An Avoidable Saga

02 Dec 2004

During the last one week the world has been gripped by the spectacle of a new imperial power, the US, seeking to wrest control of the Ukraine from Russia's grasp by means of every tool, from propaganda to media control, that money can buy. The outcome of that struggle could well ignite a confrontation that becomes the signal conflict of the twenty-first century. But as far as Indians are concerned, it might not even be happening. For, over the past ten days they have been preoccupied to the exclusion of everything else, in their own family drama — the saga of the Ambanis.

It has everything that the public could desire. A great father, now deceased, who founded one of the fastest growing industrial empires in the world (an increase in sales of 140 times in 25 years); a tightly knit family devoted to his memory and committed to fulfilling his cherished dreams; two extraordinarily talented sons whom the father trained and who have so far worked together in complete harmony. Four million shareholders whom this company has served like no other in the world. And then suddenly the brothers are fighting; there is talk of going to court, and Reliance seems on the verge of a split. And equally suddenly they are no longer icons of Indian Industry: just another family enterprise going the way of countless predecessors.

No one, literally no one in the entire country, wants that to happen. Few companies have enjoyed the outpouring of good will, and of anguish at the possibility of its break-up, that Reliance is receiving today. What makes it different is not just its sheer size but the unique contribution it has made to the evolution of the Indian share market and the Indian middle class. Reliance Textiles industries made its first public issue of shares in 1977. It did so at the height of the command economy. The share market had been dead for 21 years following the Mundhra scandal.

Reliance was an unknown company. A handful of people bought those shares. Today they are all millionaires. In rupee terms many are billionaires. As share issue followed share issue in the '80s and '90s, their numbers multiplied. Today there must be at least a hundred thousand 'Reliance millionaires' in the country. To them the company is God.

Reliance did not only serve its shareholders. It ignited the revival of the Indian financial markets that was made possible by the first tentative economic liberalisation of 1981. In a single sentence, it made millions of Indians stop hoarding their savings as gold or land, and start buying shares. It was, and to a large extent remains, the midwife of Indian capitalism.

When the future of such a company appears in doubt it is inevitable that the air will be clouded by rumour, speculation and accusations of bad faith. But those who are making them are neither being fair to the two brothers, Mukesh and Anil, nor doing Indian industry a service. There is nothing petty or personal at the root of the differences that have now come out into the open: just the need to choose between two immensely important but vastly expensive projects, and a shortage of money within the conglomerate to carry out both at the same time. The companies are Reliance Energy, managed by vice chairman Anil Ambani, and Reliance Infocomm, managed by elder brother and chairman Mukesh.

Reliance energy is the older of the two — perhaps the last project conceived by the great strategic brain, Dhirubhai Ambani. For years he bought shares in that excellent Mumbai power company BSES till he gained control of it. Since then BSES, rechristened REL, has successfully bid to take over electricity distribution in Southern Delhi and elsewhere, and as Anil Ambani announced recently, has formulated plans to build a 3,500 MW power plant in UP. The plant is to be gas-based and, thinking years ahead, Dhirubhai had been working towards a rapprochemement with Pakistan to allow central Asian gas to flow to India as far back as in 2000 and 2001.

By contrast, Reliance Infocomm is Mukesh's brain child. The sheer sweep of the vision behind it is breathtaking. It has galvanised competition in the industry, and introduced a new system of financing that has made mobile telephony take off at a rate that now equals if not exceeds that of China.

But both projects need additional investments of thousands of crores. The obvious way to raise it, for a company like Reliance, is to make a fresh share issue, either for REL or for Reliance Infocomm. On the face of it, the latter is the more appropriate candidate. Not only is it fully owned by the Ambani family and companies and therefore least threatened by dilution, but the mystique that it has already built around it ensures huge oversubscription. However, Reliance Infocomm is at that critical stage in its takeoff when huge investments have been made but most of the returns are still in the future. Sound venture capital management would therefore suggest postponing a public issue till a little further down the line.

But in the meantime the brunt of the lack of funds is being borne by REL. Six months ago, it earned the displeasure of the Delhi government for not having lived up to its capital investment commitments in South Delhi as Tatas had done in the northern sector. This is hardly the kind of publicity that REL needs. It may well have started the rift that is now in the open.

Both projects are important. Even one 3,500mw power plant in UP could transform much of North India, creating industry and millions of jobs. But the beneficiaries of Reliance Infocomm are also not the idle rich. They are mainly millions of workers in the informal sector whose incomes have multiplied because they can now be contracted for casual work anytime, any place.

The country needs both projects. And it needs a united Reliance. The only way forward is to issue shares raise the money and rely upon the people to continue supporting the present management. What must end now is the close family held tradition that Dhirubhai inaugurated. India, and Reliance, have moved on.

* The author, a noted analyst and commentator, is a former editor of the Hindustan Times, The Economic Times and The Financial Express, and a former information adviser to the prime minister of India. He is the author of several books including, The Perilous Road to the Market: The Political Economy of Reform in Russia, India and China, and Kashmir 1947: The Origins of a Dispute, and a regular columnist with several leading publications.