The twilight zone where politics and law meet is often the arena for stealthy battles. A glaring example of this is the blocking of private equity firm Blackstone Group’s proposed investment in the Hyderabad-based Ushodaya Enterprises, the publishers of the Eenadu newspaper. Details of how the deal faltered due to government stonewalling were reported in Mint on 7 January.
The original $275 million (Rs1,080 crore) deal for 26% in the publishing company has been whittled down to a 14% stake for Rs600 crore. This cut is the result of the political and administrative pressures that have come to bear on the transaction, billed as India’s largest in the print media.
The way this deal has been trapped in a Byzantine bureaucratic maze raises many questions. Will economic decision making ever be free from the shadow of politics in India? Will such ham-handed attempts at control stem the flow of foreign direct investment (FDI) into the country? It is also worth asking whether the freedom of the press is being throttled, with the Congress financially choking an unfriendly newspaper.
It’s the same old tale of how partisan politics clashed with good economics—and the former wins. In this case Ramoji Rao, the largest shareholder of Ushodaya, is close to the Telugu Desam Party, a rival of the Congress in Andhra Pradesh. His control of a newspaper, which the Congress perceives to be inimical to its interests, is the proximate source of his troubles. These local rivalries have now been elevated to the national level.
The deal has gone through various regulatory approval stages. At each stage, it had to face questions ranging from national security to public interest. These were part of the effort to block it. At the moment, clearance for the deal is pending with the finance ministry, where all manner of side issues are being raised to kill it. Objections to the deal were diverse. Two of these were: Rao using the deal money to pay back people who had deposited money with another company that he controlled, Margadarsi Financiers, and the fact that the Chinese government has a stake in Blackstone. Both objections are ridiculous. What Rao does with the money should be of no interest to the national government. And China is a portfolio investor in Blackstone, not its controller.
The fracas appears to be an isolated case. But is it? If this particular deal is blocked, it will create a dangerous precedent. Future governments in New Delhi will fall prey to similar lobbying. The case-by-case clearance of FDI proposals has often been used as a cover for lobbying. This particular case is likely to send all the wrong signals to international investors. At times, it looks like a return to the bad days of socialist pretensions.
Indian industry has been up in arms over the fact that the newly empowered Competition Commission wants a maximum of 210 days to clear mergers. That’s seven months. The Ushodaya-Blackstone deal has been stuck in the regulatory pipeline for almost 10 months now. It is time that tight clearance limits are imposed on FDI deals as well. If there is a delay, the government should explain why.
Indians have often wondered about an entrepreneurial deficit in their country. The Blackstone-Ushodaya saga should give them some answers, however partial they may be. This particular deal received attention due to the personalities involved. It might not be so for the thousands of unknown businessmen who want to innovate quietly.
How many such deals have been killed silently can probably be never known. Its consequences, though, are pretty obvious: In spite of being touted a “global power”, the country is light years from achieving those goals. The government is the single biggest stumbling block in realizing this dream.
(What should be done to insulate economic decision making from politics? Write to us at firstname.lastname@example.org)