‘The whole idea got completely ultafied,’ Bajaj recounts. ‘I was shouting away in the 1980s for liberalization but then in 1993, I became infamous. When I asked for a level playing field, everybody thought this was a euphemism for protection. All we were saying was that the government should enable us to face foreign competition. Nobody listened to me, not from the media or anybody else.’
On 24 July 1991, without much fanfare, not even a ministerial press conference, Prime Minister P.V. Narasimha Rao announced the abolition of the Industries (Development and Regulation) Act, 1951. All licencing of new industries, barring a few sectors placed in a negative list, was removed. The ‘licence-permit raj’ of nearly forty years ended, marking the beginning of massive economic reforms and the movement of ease of doing business.
‘What we wanted was for Indian companies to become multinational corporations and for Indian firms to grow,’ says Bajaj. ‘The simple economics of Adam Smith teaches us that everyone cannot make everything, so we must decide what we want to manufacture and adjust import duties accordingly. Economic liberalization was good for India, and I said so in speeches at various industry associations. But somehow, I was labelled the chief spokesman of the so-called Bombay Club in the nineties. And the Bombay Club was synonymous with protectionists and nothing else.’
Let’s Meet at the Belvedere?
The first meeting was arranged by Hari Shankar Singhania from the J.K. Group, and Ashok Jain of Bennett Coleman. ‘We met at the Belvedere Club in the Oberoi in Bombay, about sixteen of us. Jamshyd Godrej was there, Keshub Mahindra was there, I was there,’ remembers Bajaj. Most were members of one or more of the three biggest business lobbies—Assocham, CII and FICCI.
The Belvedere is a private space in the Oberoi in tony Nariman Point. The group anointed Bajaj as its leader. Reporter Sucheta Dalal broke the story and dubbed them the Bombay Club. The moniker stuck.
‘Ashok and Hari Shankar finalized a representation to the finance minister for a level playing field after import duties were satisfactorily reduced,’ emphasizes Bajaj. ‘Our point was simple: most consumer goods came from the developed world that did not have our handicaps like rigid labour laws, high interest rates, poor infrastructure and so on. We were being made non-competitive. So, when in 1993 I asked for a level playing field, what I only said was, we have a labour policy problem. I can’t get rid of people. We have a high rate of interest, high transaction costs, and I have to compete with imports which don’t have those limitations. And that got misconstrued as protectionism. All the others kept quiet after the Finance Ministry asked them not to go public after they made their representation—except me.’
When asked to join the new forum, a few, like Calcutta’s Rama Prasad Goenka and Bombay’s Essar Group’s Shashi and Ravi Ruia flatly refused. Other abstainers included Dhirubhai Ambani, Aditya Birla and Ratan Tata.
The Thirteen-Point Charter
After detailed deliberations, a thirteen-point charter was prepared. ‘The industrialists who met finance minister, Dr Manmohan Singh, in New Delhi on 10 November 1993, consisted of Bharat Ram, Lalit Mohan Thapar, M.V. Arunachalam, Rahul Bajaj, Bhupendra Kumar Modi, Chandrakant K. Birla, Jamshyd Godrej and myself,’ wrote Hari Shankar Singhania in his memoir twenty years later. ‘This note was released to the press immediately.’
Special adviser Montek Singh Ahluwalia was also present. The message from the Bombay Club was clear. ‘Domestic liberalization today, and external liberalization later,’ remembers Ahluwalia.
The Bombay Club took the view that greater openness to imports and FDI should follow and not precede domestic reforms. The apprehension was that in the absence of domestic reforms, the Indian private sector would be overrun by foreign competition, with adverse consequences for local entrepreneurship and employment.
[Historian Stanley A.] Kochanek summed up the Bombay Club’s five areas of concern:
First, the Bombay Club demanded that government focus upon a comprehensive series of internal reforms which would enable domestic producers to become more competitive and provide for an extended period of adjustment for domestic industry prior to any attempt to open the Indian economy to external competition.
Second, the Bombay Club objected to government liberal policies towards private foreign investment. They especially expressed anxiety over the government’s decision to raise foreign investment equity levels from 40 per cent to a controlling 51 per cent, the takeover of Indian local companies by foreign multinationals and attempts by non-resident Indians (NRIs) to gain control of Indian companies by buying large blocks of shares and replacing the original promoters of the enterprise. The Indian business elite also charged that government was providing benefits to private foreign investors that were not being provided to domestic industry, especially in the case of infrastructure projects.
Third, they opposed the planned reductions in protective tariffs on Indian industry and the opening up of the Indian economy to foreign goods. Since the tariff on finished goods would decline while local excise and sales taxes on industrial inputs remained high, the cost of Indian-made goods would become uncompetitive. This would result in unfair competition and would lead to plant closures and increased unemployment.
Fourth, the Bombay Club charged that tight credit policies and high interest rates placed domestic industry at a competitive disadvantage compared to foreign capital.
Finally, they charged that the failure to reform India’s complex labour laws, the failure to enact an exit policy that would enable unprofitable industries to close and the failure to reform or privatize the public sector limited the impact and effectiveness of the reforms.
The Invisible Level Playing Field
If that was all that the Bombay Club wanted, no rationalist could object. Manmohan Singh, the then finance minister, promised sympathy. Pranab Mukherjee, then commerce minister and a former finance minister, added that the government would not allow Indian companies to be ‘wiped out’. Of rather more significance was a warning by [former IDBI chairman] Serajul Haq Khan. ‘Hasty steps towards globalization without ensuring a level playing field will lead to the eclipsing of Indian industry,’ he cautioned.
There were diverse issues. ‘Before 1991, India by and large followed the policy of a mixed economy,’ Bajaj looks back. ‘In the 1960s, 1970s and 1980s we had a protected economy. None of India’s industries were internationally competitive. Costs were high, quality low and technology obsolete. There was however a positive side to this situation. Owing to the policy of import substitution, India could develop a manufacturing base unlike the screwdriver technology-driven South Asian countries.’
‘When liberalization started in 1991, the government had foreign exchange troubles,’ describes Bajaj. ‘Foreign exchange was not even a couple of weeks’ worth of imports. The government did the external liberalization very fast. “We want free trade” meant quick imports. We didn’t want import licence raj. That is correct. And ultimately, it helped us, I am not saying it did not.’
‘The developed world is protectionist when it suits them—for example, when it protects its farmers—but we need foreign technology and capital,’ said Bajaj. ‘Certain technologies are in the hands of only a few corporates in the world and they will not part with them unless they have a majority stake in the company in India. We should readily offer them this equity, otherwise we will not get the required technology.’
The government took the Bombay Club seriously, at least outwardly. In the mid-1990s, a decade after the 1985 New Economic Policy, the government permitted Indian companies to raise preference shares of up to 25 per cent of their issued capital. As these shares did not carry any voting power, it eased the way for businessmen to raise money without giving up control. In addition to private lobbying, the Bombay Club organized seminars to publicize the effects of opening up the Indian economy.
The P.V. Narasimha Rao administration admitted that it had received numerous representations from the industry justifying the protectionist move on the grounds that it provided a level playing field to Indian entrepreneurs. ‘Post the representation, the Finance Ministry asked us not to go public. All the others kept quiet—except me,’ says Bajaj with a touch of smiling cynicism.
Excerpted with permission from Rahul Bajaj: An Extraordinary Life by Gita Piramal, published by Penguin Random House India.