 "#2016@shock&awe: Headline Grabbers of 2016")
By almost any yardstick the year has been unique: Public policy, business rivalries and implosions, court verdicts and corporate malfeasance set new standards of shock and awe that will reverberate well into 2017.
Business Standard recaps the most prominent of economic corporate developments
Demonetisation
Business Standard recaps the most prominent of economic corporate developments
Demonetisation
In terms of disruptive impact, this was a decision with few parallels in Indian policy-making. On November 8 evening, just as Donald Trump recorded an unlikely victory in the US presidential polls, Prime Minister Narendra Modi came on national television to announce the withdrawal of legal tender status to Rs 500 and Rs 1,000 notes, taking roughly 86 per cent of currency out of circulation. Citizens were given time till
December 30 to deposit old notes, but draconian withdrawal controls were put in place.
It was not just ordinary Indians who were caught unawares by this decision, which was initially explained as a route to staunching black money and terror finance. The government and Reserve Bank of India (RBI), too, seemed unprepared. For one, the new Rs 500 and Rs 2,000 notes required over 100,000 ATMs to be recalibrated, an exercise that could not begin till after the announcement was made in the interests of confidentiality. For another, the assumptions on which the decision was made played out so differently in reality, that 60 notifications have been issued over one and a half months imposing new conditions or reversing other ones.
Two assumptions mattered most in this decision. First, how much cash the government thought would eventually come back into the system; and, second, how quickly the government could remonetise. On the first, the government and its advisors failed to account for the ingenuity of those with unaccounted cash to launder their money. Exhibit A, the attorney general told the Supreme Court that the government expects roughly Rs 10 lakh crore back as deposits. The total value of high-denomination notes was Rs 15.5 lakh crore on November 8, which means that the government initially did not expect Rs 4-5 lakh crore to come back, a potential windfall for it. Yet by December 10 alone, as much as Rs 12.4 lakh crore had been deposited, suggesting that the government could not count on a bonus.
On the second assumption, the snaking queues in banks and rapidly emptying ATMs suggested an underestimation of the capacity of the banking system to disburse the new currency. RBI’s response to an RTI query stated that it had roughly Rs 4.9 lakh crore in the new Rs 2,000 notes as on November 8. Why did the central bank not release this stock immediately in the week following the decision to demonetise? It was only by December 19 that Rs 5.9 lakh crore was disbursed by banks to the public. On this, it would seem the planners failed to take into account the difference between the speed at which currency is printed and the speed at which it can be transferred to banks and then disbursed to the public. With cash-starved Indians cutting back sharply on discretionary spending, where does this leave the economy? Economists are divided on its impact, some suggesting two more quarters of slowdown and others predicting sustained hardship. Ordinary citizens are equally divided, with many appreciating temporary hardship for a perceived cleansing of black money over the long term.
Perhaps the upcoming Uttar Pradesh elections will offer clearer answers.
Ishan Bakshi
The Reliance-Jio launch
The launch of Reliance Jio’s service had been the subject of much speculation for a long time. Everybody knew it would be hugely disruptive, but nobody knew to what extent. When Mukesh Ambani announced that the service would be open to all from September 5, with dirt-cheap data tariff, free voice calls and a waiver from all bills till December 31, he still managed to surprise. The share price of the incumbents fell sharply. For Ambani, the future of telecom lies in data: Video, chats, e-commerce, and the like, while voice calls will get commoditised. Any network that offers the best data speeds will walk away with the subscribers. Ambani even came up with a name for the data revolution: Datagiri. With this in view, he had over the years invested large sums of money in content providers. Thus, Reliance Jio would own the pipes through which data flows as also some part of the data. Indeed, in the first three months of its launch, Reliance Jio was able to collect over 50 million subscribers. This was the fastest ramp-up the Indian telecom sector had ever seen. At this speed, Reliance Jio’s target of 100 million subscribers looks within easy reach.
Click on the picture above to watch
Bhupesh Bhandari
The Tata-DoCoMo controversy
The Tata-DoCoMo deal made headlines in 2009 when the Japanese giant invested $2.4 billion for a 26.5 per cent stake in Tata Teleservices. In 2016, it became a cautionary tale against doing business in India.
Under the agreement, the Tata group could buy back DoCoMo’s share after five years if the company failed to meet specified performance targets. A strike price was agreed: a minimum 50 per cent of DoCoMo’s acquisition price. In 2014, with the joint venture piling up losses, DoCoMo exercised the exit clause – only to have Tata throw the rule book at it.
DoCoMo was told pre-priced buybacks are not allowed under Indian law so until the central bank gives permission, Tata said it could not remit the money. DoCoMo moved the London Court of Arbitration which, in June, passed a scathing order asking Tata to honour the contract. The Japanese company also moved the Delhi High Court. The Tata group deposited $1.17 billion with the high court, and the matter rests there.
But the controversy has been entangled with the spat between group patriarch Ratan Tata and ousted Tata Sons chairman Cyrus Mistry. The latter has accused Tata of a sweetheart deal with associate C Sivasankaran involving Rs 700 crore that, Mistry says, Sivasankaran owes Tata Sons. But Sivasankaran says he has taken legal action against Tata Teleservices and Tata Sons for mismanagement and does not owe the Tatas any money.
Dev Chatterjee
Goods and Services Tax
After serial postponements since 2010, the year 2016 was to have given a final shape to the biggest reform of the indirect taxation system. All eyes were on the winter session to pass three Bills that would enable the Goods and Service Tax (GST) to be introduced from April 1, 2017. In the event, the Bills did not even get tabled. Disruptions over demonetisation fed into fresh disagreements within the GST Council, comprising the Union finance minister and state finance ministers, over administrative turf and cut-off levels for assessees to be included in the system.
A series of meetings over December 21 to 23 did not really solve the problems, and the issues are slated to be debated at the Council meeting on January 3 and 4.
Now all eyes are on the Budget session of Parliament, set to begin a month ahead of its conventional February opening. Unless the differences over administrative turf are resolved, the GST and related Bills in Parliament and, parallelly, state GST bills in the respective Assemblies, cannot be tabled.
Now that April 1, 2017 looks near impossible, the next deadline the state finance ministers are discussing is July 1, 2017. In any eventuality, GST has to be in place by September 16, 2017. Postponing GST beyond that date is likely to create a unique constitutional crisis because the constitutional amendment Bill, which was notified in September this year, effectively suspends the right of the Centre and states to impose their current indirect taxes — central excise duty and service tax for the former and value added tax for the latter.
One way out would be for the government to rename the existing tax system under the GST label or have the President give assent to a Bill to continue the current system for another year, a power vested in him under the current constitutional amendment on GST, according to one legal interpretation.
Indivjal Dhasmana
The RIL-ONGC spat
If 2015 took away the benefit of the new gas pricing regime from Reliance Industries Ltd (RIL), the country’s largest private sector petroleum company, the year 2016 saw the government laying claim to a substantial share of the revenue that accrued to the Mukesh Ambani-led company from its flagship Dhirubhai 6 discovery in the Krishna-Godavari basin.
This claim has come in the form of $1.55 billion penalty on RIL, which includes an interest rate of 2 per cent above the London Interbank Offered Rate or Libor. It was levied on RIL for producing natural gas that migrated from the adjoining lease area of state-owned Oil and Natural Gas Corporation (ONGC). RIL has since slapped an arbitration notice on the government over the issue.
The dispute goes back some years after RIL made discoveries in the KG-DWN-98/3 (KG-D6) block off the coast of Andhra Pradesh in 2002. With British Petroleum as 30 per cent partner and Niko with 10 per cent, it started commercial gas production on April 1, 2009. ONGC has two leases — Godavari Petroleum and Mining Lease (PML) and KG-DWN-98/2 — adjoining RIL’s area of operation.
In July 2013, ONGC wrote to the Directorate General of Hydrocarbons stating that there was evidence of “lateral continuity” of gas pools of the ONGC blocks with that of RIL. The ministry of petroleum and natural gas took action after a Delhi High Court order on a suit filed by ONGC on May 15, 2014, days before the current government assumed office.
Although an independent consultant, DeGolyer & MacNaughton (D&M), established continuity between the gas pools and the migration of gas from the ONGC blocks to the RIL block, the government chose not to decide on the report itself — it was within its rights to do so under its production-sharing contract with RIL. Instead, it constituted a single-member committee under Justice A P Shah to make recommendations based on the D&M report. It was after this that the ministry slapped a penalty notice on RIL on November 3, 2016. The dispute between the country’s two largest upstream players in the most promising sedimentary basin successfully exposed a regulatory failure in executing contractual provisions and an inability of domestic companies to opt for coordination rather than confrontation.
Jyoti Mukul
Nikesh Arora’s exit from SoftBank
Nikesh Arora, 49, was a rising star in Japanese banking megalith SoftBank and close to Founder Chairman Masayoshi Son. Unsurprisingly, his abrupt resignation as President and chief executive officer in June was a much discussed corporate event.
The exit followed accusations by an investor group of questionable deals, earning too much money (he was the world’s third highest-paid executive) and potential conflicts of interest tied to his role as adviser to a private equity firm.
Arora said later that he resigned because Son wanted to lead the company for another five to 10 years and he did not want to remain a perpetual second-in-command. But the talk then was that Arora was speed-dating with start-ups at a time when valuations were getting out of hand.
Just after his exit, Arora said he was determined to take time out to relax and decide what he wanted to do. He has walked his talk — his public appearances are down to zero (demonstrating remarkable self-control) and the frequency of his tweets has fallen drastically.
But people who know him well say the man who was once the “fourth-most important” global executive at Google, can be depended on to make a comeback in 2017. Filling a gap in his formidable resume by heading a global corporation would be a good starting point.
Shyamal Majumdar
The Singur verdict
In 2008, Ratan Tata obliquely referred to Mamata Banerjee as the “Bad M”, when his pet Nano car project exited West Bengal on the back of a feisty agitation led by her as leader of the opposition Trinamool Congress. For good measure, Narendra Modi was the “Good M” for welcoming the project to the state of which he was chief minister. At the time, Banerjee was widely excoriated for hounding out a project that would have signalled a turnaround for the state’s moribund industrial sector.
Eight years later, Banerjee, now chief minister of the state, has been triumphantly vindicated. On August 31, the Supreme Court set aside the Left front government’s acquisition of 997 acres of land in Singur for the Tata Motors project on grounds that it had violated the procedure laid down by the Land Acquisition Act of 1894.
The central issue of Banerjee’s agitation in 2008 was the illegality of the incumbent Left Front government’s decision to acquire the land from 13,000 farmers. Some 2,000 farmers, termed “unwilling”, had declined to accept compensation cheques and Banerjee took up their cause, demanding that 400 acres be returned to them. The issue of land grabs by big business became the centrepiece of her stunning defeat of the Left Front after 34 years of rule.
The Supreme Court judgment was based on special leave petitions filed by farmers and some public interest organisations challenging a Calcutta High Court order of 2008. The high court had dismissed the petitions and upheld the land acquisition. A second petition was filed by the West Bengal government against the order of a division bench of the high court, which had struck down the Singur Act of 2011 vesting the entire land with the state government. Whether that case will be heard is not clear.
The apex court’s verdict said all landowners would get back their original plots and the “unwilling” would get compensation cheques. In accordance with a stiff timeline set by the apex court, most of the land has been redistributed. Less than 100 acres remains to be distributed, on account of problems with land title.
Ironically, however, the verdict put the “unwilling” and “willing” farmers on an equal footing. The “willing” had anyway accepted compensation cheques and the order said that the cheques should not be recovered, as they had not been able to enjoy the land for the past decade. Now they’re going to get back land they were willing to sell in the first place. All of which makes it worth wondering whether Banerjee has achieved anything beyond scoring a political point.
Ishita Ayan Dutt
Cyrus Mistry’s ouster from the Tata group
2016 was a year of reckoning for the 149-year-old Tata group and its fabled reputation for ethical corporate governance. In just nine weeks starting October 24, the salt-to-software conglomerate, India’s largest corporate group, saw its halo dimmed considerably when Cyrus Mistry, 48, was removed as chairman of the group holding company Tata Sons via a boardroom coup led by his former mentor, Ratan Tata.
No official reason was given, though some insiders hinted at under-performance and the mess in Tata Steel Europe, and Tata Teleservices. Mistry was also accused of running the group with the help of cronies who were behaving like super directors. Tata, who will be 79 on December 28, became Tata Sons’ Interim Chairman but this has not prevented the group from being plunged into a controversy that is being played out with much drama through the media, shareholder meetings, independent directors and the courts. Mistry soon hit back in a series of revelatory letters, duly leaked to the press, accusing Tata and his close aide, Noshir Soonawala, of interfering in the workings of various Tata-listed companies. There were plenty of allegations of fraud at one remove. For instance, Mistry accused Tata’s closest aide, R Venkataramanan of ignoring a Rs 22-crore fraud in Air Asia India, in which the group has a stake. C Sivasankaran, another of Tata’s close friend, came under fire for defaulting on payments to Tata Sons and Tata Capital. Mistry said the so-called mess, for which he and his team was culled, was created during Tata’s tenure — the expensive acquisition of Corus, the fiasco of the Nano car launch, a controversy with the Japanese partner in Tata DoCoMo being just three — and he was just trying to clean it up. Unexpectedly, Mistry also received robust support from some independent directors of several companies —ironically Tata’s own former mentor Nusli Wadia being prominent among them. Tata hit back by calling a series of extraordinary general meetings and successfully managed to get Wadia voted off the boards — though the resolutions are subject to Bombay High Court’s final order. Two independent directors on beverage major Tata Global, Analjit Singh and Darius Pandole, also quit, citing lack of corporate governance in the group. More directors are expected to leave in the coming weeks, say insiders. Meanwhile, Mistry, who was voted off the chairmanship of some key group companies, has decided to step down from the chairmanship of the rest and take the battle to the Company Law Tribunal.
Where does this leave the Tata group? There is no doubt that the group is facing its biggest crisis of confidence. Tata has promised to go by February-end to make way for the next chairman. But his voluntary renunciation may need to go further than that. Without significant changes within the management structure of Tata Sons, which is essentially controlled by a conglomeration of charitable trusts controlled by Tata, it is hard to see how the situation will alter so fundamentally as to make the Tata group a genuine example of professional management. 2017 may well be its year of reckoning.
Dev Chatterjee
Vijay Mallya’s Great Escape
Vijay Mallya loves a good fight, and he usually takes his battles to their logical end. So when he took a flight out of Delhi in May after a settlement with British liquor major Diageo over United Spirits, once his liquor flagship, he shocked everyone for different reasons. Those who know him were surprised he chose to flee rather than fight — this time, apparently, for his honour. The enforcement agencies were red-faced that he escaped right under their noses. And the consortium of banks, mostly government-owned ones, who are sitting on bad loans to Mallya-owned entities worth Rs 7,200 crore and counting, are wondering whether they will ever recover their money.
At any rate, Mallya’s protestations of innocence that the defaults were the result of bad business decisions rather than wilful defalcation no longer hold. Some $40 million, the first tranche of a $75 million settlement with Diageo, which bought 55 per cent in United Spirits in 2012, was rapidly transferred to an offshore account rather than being used to repay the banks.
Since Mallya’s flight, the government belatedly swung into action: his passport was impounded, a Red Corner notice issued at airports to arrest him, and separate investigations are on by the Enforcement Directorate, the Central Bureau of Investigation and the Serious Fraud Office. Shortly after his Great Escape, he sent in his resignation from the Rajya Sabha a month before his term was to end, that too after an ethics panel recommended this course.
But the audacity of Mallya’s luxurious exile is matched by the impotence of the Indian authorities. The barrage of cases against him for unpaid loans taken to run Kingfisher Airlines remain. The British government sees no sufficient cause under international law to extradite him. And he has chosen to ignore a Supreme Court summons to return to India to face trial.
Diageo, meanwhile, has also unearthed evidence of funds diversion, has filed a criminal case and is unlikely to pay him the remainder of the settlement as a result.
Understandably, Mallya prefers his self-inflicted exile — where there has been, reportedly, little diminution of his famously extravagant lifestyle — than a life behind bars in India. Still, for a businessman who once dominated India's liquor business like a colossus, his predicament can scarcely be described as a spirited resistance.
Raghu Krishnan
The Odd-Even scheme
January 1, 2016 set the tone for a year of disruptions with the launch of an audacious experiment by Delhi Chief Minister Arvind Kejriwal to curb air pollution. Under pressure after a World Health Organization report declared Delhi one of the world’s most air polluted cities and the Delhi High Court remarked that the national capital had become a smoke chamber, the Delhi government launched the first phase of an exercise that came to be labelled the Odd-Even Scheme. The scheme restricted the movement of privately-owned cars on alternate days based on their respective registration numbers.
This was the first time a state government had attempted such a massive exercise and it was closely watched. With the police fully on board, people appreciated the lighter traffic and shorter commutes. But the results on air pollution were inconclusive. Kejriwal, however, decided the scheme was a success and announced a second phase from April 15-30 with some minor changes.
In its analysis of the effectiveness of the scheme, The Energy and Resources Institute (TERI) reported only marginal improvements in air quality and reduction of PM 2.5 pollutants, for which private cars are not major contributors anyway. Besides, the second phase was more successful because the average concentration of pollutants is lower in summers (phase II) than in winters (phase I). Little has been heard of Odd-Even since then.
Sahil Makkar
The Ranbaxy-Daiichi Sankyo controversy
For former Ranbaxy Lab promoters, Malvinder Singh and Shivinder Singh, 2016 was the year of reckoning for the 2008 deal with Japanese pharma major Daiichi Sankyo. That eye-watering $4.6 billion sell-off soon turned sour following allegations of concealment and misinterpretation of information related to investigations by the US Foods and Drugs Administration (USFDA) into Ranbaxy.
In 2013, Daiichi Sankyo initiated arbitration against the brothers in the Singapore International Arbitration Centre (SIAC). In April this year, SIAC awarded Daiichi damages worth
Rs 3,500 crore (including interest and legal fees), and the Japanese drug-maker subsequently moved the Delhi High Court to freeze the Singh brothers’ assets. It was a pre-emptive move to prevent the brothers from disposing of their assets and taking the money out of the country by the time the court arrived at a decision.
The Singh brothers have a majority shareholding in RHC Holdings, a private limited company with assets of around Rs 10,000 crore. Fortis Healthcare and Religare, which are listed companies, are controlled through RHC Holdings. The brothers had to submit details of their assets to the court in a sealed cover.
The Singhs challenged the enforceability of SIAC’s order in the high court on grounds that Indian law does not allow for consequential damages. The brothers have consistently maintained during the eight-year old dispute that Daiichi Sankyo was aware that the USFDA’s investigations into allegations of falsified data before it bought Ranbaxy. In 2013, in fact, Daiichi Sankyo reached a $500 million settlement with the US Department of Justice over the allegations.
As the recriminations fly thick and fast, the brothers are set to challenge the SIAC’s order in Singapore, too. This one bad deal for corporate India can be relied on to raise a stink well into 2017.
Sudipto Dey
Call drops
In mid-2015, call drops became a new term in the common lexicon, and telecom networks were pilloried for under-investing in infrastructure. In the run-up to the Bihar elections, the issue snowballed into serious national discontent.
This was the result of a conundrum over spectrum: The airwaves that had been first issued in 1995 for 20 years had run out; service providers then bought fresh spectrum in a different frequency, causing technical glitches when customers migrated from one frequency to another. Then local neighbourhood committees had started shutting out telecom towers for fear of harmful radiation. The government mandated its buildings to host towers, but that did not stem the call to penalise the networks.
In October 2015, Trai, the telecom regulator imposed a fine of Rs 1 for each dropped call on the networks subject to a ceiling of Rs 3 per day. The networks promptly moved the Supreme Court where they argued that while their licence allowed up to 2 per cent call drops, the regulator required them to pay for all call drops. They also said there was no mechanism in the world to distinguish between a call drop and voluntary disconnection, so, the penalty was open to abuse.
In May, Justice Rohinton F Nariman struck down the Trai order as “arbitrary, ultra vires, unreasonable and not transparent”. That was the last one heard of the issue.
Bhupesh Bhandari
