Quid Pro Quo Sir?

Quid Pro Quo Sir?

In today's story, we try and understand the whole Chidambaram INX media case and why the Finance Ministry wants to review the Free Trade Agreement?

Brace yourself! This is a serious newsletter folks 🙎

Fraud

The Chidambaram Saga

Considering we are still a website largely focused on business news we thought it would be nice if we began this story expounding on the gory restrictions imposed on foreign entities who wish to make investments in India.

So if you’re a foreign national looking to invest in an Indian company🏢, you can go about setting up the entity in one of two ways.

The first approach is called the automatic route, mainly because everything happens without a fuss and things move along rather nicely. However most investments don't fall under the automatic category, instead, they require prior government approval. Back in 2008, the agency responsible for approving such investments was an inter-ministerial body called the FIPB- Foreign Investment Promotion Board.

So the story goes that INX Media, a company part-owned by Peter and Indrani Mukerjea.. was seeking investments from three foreign agents based out of Mauritius. We are talking about Peter and Indrani Mukerjea from the infamous Sheena Bora Murder Case. đź’€

Yeah, they wanted money and were hoping they could use it to fund their new venture- INX Media and through it, another entity- INX news and promptly sought approval for both.

The FIPB in response granted said approval for foreign investments of up to 4.5 Cr but denied the company’s request to use the money to fund that other news entity.

And here’s where things get interesting. Despite being offered approval for only about 4.5 Cr, INX Media received a whopping 305 Cr. in total. For those weak in math, that’s about 66 times more than the approved investment amount. Also, they went ahead and used the money to fund that news entity anyway. A big f*ck you🖕 to FIPB and the government agencies.

Backlash

The taxman soon flagged his objections and the case was forwarded to the Enforcement Directorate (read as the good people responsible for fighting economic crimes in India.) What’s interesting to note here is the FIPBs response to all this, considering it happened on their watch.

The CBI in its charge sheet alleges that the FIPB, instead of investigating the case, extended undue favours to INX Media by asking them to apply for fresh approval. Sneaky!

And the suggestion here is that this could directly be attributed to P Chidambaram who may have used his influence to scuttle the case after having received money (kickbacks) from Peter and Indrani Mukerjea.

The CBI also allege that they have evidence of payments made to Karti Chidambaram (P Chidambaram’s son) and statements from Indrani Mukerjea confessing that she met Karti in person to offer a Million dollar bribe in return for P Chidambaram's help in the matter.

As of today, Chidambaram continues to remain in CBI custody and we think the drama has only just begun.

Policy

Free Trade or Not?

Also in other news, the Finance Ministry has initiated a review of India’s free trade agreement🤝 framework to assess the impact of such pacts on the overall economy.

Translation: We need to figure out if this stupid agreement is helping us or ruining our economy.

Now this conversation often boils down to a heated debate between free trade and protectionism (read as protecting the country’s manufacturers from cheap foreign imports at all costs)

The obvious upside is that a Free Trade Agreement (FTA) works both ways; meaning Indian manufacturers get free access to certain foreign markets without having to pay needless custom duty and foreign manufacturers get the same privilege in return.

The downside is that Indian manufacturers could potentially have a lot to lose if cheap goods from foreign countries begin to flood our markets.

Let’s talk steel

Imagine having a free trade agreement with a country that could manufacture and sell steel for pennies on the block. They have the manpower, access to cheap raw material and can ship to India without much fuss. This makes locally manufactured steel less competitive (price-wise) because Indian manufacturers might not have the scale or the resources to produce steel at such cheap rates.

The obvious solution is to make foreign steel more expensive (through an import duty). However, this is less than desirable because it would mean scrapping the FTA and in turn negating the upside that we talked about earlier. Also, more importantly, it would mean hurting other manufacturers in India who use steel as a raw material. They’d have to now purchase steel at much higher prices, making them a whole lot miserable in the process.

But then if you don’t protect the local steel manufacturers🏭 how could you ever expect them to grow in size and stature and hopefully one-day match foreign steel (in price)?

Well, these are tough questions and there is no one right answer. Which is why it's so important for the government to find the right balance🤹between free trade and protectionist policies.

And this, in essence, is why a government might review such pacts every now and then, just to see if they’ve found the right mix

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That's it for today. Until tomorrow then...