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Escalating tension between Ambani Brothers

Posted by egovindia on August 5, 2006

Sucheta Dalal

 

Escalating tension

Sucheta Dalal

Posted online: Sunday, August 06, 2006 at 0000 hrs

http://www.indianexpress.com/sunday/story/10021.html

The war between the Ambani brothers has turned extremely ugly—the Anil Ambani Group’s decision to cut off broadband connectivity (we won’t get into justifications and charges on both sides) to Mukesh’s companies nearly crippled the business empire a couple of weeks ago and it is still struggled to stay afloat and reset links through other broadband service providers. Almost in retaliation, the Petroleum Ministry rejected the oil price agreement between the Ambani brothers. Everybody knows that Petroleum Minister Murli Deora was a close buddy of the late Dhirubhai Ambani, so his sudden rejection of the Ambani oil deal set tongues wagging over the timing and motivation of the decision. We now learn that Mukesh Ambani has set up a special internal team to deal with and respond to all issues/attacks by his younger sibling. Reliance had a similar core team handling issues only during its bitter war with Nusli Wadia of Bombay Dyeing and The Indian Express. It is a sad irony that two decades later, Reliance has to adopt similar strategies to fight an Ambani vs Ambani war—an indicator that things have moved far beyond blocking each others employees from using canteen, parking and ATM facilities or using the campus temple. Reliance watchers believe that we will now witness a series of encounters in the capital market and in bidding for big ticket infrastructure projects.

Backward, forward

Is India moving forward towards growth, prosperity and economic liberalisation or backwards into bans, restrictions and narrow parochialism? Different state governments and ministries have flexed their muscle to ban dance bars, liquor advertisements, people dancing in pubs and discotheques (Bangalore), depiction of smoking in movies, selling paan masala, simply watching certain movies or reading certain books. All this is indeed meant to protect us, but also worrisome because politicians are increasingly taking away our power to choose and decide what is right for us by imposing frequent ban orders. At least the Rajasthan government’s ban on selling aerated water at schools, colleges and education institutions protects a more vulnerable or impressionable group, but if the Union government had introduced stringent quality standards and stiff penalties on cola companies when the NGO first discovered high pesticide content in colas there would have been no need for another round of protests in three years. As if other bans were not enough, the Finance Ministry has exerted its muscle as majority shareholder to bar banks from raising interest rates without consulting their board of directors.

Contrary claims

Since the Finance Ministry is more sophisticated, it dismisses charges of coercion and says that it only exercised rights as a majority shareholder and asked banks to consult its board of directors and that its directive was issued before State Bank of India (SBI), its associates and other public sector banks hiked their rates. That is indeed strange. Most times, even a phone call from the Ministry would have stopped banks from raising rates, but this time we are told that they dared to ignore a circular from the Finance Minister and let a committee decide the rate hikes. A bigger inconsistency is the Finance Minister’s claim on majority shareholding. The government does not own a single share in SBI, it is the Reserve Bank that holds 67% of SBI’s equity; so what was the justification for issuing SBI a directive? Will we soon see interference in RBI’s autonomous functioning as well? Interestingly, ICICI was the only big Indian bank that did not hike interest rates and is looking very savvy today. CEO K.V. Kamath, taking a cue from the 10-year bond rates preferred to ‘‘wait and watch where interest rates are headed’’, rather than hike rates in a hurry and harass borrowers.

Economics lessons

An interesting aside to the interest rate roll-back is the emergence of Congress MP Sanjay Nirupam as an advocate for middle class borrowers. Last weekend, Nirupam was busy studying the reason for interest rate hikes and the difference between fixed and floating rates. It was pointed out to him that government could not dictate interest rates after India opened its economy to global fund flows; also that borrowers who opted for floating rates by their very nomenclature were aware that they could float up or down as they had in the past. Nirupam still went ahead and demanded a cap on the interest rate and even alleged that investors were unaware that interest rates could fluctuate. One speculated about the reason for Nirupam’s sudden activism on behalf of borrowers and expected him to be educated by his Party; instead the Finance Ministry stunned everybody with a controversial directive to banks to reconsider their rate hike. Simple arithmetic shows that the rise in Equated Monthly Instalments (EMIs) for the bulk of middle-class borrowers is hardly more than the cost of a pizza and not unexpected either. However, over-leveraged builders and industrialists who have been speculating in realty with borrowed funds are badly hurt by the hike.

suchetadalal@yahoo.com

 

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3 Responses to “Escalating tension between Ambani Brothers”

  1. broadband services these days are getting and cheaper and faster too, very soon we would have an affordable Gigabit internet *

  2. most broadband services are crappy, they can’t maintain high data transfer rates :’,

  3. Shyam said

    true… not sure who said this, but it still rings true: Power tends to corrupt; absolute power corrupts absolutely

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