The-Polyester-Prince

Along with the clearances for his capital issues, Dhirubhai also had an easy time from
the revenue side of the Finance Ministry. At no stage did Reliance ever pay corporate
income tax on its profits, or even feel the need to make more than token provision
for it. Constant expansion and heavy borrowing gave ever increasing cost deductions
to offset against profits. Reliance became the most famous of India’s ‘zero-tax’s
companies.
In his budget for 1983-84, Mukherjee made one of the government’s periodic efforts
to crack down on such companies, by introducing an amendment to the income tax
law requiring companies to pay 30 per cent of profits in tax after depreciation but
before other deductions. Reliance avoided this by capitalising future interest payable
on borrowings for its new projects, hugely increasing its asset value in one hit and
allowing greatly increased depreciation claims to deduct from profits. Reliance
remained a zero-tax company for nearly three decades after its listing. It was only in
1996-97, after the introduction of a 12 per cent ‘, minimum alternate tax’s on
company profits, that it made its first corporate income tax provision.
The collectors of indirect taxes were also friendly. While Reliance could not avoid the
heavy domestic excise duties levied on manufactures at the factory gate, it was
initially given considerable leeway in setting aside some production as ‘wastage’s not
incurring excise. Bombay Customs accepted a 20 per cent to 23 per cent ‘bulk
buyer’s discount given to Reliance by Japan’s Asahi Chemicals up to 1982, and a 7
per cent discount on its purified terephtbalic acid imports thereafter, whereas in
other cases they might have inquired about under-invoicing.
Many officials in charge of customs and excise were drawn into the Reliance family,
rather than adopting the attitude of arms-length enforcers. The journalist Kanti Bhatt
recalls attending the marriage of Dhirubhai’s daughter Dipti in 1983, when he joined
the marriage procession, which in the Hindu tradition follows the groom to the
venue, with the guests occasionally breaking into the twirling dance known as
dandya raas.
‘I found myself in the street playing dandiya raas with the Finance Ministry’s chief
enforcement officer,’s Bhatt said.For his investors, all this added up to greater profits
at Reliance, which multiplied from Rs 82.1 million in 1979 to Rs 713.4 million in 1985
(8.69 times), on sales that rose from Rs 1.55 billion to Rs 7.11 billion (4.58 times)
over the same years. The company was never India’s most profitable, either in
absolute terms or in terms of profit as a return on capital, net worth or turnover. But
for the times, Dhirubhai was unusually generous with dividends, giving investors a
return of at least 25 per cent on the face value of their shares from the time Reliance
was listed.
But it was in the appreciation of their shares that the early investors in Reliance were
rewarded. In its first year of listing, 1978, Reliance had reached a high of Rs 50, five
times the par value of the share, which was a high premium in those times. In 1980
it hit Rs 104 as Dhirubhai promoted the growth potential of the company’s expansion
plans at Naroda and Patalganga, and in 1982 it reached a high of Rs 186.
In that year Dhirubhai established his name among brokers and investors as a
master of the stockmarket. From the middle of March 1982, a cartel of bear
operators reputed to be based in Calcutta started driving down his and other stocks
in the Bombay market. The selling pressure was intense on 18 March, creating a