A P: Keeping your word

If the present government is trying to get back at the previous one and discredit disinvestment per se, then that is truly tragic.

There are signs of a new and disturbing trend developing, wherein one can no longer take the government of India at face value. Three examples come to mind straightaway, but I am sure there are more. First of all, the government's refusal to sell the remaining stake in Balco, which, if my facts are correct, it was bound to do. Second is the refusal by the Reserve bank of India to recognise the CECA treaty, under which the GIC and Temasek are explicitly guaranteed treatment as separate and distinct organisations. Third is the decision by the IT department to challenge a ruling given by the AAR in the case of Morgan Stanley and all for BPOs in general.

These developments are to my mind very worrying, for, such actions, if they continue, will over the long term raise the risk premium of doing business in India. Compared to China we are no match when it comes to efficiency, the quality of infrastructure, lack of red tape, etc. However, we could always say that at least we had a rule of law, no matter how ponderous, and that once signed, a contract with the government of India will be honoured, irrespective of which party/coalition is in power. These developments strike right at the heart of this contention and portray the country in a very poor light.

I do not wish to make any judgment as to who is right or wrong or whether the various government agencies are right to reverse these deals or treaties, because that is not the point. Any government agency is entitled to its point of view, and it can and should debate and argue its case internally as strongly as it can. However, this debate should be outside the purview of the investor/counterparty signing the deal with the government. Fight and debate internally as much as you wish, take as much time as you wish to come to a final decision. Once the decision has been taken, every government agency has an obligation and duty to stand behind this contract/treaty/deal, etc. This obligation also extends to a change of government.

Take the case of the RBI and its attitude towards the CECA treaty signed with Singapore. In the CECA treaty, signed, I may add, on a visit by BG LEE (Prime Minister of Singapore) to India, it is explicitly stated that Temasek and the GIC (Government of Singapore Investment Corporation) are to be treated as separate entities. The implication of that is that each is to have a 10 per cent shareholding limit like any FII, and they are not to be clubbed together. However, in the recent issue of ICICI Bank, according to press reports, Temasek and the GIC were not allowed to participate as the RBI decided that they should be clubbed and treated as one entity. As their combined holding was either at or near 10 per cent, neither organisation was allowed to participate in the fresh issue of equity.

Again I do not want to get into the merits or otherwise of the RBI position. I am sure it has a good rationale for its view and one must respect that. However, it should have made its case internally with the government before the signing of the treaty. If it did make its case and the powers that be in the government decided to overrule its objections, the investor, or counterparties to the treaty, cannot be made to suffer for this. If there is a feeling that the treaty is too one-sided then the negotiating team representing India should be taken to task, and it must be ensured that this never happens again, but you cannot run away from what you have signed or agreed to.

The RBI should not take a view that "I do not care what has been agreed to on a government-to-government basis, I will do what I think is right".

Once signed, the RBI has an obligation to uphold and follow the provisions of the treaty.

If for some reasons the Singapore authorities have failed on their commitments, then this should be highlighted and publicised so that they are also forced to follow through on their commitments.

Imagine the nervousness on the part of international and local companies, if a treaty signed at the very highest levels between two countries that wish to develop a strategic partnership can be so easily reversed by actions on the ground. Can you fault any company for thinking that if this can happen to a Temasek or GIC, why cannot something similar happen in my dealings with the government? This too when the issue as far as I can see is not even politicised, unlike the case of Balco.

As far as Balco is concerned, the whole deal now seems to have become very politicised and hostage to this government's nervousness on disinvestment per se. Again without going into the merits or demerits of this situation because it is a very complicated case with both sides having strong and valid arguments, the government seems to be reneging. On a superficial reading of the case through press reports, it appears that Sterlite/Vedanta is trying to enforce a clause in the shareholders' agreement, and the delay is on the government's side. This case appears to be more complicated than the ICICI Bank example and with far less clarity, but if the present government is trying to get back at the BJP and discredit disinvestment per se through this example, then that is truly tragic.

India was always considered a tough place to do business historically, hence the low levels of FDI. It is only now that investors are truly waking up to India's potential, and willing to go that extra distance to set up base here. The last thing we need is investors getting spooked by the above events. We need FDI and anything that impedes it should be corrected immediately. Finally, the same government that managed to ensure that we met our commitments in the unfortunate crisis of 1991 should ensure that we do no less today, even in more mundane and day-to-day issues.