The-Polyester-Prince

politicisation of the machinery From 1970 supreme power was appropriated by theCabinet Committee on Economic Co-ordination which was headed by the primeminister and for all practical purposes the prime minister’s office became the maindecision-making authority. No worthwhile project could be cleared without the primeminister’s approval. Those who managed to get industrial licences also managed tosee to it that others did not. This was done by money, influence and political musclepower. A nexus came to be established between a section of industrialists, a sectionof politicians and a section of bureaucrats. The principle of market forces guiding ordictating investment, or of production targets being determined by demand andsupply, was given the go-by, and everything was decided by administrative fat. SenGupta’s job was to set the rules by which companies could raise money by issuingshares or bonds, and then to adjudicate the prices they could charge for theseofferings.But up to 1979, India’s capital markets were quiet places. Stock exchanges hadarrived in the major cities as part and parcel of the British capitalism imported in the1880s. The exchanges were run by cliques of brokers, who set their own rules oftrading and rarely punished one of their own brethren for abuse of clients’ trust.After periodic busts, the general public had learned to distrust the sharemarket. Withonly very small percentages of equity traded actively, the managements of listedcompanies were concerned more with dividend levels than with share prices. Thebigger companies went to banks for their finance rather than to the market. Between1949 and 1979, the average annual total of money raised by, Indian companies fromcapital markets was only Rs 580 million (US$71 million at 1979 exchange rates) andthe highest in any year Rs 920 million.By the end of 1983, the amount being raised had jumped to Rs 10 billion a year,with Reliance playing a prominent part. According to his memoir, Sen Gupta hadtaken up a study by an Indian economist with the World Bank, D. C. Rao, who wasthen on assignment with the Reserve Bank of India. Rao suggested greater use ofconvertible debentures papers which for a certain period had the character of bonds,earning interest, but which then were converted to shares earning dividends. Forinvestors this meant earnings while the company or project was gestating, with theprospect of equity once it was a going concern. For companies, it offered a way toslash debt after the start-up and also to avoid going for loans from financialinstitutions, who might elect to convert part of the debt to equity and become majorshareholders.Again, Dhirubhai was primed and ready for the new policy. As Reliance expanded itsproduction in the early 1970s, he had begun looking at taking it public in order toraise capital. In 1973, Dhirubhai and members of the Pai family had floated acompany named Mynylon Ltd in Karnataka (the Pai family’s home state). Theintentions remain obscure, for Mynylon’s paid- up capital was only Rs I 1 000. In July1975, Dhirubhai took consent of the Karnataka and Bombay High Courts, and carriedout an amalgamation whereby the tiny Mynylon took over the assets and liabilities ofReliance, which by that time had assets of some Rs 60 million.By March 1977, the company had been relocated from Ban- galore back to Bombayand its name changed back to Reliance Textile Industries. For a period that roughlycoincided with the Emergency-when T A. Pai was a powerful minister-Reliance didnot formally exist in name. The manoeuvre later became a widely used case study intax minimisation.