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Business & Political Risk

Political risk – the bane of business
September 2008

In the early seventies, when the trade union movement in Bengal was at its peak, the proclamation of a ‘chukka jam’ by communist parties was taken most seriously. Nothing on wheels would move. Cars and buses that adventurously ventured out, defying the blockade, were burnt in minutes. Labour strikes were so effectively picketed by Left unions that not a single worker would show up. The militancy of the trade union movement led to the demise of Bengal’s once powerful industrial base. Old British hongs such as Balmer Lawrie; Bird & Company; Martin Burn and Jessops either shut shop or were nationalised. Scarce investment flowed in and within a decade, Calcutta lost not only its place of glory as India’s business capital but its exceptional charm as well. Today, it looks appallingly deprived when compared with new metropolitan cities like Hyderabad and Bangalore. The blame rests squarely on Bengal’s militant politicians.

History has a strange way of repeating itself. The Tata Motors Nano car venture got off to an inauspicious start in Singur, about sixty kilometres away from Calcutta. The problem concerned the acquisition of land for the project by the state government - in some instances forcibly - from unwilling farmers. Unfortunately for the Tatas, a belligerent politician, Mamata Banerjee of the Trinamool Congress, made this a point of leverage to take on the ruling Communist Party. Blockades, pickets and sit-ins provoked an aggressive police force and severe casualties followed. More recently, an engineer from the project contractors fled the area under fear of being lynched. Tata Motors have had a horrible deal to say the least – the state government mismanaged a crucial first step that an attentive Opposition capitalised on, creating a conflagration that now seems out of control. Their Chairman Ratan Tata, understandably fed-up with the harassment, confessed they would pull out despite sunk costs if things weren’t fixed soon.

The Nano project has the personal backing of Chief Minister Buddhadev Bhattacharya, who rightly sees this as a critical step in the re-industrialisation of his province. The Tatas walking out of Singur would send a disastrous signal to all future investments and the state would squander away this singular chance of rebuilding its industrial economy. Sadly for him, Ms Banerjee seems adamant to hang in there, demanding that the land acquired from unwilling farmers should be returned to their previous owners. This is logistically no longer possible. The land in question comprises of some 400 acres that are broken into tiny holdings scattered in several areas. Tata Motors has become victim to political squabbling of the nastiest kind. Mr Bhattacharya is now oddly haunted by sins of the past. Previous communist governments did everything possible, from mollycoddling the labour unions to bad industrial policies, to effectively eradicate industry. Several businesses shifted their manufacturing operations out of Bengal and most even relocated their corporate head-quarters to more agreeable locations. Perhaps, with determination Mr Bhattacharya may yet come through, but at a heavy price. Even if the Tatas continued with Singur, it will take a very gutsy businessman to consider an investment in Bengal. Political risk will detract funding and risk-averse multinational companies will find it impossible to convince head-quarters to invest there.

The Nano project will make a fine case study attesting the need for risk audits. Businesses must realise that fiscal or other incentives offered by states, cannot be seduction enough to make investments. The only effective justification ought to be the valuable experience of others that may have successfully invested there. Audits need to examine all risks including political, labour, pressure group, in addition to commercial ones. Most importantly, promises by provincial governments made with the best of intentions cannot be assumed as binding. If India’s leading industrial house with an impeccable history of social responsibility and the highest standards of ethics and labour relations can be made to feel unwelcome, then others stand little chance of pulling things off when the going gets difficult.

Singur is a depressing portrayal of India’s political environment, one which creates nuisances even for such ventures that ought really to be a matter of pride for an entire nation.

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