It seems to be a case of the left hand not knowing what the right does.
The Finance Ministry has flatly turned down a proposal the RBI had forwarded, requesting that Tata Sons be allowed (as a special case) to buy Tata Teleservices shares from NTT DoCoMo at the mutually-contracted price of Rs 58.
North Block says that the agreed price of Rs 58 is more than double the prevailing market price of Tata Teleservices and clearly violates the Foreign Exchange Management Act (FEMA) and its definition of ‘fair value’.
Due to this the deal will not be allowed.
Tata Sons has been trying its best to deliver on its 2009 contract, signed with Japanese former partner NTT DoCoMo. It appointed PwC to arrive at a fair value which was pegged at Rs 23.34 per share. It is only when that a buyer could not be found at this price, that Tata Sons realised they will need to pay the higher Rs 58 per share, if they want to honour the terms of the contract.
RBI argued (in typical Central Banker-speak) that such hedged contracts were a regular international practice: “We observe that the proposed structure is not in line with the extant provisions, as the fair value of the shares is Rs 23.34 per share. However, the larger issue here is of fair commitment in the contracts in relation to an investment and a downside protection of an investment, rather than an assured return.”
But it cut no ice with the Finance Ministry,who after consulting the government, turned it down.
This in effect means that Tata Sons will not be able to honour their contractual commitment for which NTT DoCoMo has already dragged them to a London arbitration court.
The Quint is of the opinion that government policies and rules should help facilitate business, not stifle them. More worryingly, this case highlights the complete lack of consistency in government policy and the lack of coordination between the RBI and the Finance ministry.
In 2009 when the Tata-NTT DoCoMo deal got approved, it undoubtedly went through the RBI, FIPB and even the CCEA, given the whopping $2.2 billion the Japanese company invested.
It is fair to assume that if the Tata deal – which had two call and one put option built into the contract – received the go-ahead, it must have met all government stipulations. Including a thumbs-up from the RBI, which at that point openly opposed any ‘call and put option that guaranteed a fixed exit price’.
So why prevent the Tatas now from paying NTT Rs 58 per share and honouring their contract? It just does not make any sense.
What is even more perplexing is why a private company is being penalised for what is at best, a lack of coordination between different government arms or in the extreme, a complete lack of consistency in policy making?
Changing policy mid-stream and retroactive taxation is something the previous government received a lot of flak for, especially in the Vodafone India case. The legislation which allowed the government to tax transactions dating as far back as 1962, defines all economic logic and was rightly criticised by all international investors.
The Modi government which came to power riding on its pro-business image cannot afford gaffes like the stalled Tata DoCoMo deal.
Or it will just perpetuate the perception of India being a volatile and unfriendly place to do business.
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