The capitulation to foreign lobby is now complete, though ironically Indian companies seem to be complicit in this on the rather cocky and smug assumption that they have come of age.
In its latest Foreign Direct Investment (FDI) policy initiative covering a wide range of issues, the government has allowed foreign investors complete freedom to change partners or have multiple partners or go it alone.
Hitherto, there was a shackle on foreign collaborations entered into in the pre 2005 era — they needed no-objection certificate from their Indian partners to it alone or change partners. Experience shows that foreign companies possessing cutting edge technology prefer going it alone to switching partners or having multiple partners. The foreign collaboration saga is littered with numerous instances of foreign partners changing course after they have found their feet and entrenched themselves. TVS-Whirlpool and Godrej-Sara Lee are just two examples.
There have also been instances of stand-alone foreign operators ejecting Indian shareholders from the scene under the facile name of delisting. Cadbury springs to one's mind readily.
SEBI efforts
The Securities and Exchange Board of India, of course, tried to salvage something for the garden variety Indian shareholders by stipulating a fair exit price discovered through the reverse book building process.
But for the Indian corporate houses clutching the hand of foreign majors, there seems to be no safety net in place.
Perhaps the government feels they can and have to fend for themselves whereas small shareholders need to be protected when delisting takes place.
While it is futile to make an uneasy partnership work, the regime of laissez-faire flung open by the government is a trifle difficult to fathom despite the reported bravado of the Indian companies that they can do without the foreign partner.
Safeguards
The gung-ho FDI policy needs to be sobered down.
Recently, the Hero-Honda split brought out the latent street smartness of the Indian partner to the fore. Hero allowed Honda to walk out of the joint venture by getting the 26 per cent equity held by the latter at half the market price in return for a hefty hike in royalty that is more enduring and regular than the one time capital gain one gets to earn on transfer of shares.
Honda wisely realised that what is lost in the swing to the more resourceful Indian promoter can be more than made good over the years at the roundabout - through heightened royalties. That the two promoters have forsaken the garden variety shareholders' interests at the end of the day is something too apparent to be dilated upon.
The following measures need to be taken in all-round interests:
(a)Fair exit price for the foreign partner exactly on the same lines as in delisting lest the two dominant partners are allowed elbow room to work out a sweet-heart deal at the expense of the hapless small shareholders;
(b)No plural collaboration agreements in the same product segment should be allowed. Right now foreign collaborators have not done anything to excite this suspicion, but the notion that a foreign company can be ensconced astride two vehicles at the same time should be disabused in the bud;
(c)There must be a regime of technology transfer in place. There have been instances of foreign parents charging royalty in perpetuity from their Indian subsidiaries in an inexplicably smug and conducive regime.
While it is true that the Indian reverse engineering skills are legendary and formidable, one, least of all the government, cannot set store by a negative trait. Covert operations are dishonourable. There must be an upfront regime safeguarding the Indian interest.
Perpetual royalties
Mr Raghav Bahl, in his eminently readable book Super Power? The Amazing Race Between China's Hare and India's Tortoise, recalls how his group TV-18, now Network 18, made all the investments, took all the risks and paid royalty to CNN, CNBC and other American media networks.
Of course he wasn't making a grievance out of it, but there are many Indian companies condemned to paying lifelong royalties with the government not bestirring, much less asserting itself.
Parenthetically one wonders how the Indian lobbyists thought nothing of the removal of the last vestige of control on the vaulting ambitions of foreign companies. After all, India's penchant for research is at best new found and fledgling.
The cornucopia of goodies an Indian consumer today enjoys admittedly has come from joint ventures, with technology being the main item brought to the table by the foreigners.
(The author is a Delhi-based chartered accountant.)