Earlier this month, it was reported that unitholders of the six shut mutual fund schemes of Franklin Templeton Mutual Fund would get ₹2,488.75 crore in the week starting Monday, May 3. This was to be the third tranche of disbursement for the investors after the distribution of ₹9,122 crore across five schemes in February and ₹2,962 crore last month.
A year ago, on 23 April 2020, Franklin Templeton had shut down six debt mutual fund schemes, which had Assets Under Management (AUM) of anywhere between ₹25,000 crore and ₹30,000 crore. A year-long battle between investors, investor-activists and Franklin Templeton saw some money being returned to the unitholders, with cases being heard in the Karnataka High Court and the Supreme Court. While all the money has not yet been paid back to the investors, the mutual fund house has come out virtually unscathed by all this tumult and scandal, with only its reputation taking a small hit. Justice is nowhere to be seen.
In fact, Franklin Templeton – worried about the public criticism and backlash – is using diplomatic channels to pressure the Indian government to go soft on it. It has threatened to pull out of India if it does not get “a just and fair hearing” or is slapped with hefty fines. While it has not even paid back the entire amount to its distressed investors, Franklin Templeton has brazenly said that if “disgorgement of revenue” or any penalty is “too steep”, it will “look bad for India”. It added that “several mutual fund companies have already left the country”.
This is not the first time that US-based globalist companies have threatened India with loss of business or capital, or intimidated the government with potential diplomatic backlash. This enmeshing of private financial institutions, large corporate organisations and big government clearly does not bode well for our country. At least, not without robust and enforceable regulations to prevent any and all kinds of malpractice and malfeasance.
Here are four more instances of when US-based companies threatened India when they made a mess of things, with the country losing not only massive amounts of taxpayer funds, but also scores of lives.
1 – Union Carbide and the Bhopal Gas Tragedy of 1984:
In 1984, Union Carbide benefited from political pusillanimity and collusion to get away with only pathetic, paltry compensations after the disastrous Bhopal Gas Tragedy. The gas leak incident on the night of 2–3 December, 1984 at the Union Carbide India Limited pesticide plant in Bhopal, Madhya Pradesh, resulted in the deaths of 15,000 people and thousands more suffering lifelong ailments.
2 – Citibank and the 1992 Harshad Mehta scam:
Within a few years, India almost defaulted on its foreign exchange obligations and was compelled to open up its economy to the world. The economic liberalisation was a condition of the bailout from the World Bank, and this is when the arm-twisting started. More and more foreign companies were let in as the economy opened.
Foreign banks like Citibank were involved in the 1992 Harshad Mehta scam. Citibank was one among the many major banks that were willingly flouting the regulations at the time, by letting brokers act as fronts. Senior executives at Citibank had even said at the time that “RBI guidelines were just that, guidelines – not the law of the land”. India was then seen as a corrupt and bankrupt nation that was desperate for foreign exchange. Apart from a few senior executives moving out of the country, foreign banks like Citibank got away with small penalties.
3 – The extent of Enron’s corrupt activities in India, from the 1990s till the company’s collapse in 2001:
Enron Corporation’s collapse in 2001 happened at around the same time as the fiasco with the international banks in India, when the fallout of the Harshad Mehta scam was still reverberating in the country. The worldwide disintegration of the energy, commodities and services company shook Wall Street to the core. The company had hidden away its mountainous debts and toxic assets in special purpose vehicles (SPVs) and showed investors profits in its books. With fake holdings and off-the-books accounting practices, Enron managed to fool US regulators for a long time. When Enron filed for bankruptcy, it was extremely embarrassing for the US, to say the least.
But, for almost ten years before the company actually blew up, Enron was here in India, corrupting everybody from police officials to government leaders (allegedly even the union minister for petroleum), influencing public policy and getting a sovereign guarantee on high-risk projects.
In the 1990s, with an astounding barrage of savvy media management and lobbying in the highest echelons both in the United States and India, Enron had signed a sweetheart deal to produce power in Maharashtra though the Dabhol Power Corporation (DPC). LNG for the project would be imported from Qatar through a 20-year contract with Enron, and the electricity produced would be purchased by the Government of Maharashtra for 20 years.
Enron soon formed the Dabhol Power Corporation (DPC) and set up a 2184 MW power plant in Dabhol, Maharashtra. This was supposed to be the posterchild of India’s economic liberalisation and was the then single largest foreign direct investment in India’s history.
The contract was later cancelled by the Maharashtra government after the project was determined to be unviable and too cost intensive. The price that the Maharashtra state electricity board would have to pay for electricity produced by DPC was more than twenty times what it paid for hydroelectricity.
However, Enron used its links with the United States’ Bush administration to pressure India. Enron’s then chairman had been a large funder of the Bush campaign. Two US Ambassadors to India even had the temerity to lecture the Government of India, threatening that India would lose face and American money.
The cancelled contract was later revived, with the project renegotiated at three times its original price.
After the Enron scandal in 2001, the DPC stopped producing electricity. The plant was later revived in 2005 and was converted to the Ratnagiri Gas and Power Private Limited (RGPPL), a company owned by the Government of India.
4 – Morgan Stanley’s Indian debut in 1994:
Morgan Stanley was the first foreign mutual fund house to make its debut in India. Morgan Stanley tied up with State Bank of India (SBI) in a 50:50 joint venture as an offshore scheme, with SBI named as the major partner.
The venture came apart when SBI officials discovered that Morgan Stanley had given itself veto powers over investment decisions by slipping in a clause into the deal. This clause effectively made Morgan Stanley the major partner in the joint venture. Surprisingly, the clause had not been discovered by lawyers or other representatives of SBI at the time when the deal was signed. The venture fell apart as relations between the two sides soured.
In 1994, Morgan Stanley debuted in India as a standalone mutual fund house. As this was the first foreign firm offering mutual funds in India and with its managers playing on the ignorance of Indian investors to whip up hype about the scheme, Morgan Stanley’s mutual fund units were being sold at a premium higher than its actual price in grey markets.
While Indian investors were expecting a spectacular performance from the much vaunted American fund house, the performance of its scheme was sadly terrible.
The trumped up and arrogant executives, with the help of a management-broker nexus, had ignored research reports and invested their Indian clients’ hard-earned money in absolute garbage. Despite a desperate revamping of its portfolio, the scheme only gave an abysmal 3% returns in 20 years.
Morgan Stanley lost investor trust and had to sell its Indian business to HDFC Mutual Fund in 2014.
Morgan Stanley is a cautionary tale not only for investors but for the big fund houses as well. Even if Franklin Templeton exits India, it will be Franklin Templeton’s loss and not that of the Indian investor, as the Indian market has an abundance of mutual fund houses today, from Edelweiss to ICICI to SBI to ABSL to Nippon, and many more. The total assets under management (AUM) of the entirety of mutual fund schemes in India has grown 2.5 times in just over years, from ₹13 lakh crore in 2015 to ₹32 lakh crore in February 2021. There is always a bull market somewhere and there truly is a raging bull market in stocks and mutual fund schemes in the country.
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