Abort The Family Way

During the last week, the world has been gripped by the spectacle of an imperial US seeking to wrest control of Ukraine from Russia's grasp by every tool that money can buy—from propaganda to media control. The outcome of that struggle could well ignite a confrontation that becomes the signal conflict of this century. But for Indians, it might not even be happening. For, over the past ten days they have been preoccupied, to the exclusion of everything else, in their own family drama—the saga of the Ambanis.

It has everything that the public could desire. A great father, now deceased, who founded one of the fastest growing industrial empires in the world (an increase in sales of 140 times in 25 years); a tightly-knit family committed to fulfilling his cherished dreams; two really talented sons who have so far worked together in complete harmony; three to four million shareholders whom this company has served like no other in the world. Suddenly, the brothers are fighting; there is talk of going to court, and Reliance seems on the verge of a split. Equally suddenly, they are no longer icons of Indian industry: just another family enterprise going the way of countless others.

No one, literally no one in the entire country, wants that to happen. Few companies have enjoyed the outpouring of goodwill, and of anguish at the possibility of its break-up, like Reliance today. What makes it different is not just its sheer size but the unique contribution it has made to the evolution of the Indian share market and the Indian middle class. Reliance Textiles industries made its first public issue of shares in 1977, at the height of the command economy. The share market had been dead for 21 years following the Mundhra scandal. Reliance was unknown; a handful of people bought those shares. Today they are all millionaires. In rupee terms, many are billionaires. As share issue followed share issue in the eighties and nineties, their numbers multiplied. Today there must be at least a hundred thousand 'Reliance millionaires' in the country. To them the company is God.

Reliance didn't only serve its shareholders. It ignited the revival of the financial markets that was made possible by the first tentative economic liberalisation of 1981. In a single sentence, it made millions of Indians stop hoarding their savings as gold or land, and start buying shares. It was, and to a large extent remains, the midwife of Indian capitalism.

When the future of such a company appears in doubt, it's inevitable that the air will be clouded by speculation and accusations of bad faith. But those who are making them are neither being fair to the two brothers, Mukesh and Anil, nor doing Indian industry a service. There's nothing personal at the root of their differences: just the need to choose between two immensely important but vastly expensive projects, and a shortage of money within the conglomerate to carry out both at the same time. The companies are Reliance Energy, managed by vice-chairman Anil Ambani, and Reliance Infocomm, managed by elder brother and chairman Mukesh.

Reliance Energy is the older of the two—perhaps the last project conceived by Dhirubhai. For years he bought shares in that excellent Mumbai power company, BSES, till he gained control of it. Since then BSES—rechristened REL—has successfully bid to take over electricity distribution in south Delhi and elsewhere, and as Anil announced recently, has formulated plans to build a 3,500 MW power plant in UP. The plant is to be gas-based and, thinking years ahead, Dhirubhai had been working for a rapprochement with Pakistan to allow Central Asian gas to flow to India as far back as in 2000 and 2001.

By contrast, Reliance Infocomm is Mukesh's brainchild. The sheer sweep of the vision behind it is breathtaking. It has galvanised competition in the industry, and introduced a new system of financing that has made mobile telephony take off at a rate that now equals if not exceeds that of China.

But both projects need additional investment of thousands of crores. The obvious way to raise it, for a company like Reliance, is to make a fresh share issue, either for REL or Reliance Infocomm. On the face of it, the latter is the more appropriate candidate. Not only is it fully owned by the Ambanis and therefore least threatened by dilution, but the mystique that it has already built around it ensures huge oversubscription. However, Reliance Infocomm is at that critical stage in its takeoff when huge investments have been made but most of the returns are still in the future. Sound venture capital management would therefore suggest postponing a public issue till a little further down the line.

But, REL is bearing the brunt of the lack of funds. Six months ago, it earned the displeasure of the Delhi government for not having lived up to its capital investment commitments to South Delhi as Tatas had done in the northern sector. This is hardly the kind of publicity REL needs. It may well have started the rift that is now in the open.

Both projects are important. Even one 3,500 MW power plant in UP could transform much of north India, creating industry and millions of jobs. But the beneficiaries of Reliance Infocomm won't also be the idle rich. They'll mainly be millions of workers in the informal sector whose incomes have multiplied because they can now be contacted for casual work anytime, any place. The country needs both projects. And it needs a united Reliance. The only way forward is to issue shares to raise the money and rely upon the people to continue supporting the present management. What must end now is the close family-held tradition that Dhirubhai inaugurated. India, and Reliance, have moved on.