Financial Daily from THE HINDU group of publications
Monday, Jul 22, 2002
Columns - Policy Watch
Corporate sanctity MNCs' double standards
LAST year, a few days before he quit his assignment in India, a top US diplomat chose to hector the Union Government and Maharashtra State officials on the sanctity of agreements and contracts.
The lack of sanctity for project contracts, especially the one signed with Enron in India, would drive US investors out of India, he thundered. Ironically, a few months after the diplomatic diatribe, the corporate abuse indulged in by the Houston-based company became public.
Yet, last week when US major Coca-Cola failed to meet yet another deadline for adhering to the Government norms for mandatory disinvestment of shares, no such hectoring was on display by Indian officials. Nor was there any mention of sanctity of agreements, although the company accepted the entry-level condition of disinvestment as early as 1997.
Instead, while a generous Government gave yet another extension for meeting the deadline, reports were being planted in the media about how the company would take up the issue with the Prime Minister's Office. Contrast this show of injured innocence and citing of wrong precedents with the way India's top bank the SBI has been at work after the rap it got from the US Federal Reserve.
An attempt by the Indian Government to sort out the issue through diplomatic channels was quickly abandoned, after it realised that US regulators do not take kindly to phone calls like the babus do in India. However, the same set of MNCs, which meekly submit to any diktat from regulators in the US, start pontificating about corporate governance, sanctity of agreements, etc., in India.
Indeed, if it is not the indirect threat of lack of sanctity of contracts and periodic noises made by overseas companies to pull out of India, the direct one is how FDI flows would be impacted. This comes at a time when FDI flows to India have topped the $4-billion mark, the highest in a single year.
In the last few years, overseas companies have been emboldened to test the waters on fulfilling commitments, thanks to the Government's soft underbelly. This was best reflected in the disgraceful way the cabal of telecom operators, including foreign companies, cocked a snook at the Government on the licence agreement in 1999. If there ever was a classic case of disregarding the sanctity of agreements, this was one.
Add to this, there is a band of commercial banks in India, which promised the RBI, years ago, that it would tap the capital markets. But as a matter of routine these IPO plans are annually deferred, ostensibly due to capital market sluggishness.
Little wonder, then, that some of the MNCs have also starting parroting a similar raaga. Worse, one MNC, which cited the losses it had piled up in India as one of the reasons for breaching its agreement, packed off its staffers to sunny Bahamas for a holiday. The reason buoyant sales in summer.
If these overseas companies have not been overtly aggressive this time, it is because they can no longer occupy the moral high ground, thanks to the wave of corporate scandals that has rocked their backyard in the US. After the now raging controversy of pay-offs to Indian officials involving Xerox ModiCorp, it would call for a brave (or foolish) Parliamentarian to bat for these companies.
Crude attempts are now being mounted by some overseas companies to influence policy decisions. It is quite illustrative that Japan, China, France and a few other emerging market economies have dealt severely with offences committed in their countries by big names of the US financial sector.
A similar sharp retribution to companies reneging on contractual agreements with the Indian Government is bound to help.
If nothing else, it will advertise the country as an investment destination where rules and regulations are adhered.
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