Volume 6, No. 10, October 2005

In the industrial and financial sectors hardly a day passes when there is not a report of a takeover of some company or the other by foreign capital. This takeover is taking place in two ways: First through FIIs (Foreign Institutional Investments), where these FIIs are systematically buying up the companies by purchasing their share capital. This is being facilitated by the government relaxing the laws to allow the open entry of FIIs in all sectors. The second is by the direct MNC penetration through the FDI (Fixed Direct Investment) route. These giants themselves buy up companies, either by purchasing existing ones, or by ousting their partner in joint ventures. In addition new MNC investments come in on a large scale like Enron, the giant steel plant Posco, etc.

FIIs New Grab

To try and understand the process let us take a recent example. Most of such takeovers go unnoticed as the example reported in the Sept.2, 05 issue of the Economic Times — in this case a giant US financial institution like the JP Morgan Chase bought a 25% stake in small company Binani Cement for Rs.150 crores. What this means is that the management of the company de facto passes into the hands of the FII. Such takeovers are being not only encouraged by the government; in some instances it is being forced. For example the govt has told the Dhanalakshmi Bank to reduce the promoter’s stake in it from 37% to 10% — in other words sell of 27% to a foreign bank!!! Dhanalakshmi Bank is already in talks with the ADB and IFC Washington. Such takeovers are taking place on a daily basis and result in a greater and greater stranglehold by foreign capital over the Indian economy.

Besides the FIIs are now dictating terms and demanding their people on the board of directors. An example of this is the Hydrabad-based IVRCL Infrastructure & Projects Ltd. Two FIIs bought a majority share in the company, which was then forced to take certain steps to comply with the US Foreign Corrupt Practices Act.

Last year $ 9 billion of FII poured into the country and in the current year, in the first eight months alone, $7 bn has come in, and it is expected to reach $10 billion by the end of the year. So during the UPA rule a good $20 billion of FII (i.e. one-fifth of the entire one year’s government budget) would have entered the country by the end of this year. In fact, today the FIIs have displaced the FIs (Indian Financial Institutions like UTI, LIC, IDBI, etc) in the quantum of capital they control in industry. While FIIs hold 18% of the share capital the FIs hold a mere 7% today {Economic Times May 11, 05}. And the FII rate of increase is rapid, particularly in some sectors like the banks. Normally a 26% stake is sufficient to be in control of the company. All government and RBI rules are being changed to facilitate this takeover.

Today FIIs are the largest shareholders in 77 ‘Indian’ companies at the end of dec.2004 {Economic Times Jan 25 05} These 77 companies account for 44% of the total traded market capitalization on the Bombay stock Exchange (BSE). In the above two financial years the FIIs have invested a huge $ 15 billion in the stock exchange (equity market). In just the two years of 2003-4 FIIs have doubled their stake in ONGC, Tata Steel, Larsen and Toubro, Tata Power, Bharati Teli Ventures, Cipla, Grasim Industries and Reliance Energy Limited. Now FIIs plan a massive Rs.600 crore investment in Anil Ambani’s Reliance Capital. At the end of Dec.2004 in 23 companies FIIs stakes were higher than combined holdings of banks, mutual funds, public and private companies and others. The following is a list of some companies where the FIIs are the largest shareholders:

HDFC 63.2

Satyam Computers 56.6

ICICI Bank 49

Infosys Technologies 41.8

Zee Telefilms 40.2 Geodesic Information

Systems 36.2

Ind Swift Lab 33.1

NIIT 33

Pantaloon Retail 30.6

HDFC Bank 29

Gujarat Ambuja Cement 28.7

United Breweries 27.3

Container Corp. 27

Aurobindo Pharma 26.5

Amtek Auto 26.4

Hero Honda 25.7

LIC Housing Finance 25.4

Alok Inds 25.1

UB Holdings 24.9

Mahindra and Mahindra 24.9

Arvind Mills 24.8

Apollo Hospitals 24.8

Interestingly in most of the above companies the share of the Indian Financial Institutes (FIs like LIC, IDBI, UTI) for most varied between 3% and 6%. Until the 1990s it was these Indian Financial Institutes that had major shareholding in most of Indian big business. But with the globalization offensive this has gradually been changing. Not only that, with high levels of foreign capital into banking, insurance and other financial sectors the FIs begin to lose their hold, resulting in the domination of foreign capital in these companies together with the promoter’s capital. This ties the compradors even more firmly to the apron strings of the imperialists.

But, this is not all; the FIIs have also begun to target medium sized industries. In fact the majority of the $ 2 billion invested in the quarter April-June this year has gone to this sector {Economic Times July 19 2005} so, for example in just this quarter FII investment in the two companies Bajaj Hindustan and LIC Housing Finance rose 14% and 10% respectively. Other examples of high growth in FII investment are Indian Hotels, Tips Industries, Micro Inks, Ruchi Soya and Karnataka bank.

But FIIs is only one aspect of the growing imperialist takeover of Indian (and comprador) industry; the other is the direct MNC onslaught.

MNC’s Deep Penetration:

Here too not a day passes without some MNC or the other either ousting their Indian partner or increasing their stake in the joint venture. In this way the entire cement industry has been virtually taken over in just the last couple of months (see earlier articles in this column). A similar situation is to be seen in mining, electricity, pharmaceuticals, infrastructure and nearly all sectors of the economy — not just consumer products which is already fully in MNC hands. Now the UPA government has been pushing for the takeover of Indian banks, telecom, real estate, airports, retail business at a fast pace. Already 74% foreign capital has been allowed into banks, telecom, construction and it is a matter of time before they allow it in the other sectors.

The PM said recently there is need to take bold steps. And CPM chief of West Bengal said that we can’t stay in the old time-warp. Both sing the same tune. No wonder there has been a spate of what are called Mergers and Acquisitions in the period of UPA rule — in India these are mostly acquisitions by foreign companies of local ones. The value of these acquisi-tions in the year 2004 nearly doubled over the previous year to $ 7.5 billion and in just the first five months of the current year it was already $5.4 billion. In other word by the end of this year during UPA rule the total takeovers would be a gigantic $ 18 billion. Even if 20% involve local comprador companies this entails a huge seizure of assets worth about $14 billion (or Rs.60,000 crores) in just the period of UPA rule. This includes the disinvestments of the PSUs.

Such then is the massive capture of Indian and comprador companies taking place by the imperialists and their MNCs. In the lead in this robbery are the US imperialists functioning directly or through fake companies set up in the tax haven of Mauritius. The US has $ 16 billion in direct FDIs in India. Another unknown amount has come through the Mauritius route. The speed of takeovers is increasing by the day. Instead of the East India Company we shall soon have a handful of financial conglomerates and MNC giants strangulating every sphere Indian industry, mining, service, finance and commerce.

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