India: TNCs muscling into cottage industry sectors

By TWN/Mahesh Prasad

New Delhi (Jan 11 1996) : Taking advantage of the ruling Congress government's policies of economic reform and liberalisation, transnational corporations, already established in the country, are making some aggressive moves to take over well-managed Indian companies and to muscle their way into consumer goods sectors where suppliers are small and cottage-industry producers.

This is not only arousing strong backlash among the public, but also among domestic business and industry asking for a "level playing field" inside the country so that domestic industry can compete on fair terms and not be overwhelmed by the predatory practices of TNCs.

The move of Pepsi foods (the US TNC Pepsi-cola company's Indian operation) to edge out small Indian cottage industry snack food manufacturers of 'Bikaneri Bhujia' has attracted wide publicity in the media, has aroused concerns among thousands of cottage-industry producers and workers, and is forcing some of the regional and local governments to intervene.

But the Pepsi move to muscle into the cottage industry sector, and which would inevitably result in throwing hundreds of thousands of artisanal production and dependent families out of work and on the scrap heap, is not only the attempt of its kind.

The entry into India of the other US soft-drink TNC, Coca Cola, was based on the takeover of the largest soft-drink manufacturer in India, Parle -- although Parle's owner, Ramesh Chauhan, had willingly sold its stake in his company to Coca Cola.

There are other examples galore of attempts by the TNCs to take over Indian industry cheap and sell the goods manufactured by them at three or four times the prices charged by the domestic manufacturers.

The board room battles through which the UK transnational BAT has attempted, though unsuccessfully so far, to take over the Indian Tobacco Company (ITC), a well-managed Indian company and the abortive bids by telecom TNCs, in collusion with some Indian partners, to acquire large chunks of India's basic telecom services cheap, are now hitting headlines in the media, and is cited by political circles as examples.

When the Pepsi opened a Kentucky Fried Chicken fast-food shop in Delhi, the Delhi Municipal Corporation (run by the opposition Bharatiya Janata Party) tried to close it down by citing health violations, but had to retreat under court orders.

While the episode got some wide media attention, within and outside the country, and got trivialized as the case of "two flies in the KFC kitchen", it has raised some politically and socially charged issues and debate about foreign investments and role of TNCs in the country.

Among the westernized, de-culturized, upper middle class Indians, there is a craze for 'foreign' goods and foreign trade-marks -- and the US and European TNCs are moving in to cash in on this, under the new reform policy of the Congress-run central government in New Delhi, not so much to bring new technology and new production, but merely take over existing ones or thins already being done.

Westernised elitists inside the country and the foreign media, as well as some of the business writers in the Indian media mock at critics and the politicians raising these issues.

But these episodes are touching a raw nerve in a country where, even after nearly 50 years of independence, the historical memories of foreign traders (the British East India Co) coming as traders and taking over the country and subjugating it run deep.

Foreign governments, international institutions (the Fund, World Bank and the WTO) scoff at such concerns, speak of the inevitable march of history and globalization, and often lecture Indians -- the latest being the Singapore Foreign Trade Minister at the Confederation of Industry jubilee celebration meeting in Bombay.

Bikaneri Bhujia is a salted spicy snack food, and is a characteristic product of Bikaner, a town in the western state of Rajasthan and is a generic name. it provides livelihood for some 50,000 people in Bikaner Although Pepsi has denied it, fears persist among the bhujia manufactures that the TNC was trying to patent the snack food and sell it under its own brand name 'Pepsi Namkeen' and that this would prevent the local manufacturers to produce and sell their own product.

A delegation of the 'bhujia' manufactures of Bikaner recently met the chief minister of that State, Mr. Bhairon Singh Sekhawat, and told him that if the TNC was not prevented, it would similarly take up other products like 'papad' (wafer-thin round salted spicy preparation) which was a major cottage industry in the state, employing some 100,000 people.

Gopal Agarwal, President of the 'Bikaneri Bhujia Kutir Udyog Bachao Sangharsh Samiti' (Save Bikaneri Bhujia Cottage Industry struggle committee) is reported to have said that while they were selling Bikaneri Bhujia at Rs. 40 a kg ($1= Rs 35.77), the TNC was selling it at Rs 75 a kg. The same company was selling potato chips at Rs 240 a kg, while local manufacturers sell theirs at Rs 60 a kg. The price of potato in the Indian rural market is Rs. 2 a kg.

Despite the higher price, the metropolitan westernized upper middle classes are prepared to pay the higher price for the 'foreign goods' and the TNCs are cashing in on this.

There are allegations in the media of the TNC majors seeking to bully their way into the Indian market place.

These allegations were recently taken note of by no other person than a former Governor of the Reserve Bank of India, the country's apex bank, who was also a former Finance Secretary (civil service head of the Finance ministry), Mr. S. Venkitaramanan.

In an article on 'inflation' in a leading Indian daily, Venkitaraman quoted a friend as asking him "How is it that most grocery shops now do not offer local brands of corn flakes or other food articles and perforce stock up only multinational brands?". The latter are priced much higher and are out of reach of the ordinary Indian consumer. True, the local brands, which were available easily earlier, were soggy. But they were cheaper and affordable.

Says Venkitaramanan: "There is truth in the complaint. The multinational majors seem to have bullied their way into the market place. They insist on competing brands being taken off the shelf -- if not, placed at less conspicuous points of display -- as a price for getting dealership."

The slow, but concerted attempts of the TNCs to take over well-managed Indian companies is also raising concerns.

The hue and cry raised by a group of Indian industrialists, known as the 'Bombay Club' was silenced last year by industry associations and the government in fear that it would hurt inflows of foreign investment. The socalled 'Bombay Club' later described its mission as one of getting from the government 'a level playing field' visavis the TNCs who were getting a preferential treatment.

But what the Bombay Club failed to realise was that a weak Indian industry, particularly in the small- and cottage-sector, needs at the moment not just a level playing field, but a measure of support and protection from the government till they are strong enough to face the TNCs.

The case of the British TNC, BAT, seeking to acquire ITC, one of the largest Indian companies in the private sector, is a good example of the intentions of the TNCs and their modus operandi.

BAT holds 31.5% of share in the ITC.

It first attempted to ease out K.L.Chug as the ITC Chairman, and later tried to block the nomination of Yogesh Chandra Deveshwar, an executive of proven ability.

Having succeeded in easing out Chug in board room battles lasting several months, BAT was confident of putting its own nominee as Chairman of ITC, but failed to do so, as a result of the support extended to incumbent executive, Deveshwar, by the Indian financial institutions who together have a 38% share in the ITC against BAT's 31.5%

The Indian financial institutions, which had earlier supported BAT, although after prolonged wrangles (during which Chug was accused of financial bungling), chose to support Deveshwar against the BAT -- this time obviously under instructions of the government which must have weighed the consequences of supporting a TNC on the outcome of the forthcoming elections to Parliament and the chances of the issue being exploited by opposition parties in their campaigns.

After Deveshwar's appointment was announced following an ITC Board meeting on December 10, BAT did not conceal its disappointment and openly expressed itself against the appointment.

In a statement issued after the Board meeting held in Calcutta, the TNC said: "It is acknowledged that BAT has expressed its viewpoint in all fora that a healing touch could best be brought about by an external candidate for a short period of time."

But when it found that it was losing the battle over its own nominee, BAT appears to have sought bifurcation of the top slot with the Chairman taking charge of overall policy matters of ITC and the vice-Chairman to look after day to day operations, functioning as its Chief Executive Office (CEO). BAT is reported to have proposed the name of Mr. Malcolm Fry as the CEO.-SUNS