The Chambers Of Controversy

THE ghost of the Bombay Club haunts yet again. After its out bursts last year, the 1997 edition of the issue has reared its head with the release of the Thapar Committee report earlier this month.

Initiated by apex industrial chamber Associated Chamber of Commerce and Industry (Assocham), the report detailing the rules governing the operations and investments of transnational corporations ( TNC s) in India is being viewed by the latter as having an anti-TNC bias and a move by Indian companies to "fix TNC s" and discourage foreign investment. This has led to an open revolt by TNC members of Assocham, headed interestingly enough, by one of the committee members— M. K. Sharma, director, Hindustan Lever Limited ( HLL ). Sharma has challenged the final report and dissociated himself from it, saying that fundamental alterations had been made after the report was cleared by the committee, so that some of its recommendations differed from what the committee had agreed on. "There was a general reference that the chairman of the committee could make editorial changes in the report. I had not visualised that this could be used to make fundamental alterations," says Sharma. 

The report, calling for more stringent rules for foreign investment, fully- owned subsidiaries and TNC s, primarily seeks ways and means for retaining Indian control over joint venture companies. While nothing specific was laid down against the TNC s, the report, say critics, shows an inherent bias towards domestic companies, giving them an upper hand in most areas.

This is surprising because Assocham has traditionally represented TNC interests and has been looked upon favourably by most TNCs. So far, it has projected a pro-TNC image, in contrast to other similar bodies. At present, it has over 70 TNC members— out of a total of around 300— holding key positions in its functioning. Primarily a TNC chamber till 1988, it was only after a split in FICCI that year that a number of large Indian industrial groups joined it.

"The current set of recommendations has been a stab in the back, specially when the Government itself is trying to take liberalisation ahead and is welcoming TNC s with open arms," says the chief of a TNC member of Assocham. Pepsi and Coke, which are 100 per cent subsidiaries in India, have sought a revised report and even threatened to pull out of the chamber. "Of late, there is a visible shift in the stance of the chamber which was usually considered pro-TNC ," says a TNC member of Assocham.

Sources in Assocham say that a move is a foot among frustrated TNC members to set up, in association with TNC members of other industrial chambers, an outfit exclusively for the TNC s, a body that will protect and forward their interests, especially when anti-TNC feeling is rising within Indian industry. In the last three years, this is the third time anti-TNC sentiments have been expressed starting with the Bombay Club episode in 1994, the anti-TNC controversy led by the Confederation of Indian Industry ( CII ) in early 1996 and the current Thapar Committee report.

Says an Assocham official: "The idea of a TNC Chamber of Commerce first came up during the anti-TNC controversy raised by the CII in 1996. And now, with the Thapar Committee report, the desire of TNC companies to have a specialised chamber of their own, to deal with policy, regulation and day- to- day affairs of TNC s vis- a- vis the Government has been strengthened. " Though such a move is yet to be effected, sources say if such a body does come up, it is certain to get the support of joint chambers such as the Indo- American Chamber of Commerce, Indo- German Chamber of Commerce and the Indo- EC Chamber of Commerce.

Interestingly, the five- member committee headed by L. M. Thapar was constituted by then HLL chairman S. M. Datta who was also Assocham president then. It included, apart from Thapar and Sharma, Avijit Mazumdar, chairman of Tractors India; N. Sankar, vice- president and managing director of Chemplast Sanmar and P. K. Choksey of Fujitsu ICIM . JK Corp Chairman Hari Shankar Singhania and Hindustan Composites Chairman Raghu Mody were special invitees.

The main objections, voiced by Sharma and other TNC members, are against the recommendations regarding the dilution of 100 per cent subsidiaries and the equity cap of 40 per cent on foreign investment in the consumer goods sector. These, according to Sharma, were never agreed upon by the committee members but nevertheless appeared in the final report.

Sharma says he was the main draftsman of the report and one of the few committee  members who attended all the meetings. According to him, not only were the alterations unwarranted but the Assocham president should have refrained from sending the report directly to the Government. Instead, it should have first gone to the Assocham managing committee and the final version should have been sent to all the members. The Assocham managing committee is scheduled to take up the report for discussion in its meeting at Chennai on February 6.

"The report traverses far beyond what was discussed in the committee," points out Sharma. "The brief to the committee was to suggest how to improve foreign investment in the country. Saying that TNC s dealing in products like consumer goods should not be permitted to have a stake of more than 40 per cent denotes just the opposite."

Elaborating further, he says: "In the last meeting of the committee in which I was present neither of the two proposals were specifically raised or discussed. While Assocham is at liberty to take whatever view it desires on foreign investment, I believe it is grossly unfair to modify the report so substantially that it ceases to reflect the consensus of a group. The recommendations made thus seem to suggest a rollback of the liberalisation measures which both Mr Thapar and Mr Singhania felt was not in keeping with the mandate of the Assocham managing committee."

Significantly, while Sharma has made his outburst public, the other committee members, Sankar and Mazumdar, both former  presidents of Assocham, have refused to comment on the issue and when contacted in Mumbai, Choksey said he would speak only after reading the final report which he had not seen.

DEFENDING the report, Assocham President H. L. Somani feels the entire issue is "a storm in a teacup". Refuting Sharma’s charges of tampering, he says: "Everybody was consulted on a date and their recommendations on the issues men tioned in the report were taken. Mr Thapar has incorporated every recommendation by members." However, according to Assocham Secretary  General S. Raghuraman the controversy broke out "because there was no separate reference to consumer goods in the report. This opened it to several interpretations and thus, misinterpretations".

What confounded things further was the committee chairman’s statement that there should be a cap of 40 per cent on foreign investment in the consumer goods sector while releasing the report. When contacted, however, Thapar denied this was part of the report and said the view was entirely his own and stated in his personal capacity.

Meanwhile, much to the chagrin of the anti-TNC lobby, the Government has issued fresh guidelines for Foreign Direct Investment ( FDI ) this week providing an even better deal to foreign investors in India. Rather than tightening the noose around foreign investors and limiting FDI in certain areas, as recommended by the Thapar Panel, the Government, on the contrary, has made foreign investment easier. And surprisingly, despite its stand in the Thapar Committee report, Assocham was among the first to welcome the new guidelines.

And while allegations and counter- allegations fly on the influences leading to the report, it is clear that it represents the view of a large section of domestic industrialists who do not mind state- of- the- art technology and foreign equity, but want Government protection to retain control of the joint venture. While the preamble to the report says "foreign investment policy has to be viewed as a part of the larger objective of globalising Indian industry and stepping up the growth of the economy", the conclusion calls for a review of the policy specially in the context of indiscriminate opening up. The viewpoint becomes even more obvious when the report goes on to say that this free hand to TNC s has to be limited "to prevent a sudden jolt to domestic industrial development". It will be no surprise then if one sees a new force in the already fierce fight of industrial chambers.

POINT,COUNTERPOINT Thaper Panel recommendation New FDI norms