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| Hewlett Packard (HP) has undertaken to commit a massive $ 200 million plus to buy out minority shareholders in Digital GlobalSoft so as to take it private.
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| How important it must be for HP can be gauged by putting the figure in perspective. It is around a quarter of the exceptionally good net profit HP made globally in the last quarter, or three quarters of the entire net profit of the pervious quarter.
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| The post-1991 reform period has been marked by one multinational corporation (MNC) after another taking itself private in India, depriving Indians of the opportunity to own shares in them. The delistings have also struck a blow to the level of disclosure and the environment for good governance prevailing in India.
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| If this had resulted in substantial inflow of foreign direct investment (FDI) then that would have been some compensation. But contrast the paltry flow of FDI into India compared to the flood into China. Along with the investment, the latter has also been able to extract diverse concessions perceived to benefit its economy. India seems to have allowed access to its domestic market without a degree of domestic ownership.
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| If the equity cult is a good thing then the government should be so ordering its policies that companies doing business in India find it beneficial to list in India. The MNC being able to control its business or feel comfortable about its intellectual property is not an issue as limiting domestic investment to 49 or 24 per cent can do it. The point is that a whole lot of benefits can accrue to a market by even a small part of its share capital being publicly held.
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| It is undoubtedly difficult to ask companies to list in India if they claim they do not need to raise capital in India and, what is more, are willing to bring in good hard currency to foot loss making Indian operations, as has been done by Coca-Cola. The MNCs can also say that if the government is so keen on seeing Indians own their paper then it can free up capital movements for Indian residents.
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| Nevertheless, an Indian listing for foreign companies with significant operations in the country is attractive to India for several reasons. One, it adequately captures the value created in India. Two, it makes it more difficult to understate profits made in India. The transfer pricing mechanism put in place somewhat recently seeks to address this but it is still early days for the mechanism.
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| Three, listing here makes for far greater levels of disclosure. This vastly improves the amount of corporate information available in the public domain and leads to better governance all round. In this day and age of corporate scandals and pressure for greater disclosure and better governance, it is an intrinsically good thing for businesses operating in a society to have to disclose more, not less.
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| As the role of MNCs in the Indian economy increases, a disturbingly large section of Indian business is being conducted away from the public gaze. This is not healthy.
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| If IBM was listed in India, an Indian shareholder could pick up the paper to pay a premium for better governance of global standards. That could put pressure on Indian companies to improve their governance or see their shares under perform.
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| Such a positive role, being able to offer good governance, is being undoubtedly played by Infosys and Wipro. But imagine what the market would be like if the choice of companies with better governance was much wider. Prominent Indian corporates, well known for manipulating their share prices, would then find few takers for their paper.
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| It can be argued that getting a company to list is not the only way to make it disclose more. All that the government needs to do is change the Companies Act and get companies above certain thresholds to disclose more. It also needs to run its registrar of companies efficiently, IT enable it substantially, and levy stiff penalties for non-submission and late submission of information.
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And such corporate information should be electronically filed and get automatically posted and indexed at the registrar
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