The components of this programme relating to industry slotted in smoothly with the ideas suggested by the likes of BK Nehru. Facilitating and accelerating private sector activity was a key part of the government's economic agenda during the Emergency. Big businesses were naturally pleased with this turn in policy. Only weeks before the Emergency was revoked, JRD Tata lauded the "refreshingly pragmatic and result-oriented approach" that had led to "conditions of discipline, productivity, industrial peace, price stability and widespread involvement necessary to achieve rapid economic growth." Economic data bears this out. If we bracket the year 1979, when Indian GDP fell by 5percent owing to the second oil shock following the Iranian revolution, India's economic growth in second half of the 1970s averaged a healthy 6 percent - a figure that is comparable to the "boom" of the 1980s. The increase in per capita GDP was accompanied by an increase in productivity owing to higher capital investment. In particular, there was a spectacular rise in private equipment investment since the mid-1970s. Clearly the "animal spirits" of Indian capital were rising from around this time. It is also not surprising that Big Business welcomed Indira Gandhi's return to office in1980. Indeed, the Janata government's mismanagement of the economy tends to be forgotten now. The pro-business tilt inaugurated in the mid-1970s was continued and intensified during Mrs. Gandhi's last term in office. This was symbolized by an unprecedented dinner held in her honour in a well-known Delhi hotel in 1980. Her host was India's largest producer of polyester: Dhirubhai Ambani. So, the Emergency was an important inflection point in the long transformation of the Indian economy and a harbinger of a new pattern of relations between the state and big business. Whether or not we approve of these developments, the fact remains that Indian economy did move to a higher growth trajectory during these years. Case studies of that period Reforms initiated in public-sector management during the closing years of the Nehru era were not seriously pursued in later years. The Public Sector Enterprises continued to make losses year after year and practically all sick units taken over by the government continued to be sick. Main problems plaguing the PSEs were mismanagement, lack of requisite autonomy with constant interference from ministries in matters of pricing, expansion, modernization. Vacancies remaining unfilled in some units, while some units were saddled with excess 10 manpower. Most of the PSEs were run in an unbusiness-like manner. Because of this, most PSEs achieved limited success or failed. A few notable exceptions were BHEL, IOC, Hindustan Petroleum Corporation, Bharat Petroleum Corporation, ONGC, and NTPC. The Case of Maruti Udyog Limited Maruti Udyog was originally conceived in the mid-1970s as a private concern by Sanjay Gandhi. The company planned to make small cars within easy reach of the Indian middle class. But in its’ private form, the company was not too successful. In the 1982, GOI decided to acquire it. But it was not exactly a public sector company as GOI provided 50% (and not 51%) of the capital. The other 50% was subscribed by Suzuki Motor Company from Japan. This became a joint venture functioning under the joint management of the collaborating parties – Maruti Suzuki India Ltd. Suzuki agreed to supply the technology. Manufacturing facilities set up near Gurgaon. Suzuki not only supplied technology but also inspired adoption of the Japanese managerial practices (eg Kanban system of inventory management). Their first model the Maruti 800 became immensely popular with Indian users. How did Maruti Suzuki achieve this? What did Maruti Suzuki offer? This car was by no means not inexpensive or cheap. In the same price range, the indigenously manufactured cars (Ambassador, Premier Padmini) were of inferior quality and lacked aesthetic appeal. Maruti Suzuki also developed an extensive network of aftersales service centres which also appealed to the customers The popularity of the first model boosted the confidence of the management and they brought new models targeting relatively more affluent segments of consumers. 11 Premier Padmini from Premier Automobiles Hindustan Motors (C K Birla group, Calcutta) was the largest car manufacturer known for their sturdy but unattractive ambassador cars. Premier Automobiles (Walchand group, Bombay) were making Padmini, Renault and Peugot. What Maruti did for the automotive sector in India was that it forced other car producers in India to bring about improvement within the range of technology available to them. They undertook manufacturing of MPV, SUVs and commercial vehicles as well. Maruti Suzuki today is a listed company and Suzuki holds 56.37% stake now2. This is a good example of what a public-sector project, if properly executed, can achieve. It is also an example of a public sector firm waking up the private sector to its responsibility towards consumers. In 2020, Maruti held about 53% market share, which further dropped to 42% in September 2022. They lagged behind Tata Motors. But in late 2022, they launched their Brezza model3. In April 2023, they upgraded all their models to comply with the with the new Bharat Stage 2 https://www.capitalmarket.com/Company-Information/Overview/Maruti- Suzuki/5496#:~:text=The%20company%20is%20a%20subsidiary,56.37%25%20of%20its%20equity%20stake. Accessed on August 4, 2023, 11.35 am 3 https://www.moneycontrol.com/news/business/markets/maruti-suzuki-chases-market-share-but-losing- mind-share-to-tata-motors-9572511.html accessed on August 4, 2023, 11.49 am 12 Emission Standards VI Phase-II real driving emissions (RDE) regulations, alongside being compatible with E20 fuel as well4. The new RDE compliant Maruti Suzuki cars feature an enhanced on-board diagnostics (OBD) system to monitor emission control systems of the car in real-time and will notify drivers in case of any malfunction, it added. The products now also come equipped with an electronic stability control (ESC) system. They are taking the fight to their competitors and have inched back to 50% of the market share. The Rise of White Revolution and AMUL Kaira District (in Bombay Presidency, later in Gujarat State) produced a large quantity of milk. Since 1915, Pestonji Edulji Polson ran a flourishing business in dairy products. This was the only outlet for the huge quantity of milk produced by the farmers. It was easy for Polson to exploit them in many ways. Shree Tribhuvandas K Patel, a freedom fighter, could not tolerate the state of affairs and approached fellow freedom fighters Sardar Vallbhbhai Patel and Morarji Desai. Sardar Patel had been an advocate of farmers’ cooperatives since 1942. What is a Co-operative? A co-operative is a member-owned business structure with at least five members, all of whom have equal voting rights regardless of their level of involvement or investment. All members are expected to help run the cooperative. A co-operative is a separate legal entity and members, directors, managers and employees are not liable for any debts incurred unless they are the result of recklessness, negligence or fraud. A co-operative usually only allows a limited distribution of profits to members (some don’t allow any). This business structure encourages a democratic style of management and promotes the concepts of sharing resources and delegation to increase competitiveness. Producer as well as consumers can set up their co-operatives. The Kaira District Cooperative Milk Producers’ Union Limited (KDCMPUL) was founded in Anand in 1946. In the first 10 years, this milk producers’ cooperative would only collect milk from the farmers, pasteurise it and supply it to dairies in Bombay and Gujarat. But this was not a bad beginning as they succeeded in eliminating the milk contractors and middlemen at whose hands they were being exploited. 4 https://economictimes.indiatimes.com/industry/auto/auto-news/maruti-suzuki-upgrades-its-entire-model-range- to-conform-to-stricter-emission- norms/articleshow/99758938.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst accessed on August 4, 2023 13 Soon, more and more farmers started becoming members of the cooperative. This pushed the milk supply much in excess to the demand in Bombay and Gujarat. The management took a decision to set up a plant to process all the excess milk into butter and milk powder. This plant became operational in 1955. Role of Dr Verghese Kurien As the true architect of Amul, he is rightly called the Milkman of India. An engineer, he came to India in 1949 to manage the dairy as government employee. He went on from helping farmers repair their machinery to bringing about the White Revolution in India (Operation Flood). His vision and initiatives helped India become self-reliant as far as its’ dairy needs were concerned. As per Dr Kurian’s vision, Amul dairy gave small-scale dairy farmers quality control units and centralized marketing. They were taught to take better care of their cattle, veterinary doctors were available. In short, they were taught some of the science of dairy farming. Brand Amul Amul was decided as the brand name. It is the acronym for Anand Milk producers’ Union Ltd. It is also a derivation from the Sanskrit word amulya which means priceless. GCMMF was founded in 1973 to market milk and milk products produced by 6 district cooperative unions in Gujarat. Over the years, Amul dairy went on adding new items: cheese, ghee, baby food, and now chocolates, buttermilk, lassi, flavoured yogurt and many more. Today, the cooperative model of Amul has placed Anand on the dairy map of the world. How was this feat achieved? The answer lies in imaginative product development programme, research and development, and aggressive marketing – the Amul girl as the logo and Taste of India as the slogan, are stories by themselves. What lesson can be learnt from AMUL? This story teaches us how multi-product, highly diversified enterprises can be efficiently managed under systems other than the private sector. 14 The Dhirubhai Legend: The Bond With The Markets Still Endures It was, perhaps, way back in 1982, that Dhirajlal H Ambanis relationship with the country’s stock markets began in the true sense. A relationship unbroken till this day. As author Gita Piramal records in her book Business Maharajas, the tussle between a Calcutta- based Marwari bear cartel and Reliance was the first clear instance which made Dhirubhai, as he is now fondly known in market circles, the uncrowned king of the bourses and a legend in his lifetime in Indian industry. 15 Ms Piramals book chronicles how brokers loyal to Dhirubhai created, virtually overnight, the Friends of Reliance Association to pick up the large chunk of shares which the Marwari cartel was dumping in the market. They reportedly bought up 8.57 lakh shares of the 11 lakh shares which the cartel had short-sold, thereby saving the stock from certain collapse. To break the cartels back, they even insisted on delivery and charged an unprecedented backwardation, or undha badla, of Rs 50 per share. And thus was born the legend of Dhirubhai. A man who, it is now said, not only created India’s largest corporate house, but shared his wealth with shareholders creating unparalleled loyalty among investors. His basic principle: if his shareholders and suppliers and everyone connected to Reliance earned money, Reliance would also generate wealth that way. As Dhirubhai Ambani battles for his life at the Intensive Care Unit of Mumbai’s upmarket Breach Candy Hospital, the markets which have so often chanted his name in awe are waiting for every bit of information, every statement emanating from the Ambani family. In Mumbai’s streets, trains and the crowded lanes surrounding Dalal Street, the predominant topic of discussion on a monsoon-washed day is Dhirubhais health condition. So what is it that keeps the Dhirubhai mystique alive at the markets? Says a frontline investment banker: The legend of Dhirubhai is an enduring one in the markets. There have been many stories of his successes which the market has heard over the years. Broking sources say signs of Dhirubhais vision were clear when, after his first stroke 16 years ago, he clearly groomed his two sons Mukesh and Anil to take over the reins of his empire. Thereafter, he became a kind of philosopher and guide for his sons, while the two of them grew in stature, says a broker who tracks Reliance closely. Another factor which they cite as a key one is that despite hitting success himself, he did not choose merely to let his sons join him as they were, but insisted on quality educational qualifications for both of them. The sons, in turn, have invested in the industry and in people. But as concern over Dhirubhais health grows, the stock markets are showing signs of concern. All Reliance group stocks were down on Tuesday, and the same trend continued on Wednesday. Flagship Reliance Industries fell Rs 6.55 to Rs 267.10 on The Stock Exchange, Mumbai (BSE), while Reliance Petroleum was down 40 paise to Rs 23.75. Volumes continued 16 to be high, with BSE seeing a volume of 14.19 lakh shares in Reliance Industries, while on the National Stock Exchange, the volume was 31.40 lakh shares. On Tuesday, the combined volume on both bourses was 1.5 crore shares. However, Dhirubhais battle with bears had been continuing over the years and, despite the advent of the foreign institutional investors (FIIs) these days, signs of that old tug-of-war still show up sometimes. Agrees a leading broker, somewhat emotionally: The punter community knows no emotion. They would want to make short term gains at every opportunity. The same case happens when they press sales in a war-like situation, instead of being patriotic and buying stocks to support the market. And a bear cartel would want to take advantage of such situations whenever they arise. But the goodwill which Dhirubhai enjoys is clear. Recalls former BSE old-timer and former board member Shirish Dave: His vision is tremendous. Even those who enjoyed the benefits of license raj have had to bow to competition now. But Dhirubhais foresight has made Reliance grow into a world-class organisation. Brokers say some old-time shareholders had invested in Reliance in awe of the legend of Dhirubhai. Some of them may be selling some small parts of their holdings as they hear of his illness, something which punters may be taking advantage of, they add. The old-timers among the investors may be slightly worried about the future, though most investors know the two sons are equal to five directors each and comprise a very strong layer of future institutional leadership, says a broker. Because of Dhirubhai’s natural instinct for trading even during times of crises, his fan following in the markets increased year after year, Mr Dave points out. Says another broker, Pradip C Doshi: He cultivated the culture of putting money in initial public offerings and debentures. He is the pioneer of the concept of convertible debentures, something other corporates are following now. He adds that Dhirubhai showed other corporates how to borrow from international markets at lower costs and repay local high-cost loans. The 30-year, 100- year Yankee bonds were unimaginable before he made them fashionable, brokers say. 17 There is much talk of how Reliance stocks helped many a father marries off his daughter, or buy a house when the family needed it most. Those are among the many investors who have remained loyal to the Reliance group over the years. A debt which they say they still owe to Dhirubhai. And that’s the goodwill which the Reliance group patriarch and the Ambani family is depending on the most as Dhirubhai puts up his bravest fight yet. Source: https://www.financialexpress.com/archive/the-dhirubhai-legend-the-bond-with- the-markets-still-endures/51351/ G D BIRLA Another architect of Indian industrialisation in India was the late GD Birla. He was a largely self-educated and self-made man. He had a vision of an industrial India from the very begin- ning and was fired by the imagination and determination to put India on the industrial map of the world. Starting in the early years of the twentieth century, as a jute/gunny broker in Cal- cutta, he made his debut in industry during and after the First World War, when he set up a textile mill at Subzi Mandi in Delhi in the closing years of the World War I. He later acquired the Keshoram Cotton Mills through Andrew Yule in 1920 and set up Birla Jute around that time. Birla Brothers Limited was incorporated in 1919 with an authorised capital of Rs 5 mil- lion. Then with the financial assistance of late Maharaja Jiyajeerao of Gwalior, the Birla's set up a textile unit in Gwalior in the 1920s. In the 1930s, sugar and paper mills were set up when protection was accorded to them. Birla soon realised that India's efforts to industrialise would succeed only after the country attained political freedom from British rule. He came under the influence of Gandhiji in the 1920s and established close links with the leaders of the nationalist movement. During the war time stock-exchange boom of 1943-46, the Birla’s floated a large number of companies to manufacture cars, textile machinery, and man-made fibres and set up the United Commercial Bank. Earlier Birla had started the Ruby and New Asiatic Insurance companies, and a domestic airline. After Independence, the Birla’s expanded and diversified their operations on a large Scale and in record time GD Birla was able to set up an aluminium plant, Hindalco, near zapur with the collaboration of the US company, Kaiser. Birla’s acquired the Century Mill Iron the late Sir Chunnilal V Mehta, a cousin brother of the late Sir Purshottamdas Thakurdas and modernised it to make it one of the leading textile units in the country A number of Cement and fertiliser plants also came up subsequently, apart from tea plantations. GD Birla developed his own style of indigenous management and practised the PERTA system, whereby daily stock is taken of a unit’s production, sales, and profitability, in terms of both pre. determined targets as well in relation to its past performance. Birla also set up a number of educational institutions at his native place, Pilani, and at other centres, besides temples in various parts of India, Planetariums and hospitals in recent years. During the late 1970s and 1980s, the Birla’s rose to the top position among the industrial giants, before GD Birla passed away in London in mid-1983. Till the very end, Birla, a teetotaller and vegetarian, 18 remained agile and active, despite his 89 years of age. The house split into six after his death and his grandson, Aditya Vikram who was a graduate of MIT, USA, took charge of Hindalco, Century, Grasim and Indian Rayon, and also set up a number of joint ventures abroad. Aditya Vikram Birla died in his early 50s and his son Kumarmangalam is now leading the AV Birla Group. BM's grandson, CK Birla is managing, Hindustan Motors and Orient Paper. KK Birla heads The Hindustan Times and was associated with Texmaco, Goa fertilisers, Indo-Gulf and Cement. LN's son is in-charge of Cimmco and units in Bharatpur. BK heads Keshoram Cotton, Birla Jute and tea interest in Calcutta. Late MP Birla was earlier the head of Birla Jute. Kumarmangalam has inducted a top manager from an MNC and has bought up brand names of Madura Coates like Van Heusen, Louis Philippe, Allen Solly and Peter England. The textile mills of the group have not been faring well in recent years and the cement units might be hived off. Hindalco has taken over Indian Aluminium and emerged as the largest producer. The author had several meetings with Messrs GD, BM, MP and Aditya Vikram Birla over the years. Till the 1960s the Birla family possessed five managing agencies, the most important of which were the Birla Brothers Pvt. Ltd. (Rs 18,640,000); Birla Gwalior Pvt. Ltd. (Rs 8,870,000); and Cotton Agents Pvt. Ltd. (RS 13,730,000). Both Birla Gwalior Pvt. Ltd., and Cotton Agents and Put. Ltd. are also investment companies. Besides, the family also operates a total of 26 investment companies. Of the 151 companies managed by the Birla’s, 47 companies are controlled through members and relations of the family. The number of companies owned by the Birla family is 77. Some of them are controlled by holding companies which have taken the form of trusts. After the death of GD Birla in 1983 the group split into six. The largest is headed by BK and his grandson Kumarmangalam. BK's Son Aditya passed away when barely 50. BM Birla's group is managed by his grandson CK who manages Hindustan Motors and Orient Paper. KK Birla manages Chambal fertilisers and "Hindustan Times'. LN Birla's son SK is engrossed in managing units in Bharatpur and Gwalior CIMMCO. It has been a common practice for the trusts of religious groups to provide funds to the companies controlled by the combines connected with them at low interest rates from the money donated by their followers. In the case of the Tata’s, the funds are gathered by a trust, a non-profit making organisation, from the religious followers of the Parsi community and loaned to the different companies of the family. Tata Sons Pvt. Ltd. had derived about 81 per cent of its capital from the Temple Trust. The Marwari combine, Temple Trusts and private financiers provided the Marwaris with the funds needed by them to carry out the activities of their enterprises. The trusts grant loans to the business establishment of the family from the money which they have gathered from the religious followers of the community. As beneficiary organisations, the non-profit trusts are largely exempted from the company law, thus making it possible for them to make loans to companies controlled by the leading members of the families without much restriction. Before the nationalisation of banks, the combines also had easy access to bank loans from the banking organisations set up by them. The Tata’s were closely linked with the Central Bank after the Tata Industrial Bank merged with the former in 1923. The Birla’s started the United Commercial (UCO) Bank in 1943. Dalmia had set up the Bharat Bank which later merged with the Punjab National Bank. Singhania started the Hindustan Commercial Bank, which remained relatively a small bank. The Jaipurias and others had banking links, too. Cowasjee Jahangir 19 was associated with the Bank of India and the Gujarati groups with the Bank of Baroda. Before the nationalisation of life insurance companies, most of the combines control- led the life fund investments. In the boom years they had an easy access to the stock market. A borrower could obtain a loan amounting to several million rupees upon presentation of the signatures of two guarantors. In view of the conveniences relating to matters of taxation, this type of loan was more advantageous than loans obtained from the banks, in spite of the fact at the interest rate was somewhat higher. Since it has been possible for the companies of a combine to secure funds from religious trusts or private financiers of the same capital raising operations. They also had easy access to Financial institutions set after Independence at low rates of interest on a long-term basis. The combines have tended to procure increasing loans for their community, they did not have to depend heavily upon the public financial institution increasing proportion of their initial capital or working capital through the capital market in recent years. Both the Tatas and the Birlas have already displayed increasing dependence in the domestic and foreign capital markets in establishing joint enterprises or in consummating technical collaboration agreements with foreign enterprises. In the last 25 years, the groups have amassed large amounts through liberal depreciatinn allowances, tax holidays and incentives and reserves in a completely sheltered market with rising population and growing public expenditure through the successive Five-Year Plans. The various financial institutions set up by the Government in the last four decades have also made large loans and investments in these groups enterprises to meet their medium-and long-term needs. The groups have also been accepting public deposits through flotations and the booming stock market in 1981-82, 1983 and in the 1990s. They have also raised funds abroad through GDRS and ADRs. As management and ownership have been closely related within the companies controlled by the groups, it has become a common practice for members of the families to participate in the management of their enterprises as chairmen or managing directors, ever since the 1970s. Some of the companies are manned by their relations and trusted personnel. Even after the abolition of the managing agencies in 1970, the groups continued to make the key decisions in regard to expansion, diversification, modernisation, large investments, and in terms of pricing and the making of key appointments through their chain of family directorships and trusted personnel. The Tata combine had already taken steps to promote professionalization of management and to introduce reporting and control systems that are conducive to the development of mod- ern organisations. Most of the companies in the Birla group have been controlled by members of the family, or their relatives and employees, who have grown with the companies and are loyal and trustworthy. High posts have been offered to persons who are either related to the Birla family or are connected with the Marwari group. The late GD Birla, as the patriarch of the family, was heading the Group, though there were signs of the late Brij Mohan (younger brother of GD Birla) Group operating autonomously in the automotive and paper fields. On the other hand, Kumarmangalam have had exposure to management education abroad and have lately in ducted some professionals as competition is growing in domestic and foreign markets. 20