“Roti tawa par, janta party hawa main” was one of the slogans going around in the Lok Sabha elections that happened after the assassination of Indira Gandhi. Riding on the honest image of Rajiv Gandhi (Indira’s son and a former Indian Airlines pilot) and a sympathy wave due to the assassination of Indira Gandhi by her bodyguards, the Congress party won more than 400 seats in the lower house of Indian parliament.
This was an unprecedented majority for the Congress party, something it had not managed to achieve even under the leadership of Jawahar Lal Nehru, Rajiv’s grandfather and India’s first Prime Minister. Neither had it managed such a huge mandate from the people of India under the leadership of Indira Gandhi.
But Rajiv would soon squander away these gains. As Aarthi Ramachandran writes in Decoding Rahul Gandhi “The Rajiv Gandhi government was bogged down by allegations of kickbacks to the tune of Rs 64 crore paid to middlemen in the purchase of Swedish Bofors guns. The government’s ‘stonewalling’ of demands to bring guilty to book in the Bofors case and other corruption scandals destroyed Rajiv’s image as Mr Clean. Ramchandra Guha in India After Gandhi says the ‘stonewalling prompted speculation that the middlemen were somehow linked to the prime minister himself’.”
The impact of this on the Congress party was huge. It lost the 1989 election to an alliance of Janata Dal and the Bhartiya Janta Party (BJP). Rajiv Gandhi had to become the leader of the opposition. A party which had more than three fourths of the seats in the Lok Sabha was thrown out of power.
It is often said that ‘perception is reality’. Rajiv Gandhi losing the 1989 Lok Sabha election because people ‘thought’ he was involved in the Bofors scandal and may have received a part of the kickbacks. And this perception was formed after his government stonewalled all attempts of bringing the guilty to book.
A similar situation seems to be now brewing up in the Robert Vadra-DLF case. A string of lawyer ministers from the Congress have jumped into the ring in order to defend Robert Vadra and would like the world at large to believe that there is no truth in accusations being hurled at Vadra (and indirectly Sonia Gandhi) by Arvind Kejriwal and his associates.
Let us sample some of the statements that have been made by these lawyer ministers. Kapil Sibal, one the country’s top practicing lawyers before he became a full time politician and currently the Minister of Human Resource Development and Minister of Communications and Information Technology recently came to the defence of Vadra. “Allegations are happening 24×7. It is a daily phenomena just like 24×7 television news channels,” he said.
On television Vadra has been defended by Jayanthi Natrajan who other than being the Union Minister for Environment and Forests also happens to be a lawyer having got her law degree from the Madras Law College. Vadra has also been defended by Manish Tewari, a Congress spokesperson, and a lawyer. Tewari felt that prima facie the charges made by Kejriwal and company were found to be ‘untruth, innuendos and lies’.
HR Bhardwaj, currently the governor of Karnataka, and a former law minister also came to the indirect defence of Robert Vadra. “Many allegations were levelled against the Gandhi family even in the past. Indira Gandhi was also attacked. But she had a towering personality and fought back. Morarji Bhai (late Prime Minister Morarji Desai) made so many cases against her but they fell like nine pins,” he told reporters,” he recently told the media. And I thought governors were meant to be above politics and political parties.
Rashid Alvi, one of the spokespersons of the Congress Party on one occasion brushed aside the accusations hurdled at Vadra by Arvind Kejriwal and company as a “part of a well-planned conspiracy not against an individual but against the Congress and its leadership.”
On another occasion on live television he dubbed Kejriwal’s accusation as a publicity stunt and questioned the veracity of the documents put out by Kejriwal by saying “who will decide that the documents shown by Kejriwal are genuine or fake.”The website of the Parliament of India lists his profession as an advocate in the Supreme Court.
P Chidambaram, the Union Finance Minister who also happens to be a lawyer said “All I can say is at this moment these allegations pertain to transactions between two private persons or entities…. The individual (Vadra, son-in-law of Sonia Gandhi) has disclosed all these transactions in his income tax and other returns, and perhaps in the returns of the company.”
Veerapa Moily, another Lawyer and who is the Union Minister for Corporate Affairs as well as Power, jumped to Vadra’s defence by saying “ I have already verified these allegations and no wrongdoings have been found in any of the six Robert Vadra-owned companies.”
What is surprising is that so many Congress lawyers have jumped to the defence of a “supposedly” private individual, Robert Vadra, and ruled out any wrong doing on the part of Sonia Gandhi’s son in law. The only thing that this ‘stonewalling’ has done is that it has built the perception among people that something must be wrong otherwise why are so many lawyer ministers and Congressmen jumping to Vadra’s defence.
In some cases the defence has looked very shaky. Let’s look at Alvi’s insinuation that the documents might be fake. And this comes from a man whose profession is listed as a Supreme Court lawyer. It is very easy to download balance sheets of even unlisted companies these days. This writer spent the whole of last week doing that by logging on to www.mca.gov.in and paying a Rs 50 charge for every Vadra company for which details were needed. So all one needs to know is the name of the company and it’s possible to get the details of that company. And in Vadra’s case it was pretty well known that he operated through Sky Light Hospitality Private Ltd a company in which he owned 99.8%.
Also Alvi should remember that Kejriwal is being advised by Shanti and Prashant Bhushan, two of the best lawyers in the country. Shanti Bhushan was even the law minister of the country at a certain point of time. Other than this Kejriwal himself must understand a thing or two about balance sheets having been an Indian Revenue Service officer till a few years back. He is also an IIT Kharagpur passout from the pre coaching schools era and that definitely means he is smart. And more than anything else why would anyone who is raising a serious banner of revolt against the incumbent government choose to do so on “fake” documents?
P Chidambaram wanted us to believe that the dealings were between a private company and a private individual. If that is the case why are so many lawyer ministers coming to the defence of Vadra?
Veerapa Moily jumped to Vadra’s defence by saying that there was nothing wrong in any of Vadra’s six companies. If he had read through the memorandum of association of Vadra’s Sky Light Hospitality carefully enough he would have realised that the company claims that it will carry out business as hotels, restaurants, lodges, ice-cream merchants, sweet meat merchants, milk manufactures, bakers, wine and spirit merchants etc.
But instead of doing all that Sky Light Hospitality primarily seems to be in the business of real estate having accumulated a slew of properties on the basis of a so called Rs 50 crore advance it got from a plot of land from DLF. As has been repeatedly pointed out Firstpost and other places in the media the dealings between DLF and Vadra appear murky. (You can read about it completely here, here and here). Sky Light Hospitality owns a 50% stake in Saket Courtyard Hospitality Ltd through which it runs one hotel in Saket, New Delhi, in parternship with DLF.
Vadra’s Sky Light Hospitality bought 3.5acres of land sometime in 2008-2009 (period between April 1, 2008 and March 31, 2009) at Rs 15.38 crore. In the same period DLF bought this land from Vadra for Rs 58 crore. The question is how did the value of the land go up nearly 3.7 times in such a short period of time?
Against this sale DLF gave Vadra an advance of Rs 50 crore. An advance is typically given for the short term and needs to be returned within a year. But this advance was sitting on Vadra’s balance sheet even as on March 31, 2011. So the advance given by DLF to Vadra was with Vadra for a period of greater than two years. This doesn’t sound like an advance at all. It seems more like an interest free loan being passed off as an advance.
DLF also said in its 6 October statement that “we wish to categorically state that DLF has given no unsecured loans to Mr Vadra or any of his companies.” The balance-sheet (dated 31 March 2010) of Real Earth Estates Pvt Ltd, another company owned by Vadra, shows a clear entry of Rs 5 crore as a loan from DLF.
Vadra used all these loans from Vadra to go on a property buying spree. Estimates made now suggest that the value of this property now runs into hundreds of crores. He also benefitted from parking this largely interest free money in fixed deposits and earning an interest from them.
Congress Party’s over defence of Vadra has not helped it at all. It has built the perception among people that there must be some hanky panky involved in the entire business. That being the case no other response could have been expected from a party that doesn’t really stand for anything except the Nehru-Gandhi family. Kejriwal has hit the Congress party where it hurts the most.
As Ramachandran writes “the Nehru-Gandhi family remained relevant within the Congress. In fact, it became more powerful as it was only the centre around which the entire Congress edifice could hold together. It was now an amalgam of pressure groups which were interested in power, and their one-way ticket to it was through proximity to the Nehru-Gandhi family.”
And it’s in times like these Congress leaders have to go through their agni parkiskha and show their loyalty to the Nehru Gandhi family. That’s precisely what they are doing. Their reactions are a clear case of Catch 22. They are dammed if they try to come to the defence of Vadra and they are dammed if they don’t. However, in the process Vadragate may turn out to be Sonia Gandhi’s Bofors.
The article originally appeared on www.firstpost.com on October 16, 2012. http://www.firstpost.com/india/will-vadragate-turn-out-to-be-sonias-bofors-492019.html
(Vivek Kaul is a writer. He can be reached at [email protected])
Does the American president Barack Obama have the foot-in-the-mouth disease or is India just overreacting? In an interview to PTI Obama said “In too many sectors, such as retail, India limits or prohibits the foreign investment that is necessary to create jobs in both our countries, and which is necessary for India to continue to grow.” He also cited concerns over the deteriorating investment climate in India and endorsed another ‘wave’ of economic reforms.
Predictably this has led to a series of terse reactions from across the political spectrum in India. Indian politicians have gotten together and asked Obama to mind his own business. “If Obama wants FDI in retail and India does not want, then it won’t come just because he is demanding it,” said former finance minister and senior BJP leader Yashwant Sinha. The left parties were equally critical of Obama’s statement.
Veerapa Moily, the minister for corporate affairs said “Certain international lobbies like Vodafone are spreading this kind of a story and Obama was not properly informed about the things that are happening, particularly when India’s economic fundamentals are strong.” Moily clearly wasn’t joking. The corporates were also quick to criticise Obama’s statement.
But for a moment let’s keep aside the fact that India does not need any advice from the President of the biggest economy in the world and try and understand Obama’s statement in a little more detail.
What did Obama essentially mean by what he said? He was basically pitching for Wal-Mart, the biggest retailer in the world, to be allowed to do business in India. Wal-Mart is headquartered out of Bentonville in the American state of Arkansas. It currently has a marginal presence in India through a joint venture with Bharti.
Such is the fear of Wal-Mart entering India and destroying other businesses both small and large, that politicians from across the political spectrum have used it as an excuse for not allowing foreign direct investment in the retail sector in India. This fear comes from the Wal-Mart experience in the United States.
As Anthony Bianco writes in The Bully of Bentonville – How the High Cost of Wal-Mart’s Everyday Low Prices is Hurting America “It (Wal-Mart) grows by wrestling businesses away from other retailers large and small. In hundreds of towns and cities, Wal-Mart’s entry put ailing …shopping districts into intensive care and then ripped out the life-support-system.”
But that’s just one part of the story. The question to ask here is, whether what is true for America is also true for the rest of the world? And the answer is no.
Pankaj Ghemawat, who has the distinction of becoming the youngest full professor at the Harvard Business School, in his book Redefining Global Strategy, points out a very interesting story. “When CEO Lee Scott (who was the CEO of Wal-Mart from 2000 to 2009) was asked a few years ago about why he thought Wal-Mart could expand successfully overseas, his response was that naysayers had also questioned the company’s ability to move successfully from its home state of Arkansas to Alabama…such trivialisation of international differences greases the rails for competing exactly the same way overseas at home. This has turned out to be a recipe for losing money in markets very different from the United States: as the former head of the company’s German operations, now shut down, plaintively observed, “We didn’t realise that pillowcases are a different size in Germany.””
Given this the countries that Wal-Mart has achieved success in are countries which are the closest to the United States. As Ghemawat writes “Unsurprisingly, the foreign markets in which Wal-Mart has achieved profitability-Canada, Mexico and the United Kingdom are the ones culturally, administratively and geographically closest to the United States.”
Wal-Mart and other big retailers have had a tough time in emerging markets. As Rajiv Lal, a professor at the Harvard Business School told me in an interview I did for the Daily News and Analysis(DNA) “There is not even a single emerging market that I know where a foreign entrant is the number one retailer. In Brazil it is Pão de Açúcar, in China you have the local Beijing Bailian. In most markets even when there are foreign entrants the dominant retailer in the organised sector is still the local retailer.”
And there are several reasons for the same. The local retailers are very price competitive. “If Wal-Mart is operating in Brazil there is nothing that Wal-Mart can do in Brazil that the local Brazilian guy cannot do. If you want to procure supplies from China, you can procure supplies from China as much as Wal-Mart can procure supplies,” said Lal.
Also the local guys understand the market better. This is because they have a better understanding of the customers. “On top of that they have local merchants that they know they can source from and Wal-Mart may not,” said Lal.
The other big fear about the likes of Wal-Mart being allowed into India is that it will destroy the business of the local kirana store. This is a highly specious argument at best because it is not easy to compete with kirana stores. As Lal explained to me “Just because you are a big guy with a lot of money, it doesn’t mean that you can compete. Kirana stores have a lot of benefits that established retailers don’t have. First of all location. What rents do they pay versus what established companies have to pay? Employees, same story. On the consumer side they can deliver services, in terms of somebody calls them and asks can you deliver six eggs? The guy runs and delivers six eggs. That’s not something that the big established firms can provide.”
A Wal-Mart in the US is typically established outside the city where rents are low. But such a strategy may not work in India. “It’s not easy to open a 150,000 square feet store in India. That kind of space is not available. They can’t open these stores 50 miles away from where the population lives. People in India don’t have the conveyance to go and buy bulk goods, bring it and store it. They don’t have the conveyance and they don’t have the big houses. So it doesn’t work,” explained Lal.
The kirana stores also provide goods on interest free credit to their customers something that no big retailer can afford to do. Also as the economy grows the chances are that the kirana stores will grow faster than big retailers. “So think about in five years, where will organised retailing be as a market share. Maybe it’s less than 1% now, and maybe it will become 3% or 5% of total retailing. It will not be more than that. In five years organised retail grows from one percent to five percent, the economy would have grown by another 50 percent. If they grow from one to five percent and the economy grows by 50%, virtually it means that the number of kirana stores and mom and pop stores are actually growing. They are not reducing by any means,” said Lal.
Allowing foreign investment in the retail sector is also expected to bring down food inflation. As Satish Y Deodhar writes in Day to Day Economics “Allowing private players – including multi-brand retailers who bring in foreign direct investment – to deal in retail and wholesale markets will reduce trader margins. An empirical study on domestic and imported apples sold in India shows that there are a number of middlemen in the farm-to-finger supply chain: out of the final rupee spent by a consumer on apples, about 50 percent goes for trader margins…More competition through private players will reduce the margins for the middlemen and lower the prices for consumers.”
Allowing foreign retailers into India is thus likely to bring down food inflation. Also as explained earlier the kirana store has not much to fear from the likes of Wal-Mart and other foreign retailers. But the same cannot be said about the companies which are the organised retail sector. Wal-Mart does take time to get its act right, but eventually it does. As Lal put it “The people who should be more afraid should be people who are in the organised retailing sector and not the mom and pop stores.”
And that’s where the real story about all the opposition in allowing foreign retailers entering the country, might lie.
(The article originally appeared on www.firstpost.com on July 16,2012. http://www.firstpost.com/business/should-india-fear-wal-mart-the-bully-of-bentonville-378330.html)
(Vivek Kaul is a writer and can be reached at [email protected])