19 February 2014

Re-colonization of India

There is a lot of news in recent months about foreigners increasing their control in Indian companies, both private as well as public sector companies, in some cases even buying them fully. You may recall some of the following news items:

:- Vodafone has applied for, and got permission, to increase its holding to 100 per cent.
:- Nestle is buying back its shares from the market to increase its holding from 62 to 75 per cent.
:- Cairn India is spending Rs 5,725 crore to increase its stake from 65 to nearly 75 per cent.
:- British pharmaceutical group GlaxoSmithKline Plc is increasing stake in its Indian subsidiary from 50.7 per cent to up to 75 per cent, spending Rs 6,400 crore.
:- Anglo-Dutch consumer goods company Unilever Plc has just completed increasing its stake in Hindustan Unilever Ltd upto 67.28 per cent.
:- Walmart has bought Airtel's complete share in their newly formed joint venture Indian company to launch retail malls. Walmart is now a 100 per cent owner of the Indian company.
:- The government is selling 100 per cent of public sector company Hindustan Zinc Ltd to controversial mining company Vedanta Resources Plc.
:- The government cabinet committee has also decided to sell 100 per cent of the public sector aluminium maker Balco. Vedanta already owns 49 per cent stake in this PSU - now it wants total control of Balco.

I wanted to investigate this trend further, in order to find out the full extent of: 1) total foreign holdings in Indian companies, 2) total foreign investment + debt exposure of the nation, and 3) government policy on this issue. Here is the summary:


1: Total foreign holdings in Indian companies:
      a) Foreigners today hold more than 18 per cent of the collective stock of over 300 companies listed in the Bombay Stock Exchange (worth USD 150 billion).
     b) Average foreign stake in nine Indian cement firms is 23.1%; foreign stake in 21 India pharmaceutical companies has gone up to 18.7%; and foreign stake in 12 software companies has risen to 19%. Government PSU Power Grid Corporation saw the steepest rise in FII holding in recent months and stands at 25.4%.
     c) Foreign money is particularly targetting the government promoted but so-called private banks. Did you know that foreigners hold 67 per cent of ICICI Bank, 73 per cent of HDFC Bank, and 48 per cent of Axis Bank? The government has admitted in Parliament that these banks, started with public capital, cannot now be called 'Indian-owned banks'.

2: Total foreign investment and debt exposure:
     There are normally three ways in which foreign money comes into India:
     a) FII: In the last four years alone, i.e. 2009 to 2013, Foreign Institutional Investors (FIIs) have cornered Indian shares worth 4 lakh crore rupees (USD 60 billion). While holdings of domestic institutional investors (DIIs) has continuously declined, its share has dropped to just 8%.
     FIIs are gamblers who play the corporate casino called stock market, looking for quick profits. They play really big stakes, buying and selling thousands of crores in minutes. In the month of January 2014, for example, they purchased shares worth Rs 64, 500 crores but sold shares worth Rs 63,800 crore, giving a net 'investment' of some Rs 700 crore. But you see how fickle this 'investment' is, it can go the next minute.

     b) FDI: Another mode of investment is FDI, or Foreign Direct Investment. This money is invested directly into Indian subsidiaries set up by foreign companies, and the investment is not only as equity, but also for manufacturing, creating infrastructure, etc., so it may be relatively more long-term. Total FDI money coming into India in 2012-13 was USD 22 billion, or 1.4 lakh crore.
     c) Foreign Debt, including ECB: This is money borrowed by Indian entities - either foreign debt funds coming into India or Indian corporates taking dollar loans outside (external commercial borrowings). The debt market is very 'hot money', even more so than the FII stock market trades, and can be totally pulled out in an instant.
     d) All together, there is so much foreign money in Indian markets that it is making us dependent on it. For example, in the two months of June-July 2013, FIIs pulled out debt and equity worth 12.8 billion dollars – in that period, the rupee fell from Rs 50 to 65 per dollar. It is sad to see our prime minister and finance minister constantly begging foreigners for 'investment'.

3: Indian government position on foreign money:
     a) It may be summed up as: 'more the merrier' and 'it doesn't matter if foreigners control more and more of Indian companies and resources', and 'so what if our currency is sinking'. I am putting this in my language because, sadly, there is no political vision, no economic vision, and no vision of Indian society that is guiding our three musketeers of Manmohan Singh, Chidambaram and Montek Singh Ahluwalia. Their actions over the last ten years shows their complete obedience to World Bank and IMF and international bankers; they don't seem to care that India is once again being colonised.
     b) The Indian government has actually helped foreigners in increasing their control by constanly increasing limits of equity holdings of foreign companies in Indian subsidiaries, for eg., FDI equity in telecom was increased to 100 %, and Vodafone's application was immediately approved. The government is also selling national assets like public sector Hindustan Zinc and Balco to a foreign mining company known for its unethical practices. On top of all this, the government is also changing monetory policy in favour of allowing more and more of hot money gambling in Indian stock markets and funds.
     c) Another recent policy of the Indian government is that Indian corporates have been allowed to recklessly borrow and invest abroad – this has increased the Indian private sector's external debt to a staggering USD 300 billion, which is 16.8 per cent of the nation's GDP?! In contrast, the government's sovereign debt is only 81 billion dollars, about 4.5 per cent of GDP. Which means that a few private companies like the Ambanis, Tatas, Birlas, Mittals, Essars, etc., have foreign loans which are far in excess of the whole nation's - and this is a prime cause for our foeign exchange crisis.

The inference from all this points to bucaneer capitalism, and the more India allows this, the more it has weakened our image; our government today is being pushed and heckled and defied by multinational corporations. Here are a few recent examples of MNC dadagiri:
- In the Vodafone tax case, the British company flatly refuses to pay tax of Rs 11,200 crore and demands 'reconciliation talks', which Chidambaram agrees to (instead of making them pay the tax, or asking them to leave).
- Finnish company Nokia refuses to pay tax of Rs 6,500 crore. It also secretly repatriated money to its parent company without informing Indian authorities of its sale deal with Microsoft. When asked for tax, it threatens to close its Chennai office and sack employees.
- US company IBM has been accused by India's revenue dept of under-declaring its income by 11,000 crore. To which IBM retorts that it will aggressively counter the tax demand. Mannu, Chidu and Monty are all scared and silent.
- Another US company Shell is also involved in a tax dispute in India. The income tax department has sent a demand notice of 150 billion rupees to Shell India for allegedly underpricing shares it issued to its parent company.
- Walmart seeks fundamental policy changes in conditions after getting FDI approval. It demands key amendments with the threat, 'otherwise, I won't invest'. The Indian cabinet quickly agrees. Now Walmart is asking for even more amendments – and the Indian government is seen to be grovelling (incidentally, Walmart has conceded that it spent “2 million dollars a year for several years” to 'lobby' for its entry into India).
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There is a crucial x-factor to this story. Why would Manu, Chidu, Monty, and the other ministers in the cabinet, allow all this to happen? Are they simply incompetent, or foolishly ignorant? Or is it something else, the business-political nexus? A recent report of Global Financial Integrity group says that India is the 5th largest exporter of illicit money: between 2002 and 2011, $343 billion of black money was sent abroad. The money represents “illicit gains from crime, corruption and tax evasion”, the report says. Who is behing this illicit activity: businessmen and politicians.
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      One feels from all this that India is fast being re-colonised by foreign companies. The door was opened to foreigners in 1991 on the advise of the World Bank and IMF; the opening was widened into a highway in 2004; and lately, for the last three years, foreign moneymen are in a frenzy, gobbling up Indian private and public companies like never before.
     This is like the East India Company story all over again; in fact, some say that colonisation never ended, there was only a brief pause. When our 'democratic' government itself is a party to crime, when government has become a pimp to businessmen, then rest assured there is going to be no press release to explain all this.
      It becomes the responsibility of each one of us to see, to understand, the modern political and economic systems, and to see what we may do to halt this slide and to rescue the nation.