The following excerpt from the Who Benefits From FDI – India Or Collapsing Western European Economies? from the Foreign Countries Dictating India Series focuses on the background of India Inc. and its role as an intermediary between Government of India and bankrupt Western/European economies in rolling out FDI into India. As a case study it also demonstrates how Tata saved the British multinational automotive company Jaguar at the height of the 2008 economic crisis.
What is India Inc. & Why India Inc. wants FDI?
India Inc. is a loose term to designate who is who in Indian industrial sector, the heads of all leading industrial houses. All these industrial houses have two distinctions. First, they collectively owe corporate tax to the tune of lakhs of crores of rupees which makes them tax evaders. Second, most of them are named in 2G Scam as perpetrators of fraud. Yet with amazing clarity all of them approach our Prime Minister and Supreme Court asking a direction to get themselves exempt from appearance before courts for cross examination and have the audacious guts to request to excuse their private lifestyles form being disturbed due to the probes. With lightning speed both the court and PMO grant their request, another example of British laws’ speedy justice in Independent India.
Stalling of FDI is anti-developmental for India Inc. The black money transforming into white and coming into India via FII and FDI through the Dubai Formula infact belongs to India Inc. only. If this is stopped India Inc. very well knows that western governments will squeeze these funds into their economic development. So it is a patriot act for them to bring this into India to develop their fellow countrymen.
Though there are many case studies that could be alluded about the bizarre decisions taken by Government of India for the benefit of this India Inc., the following stand apart.
How Tata Bailed Out Jaguar
During the height of 2008 US crisis, India was also reeling but stable under financial stress. During that time the Tatas bought Jaguar car company in England for which British banks promised loans as this sale retains British jobs. But with the US crisis and British bank collapse they refused the loans. Tatas requested for an immediate loan of Rs 25,000 crores at 5% interest as if, if they do not buy Jaguar car company India Inc. and thus Indian prestige will go down the drain. The funny part was that on the day the loan application request was sent the Finance Ministry published the inflation rate as above 10%. Both news items were there on the same side of financial pages of leading newspapers of that time. (December 10-12 English or Hindi Dailies or Google Tata request loan for bailout). With amazing speed in two days the dailies reported the loan approval to Tata by SBI at 5%. Unbelievable!
If inflation is 10% then bank lending rate should be above 10% to keep the real value of the money against future inflation. So the minimum interest charge should be 10% atleast. But at 5 % the loan makes an interest of Rs 1250 crores per annum and the total loan at the end of year will be Rs 25,250 crores. But with inflation 10% the real value of loan at the end of the year will be Rs 22,500 crores and with the interest at 5% added it will become worth Rs 23,750 crores and lost value of Rs 1,250 crores at the end of year. If the loan is repaid in 5 years and if the inflation is at constant 10% then SBI lost Rs 6,350 crores on this loan at 5% interest revenue at the end 5 years. Yet none either from the bank, Ministry of Finance, Economics, and Commerce ever even wrote a protest letter to anyone – not even a single letter.
Now for the help India did to India Inc. their reciprocation follows like this. Tata went ahead and bought the Jaguar company. They opened their sales outlets in India for this Luxury car. Now the cost of this car in USA or in UK is close to $ 1,00,000 to $ 1,25,000 dollars (roughly translates into Rs 45,00,000 to Rs 56,00,000 – again Google for the price of Jaguar). With this price the Total world sale for this car was only 3300 units.
For some reasons unknown to any poor Indian economist and layman alike the same car was priced in India for Rs 1.25 to Rs 1.5 crores. And the sales figure were astonishing 33,000 units in India alone. While the SBI was undercut with a loss of 5% net interest, the car was sold for almost two times more than the retail price that it can get in any standard western outlet. That too when Indian consumers bought 10 years’ worth of western annual sales in one year alone. At Rs 50 lakhs profit per piece Tata made a whopping Rs 16,000 crores profit in the first year in India alone which is close to half of their borrowing from SBI. (Even at the rate of Rs 45,00,000 retail sale price in west the car company is making a profit). So where do these profits go? We should have known by this time. To Britain. Why? Silly question. To save British life style. Who said it? NM Rothschild.
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