IBM wanted FERA flexibility, Coke had political connections: Kissinger cables

By Dinesh C Sharma, Mail Today, April 13, 2013

The dramatic exit of American multinationals – IBM and Coca Cola – from India in 1977 is often attributed to tough stand taken by the government over the issue of cap on foreign equity.

Cables of the Kissinger era leaked by Wikileaks, however, show that the pull out was not a knee-jerk decision and, in fact, secret talks were held between the two companies and government representatives during the emergency period. The final decision by American companies to exit came during the Janata government in which George Fernandes was the industry minister.

Communication exchanged between the American embassy in Delhi and Washington in April 1976 reveals that top brass of IBM lead by Ralph Pfeiffer - Chairman of IBM World Trade Americas/Far East Corporation - was keen to remain in India but at its own terms.

The company offered several sweeteners such as a Computer Sciences Centre in India and a USD 6 million grant to the government for computer-related research in exchange of concessions on the equity issue. IBM was willing to divest to the 40 percent level – as required under the Foreign Exchange Regulation Act (FERA) – in non-core areas such as manufacturing unit for exports.

State department officials got an impression that “India wanted IBM to remain in India, but on Government of India terms” and that the position of IBM as a major transnational operating in the country “was likely to prejudice IBM efforts to obtain a reasonable concession”.

The strategy drawn for Pfeiffer’s visit to Delhi was “to try to talk reasonably with M G K Menon (who was negotiating with IBM on behalf of the government) and others without acrimony or ultimatums. If this ploy fails he return within a month to try to see Mrs Gandhi or Finance Minister Subramanian in last attempt to negotiate agreement whereby IBM can remain in India on acceptable terms”. If all this failed, IBM was ready to pull out, as it did a year later. 

Another cable sent from New Delhi in December 1976 mentions about problems Coca Cola was facing with the FERA. However, the cable said, “because it (Coca Cola) has connections at a high political level it was able to obtain relief.” The Ministry of Industry was told that it should not deny the company import licenses while its FERA case remained to be negotiated.

Besides IBM and Coca Cola, several other companies such as Goodyear and Firestone too were in trouble. The thrust of American lobbying was on “flexible interpretation” of FERA guidelines. The embassy officials also wanted that representatives of foreign firms should be allowed to actually appear in person before FERA Committee to state defend their position.