It is ironic that 20 years after India began the process of opening up its economy to the world, the government of the day in New Delhi had to bring the issue of the acquisition of assets in the country by a global firm to a close only after a meeting of the Cabinet Committee on Economic Affairs (CCEA). Worse, it intervened in a corporate matter and imposed a renegotiation of a production-sharing contract through arbitrary procedures. Clearly, a regression in the policy-making and approval process is evident when it comes to foreign direct investment (FDI) in India, more so where natural resources are concerned. The experience of the Korean steel company Posco and of Cairn Energy and Vedanta Resources shows that India needs a more self-assured and transparent process of clearing such proposals. Though the outcome, the CCEA’s clearance of the sale of Cairn India’s stake in public sector ONGC to Vedanta, has been a good one for all concerned, the process was not satisfactory at all. It is a moot point whether the process would have been speedier if the interests involved were different. But it appears as if the labyrinthine process was a consequence of crony capitalism as well as the legacy of inherited errors. Thanks to a combination of malevolent factors, the Cairn-Vedanta deal contributed to a weakening of India’s image as a destination for FDI, even if some of the negative press in the West was driven by western corporate interests.
Hopefully, Vedanta boss Anil Agarwal will now have a better understanding of not just “the algorithms of oil” but also the “algorithms of policy making” and corporate lobbying in India. The government may defend its stance on the grounds that it was duty-bound to protect the interests of a state-owned firm and, in doing so, of the taxpayer. But the fact is that the wrongs being corrected were also committed by the very same state-owned entity and government officials who signed off on the now defunct production-sharing contract. Many have commented adversely on the government mixing up its role as owner and regulator. Though the criticism is fair, the fact remains that little can be done about it. The lines do get blurred in practice when a decision gets pushed to higher levels of the government. Down the pyramid of decision making, different arms of the government can behave as independent entities, but once a policy decision gets elevated to the Cabinet level, there is bound to be some blurring of lines. In the Cairn-Vedanta case, vested interests from outside government played their own games to create further confusion and delay decision making.
Better late than never. A decision has finally been taken. But everyone has much to learn from this long-drawn-out drama, including foreign investors. The ONGC management must learn some important lessons about how to run a large global company more professionally, without hoping to cut corners by keeping joint secretaries and politicians happy. Cairn could easily have responded to governmental sensitivities earlier and renegotiated with Vedanta instead of using the media, including western media, and home-country politicians to influence the government and public opinion in India. Vedanta should know that the mood in India has changed and public opinion is increasingly hostile to cronyism. Playing straight has its advantages even when the playing field is not level.