Dhirubhai Ambani and Reliance

Political Battles of Dhirubhai Ambani

Dhirubhai maintained good relations with Mrs. Indira Gandhi and obtained several licenses and permissions during her primeministership. However, after her assassination in 1984, her son Rajiv Gandhi became the prime minister, and things changed drastically. In May 1985, Vishwanath Pratap Singh (V.P.Singh), the Finance Minister in Rajiv Gandhi's cabinet, decided to shift PTA imports from the open general licence (OGL) category to the limited permissible list.⁹ This could be the beginning of a new problem for Reliance as it solely depended upon PTA imports for its PFY plant. Dhirubhai sniffed the news about the imminent change and moved very fast.

Between May 27th – 29th, he tied up with a host of banks, like the Bombay branches of the Standard Chartered Bank, Société Générale and the State Bank of India, the Canara Bank and the Banque Indosuez to issue letters of credit for almost a year's supply of PTA, which was approximately 60,000 tonnes. These banks issued LCs worth 1.1 billion.

The last LC was opened just a few hours before the government announced the changed policy. The Finance Minister was not too happy with Dhirubhai and the result was a 50 per cent import duty on PTA. This further nullified Dhirubhai's gains. In June 1986, Reliance was considering the conversion of its non-convertible debentures into convertible ones for the second time.

This would help improve the company's debt equity ratio, reduce the outflow of interest, and increase the inflow of funds. But V P Singh was against it. But once V.P Singh was transferred from the Finance Ministry to the Defence Ministry, the conversion of the debentures into shares was permitted and the pending licenses were cleared. October 1986 turned out to be quite favourable for Reliance. The debenture conversion move proved highly beneficial. A secret meeting between Dhirubhai and Rajiv Gandhi seemed to trigger off a series of decisions in favour of Reliance. Some more pending licenses were cleared. The customs levy of Rs 3 on each kilogram of PTA was abolished, and the Patalganga complex was granted refinery status thus, enabling it to pay a low level of excise duties for raw materials like naphtha.

Dhirubhai Ambani and Reliance - Next Page >>>

9] To import an item on the limited permissible list, one has to get a clearance from the director general of technical development.

Case Details

Case Code : LDEN011
Themes: Corporate Social Responsibility, Great Leaders
Case Length : 17 Pages
Period : 1958-2002
Organization : Reliance India
Pub Date : 2001
Teaching Note : Not Available
Countries : India
Industry : Varied

Free Case Studies

Business Strategy
Finance
HRM
Insurance
IT and Systems
Marketing
Operations
Leadership
More Case Studies >>

Micro Case Studies

Business Environment
Business Ethics
Business Strategy
Human Resource Management
IT and Systems
Marketing
Operations
Micro Case Studies >>

Free Resources

Micro Case Studies
Free Case Studies
Articles
Interviews
Book Reviews
Glossary
Online Quiz
More Free Resources >>

Case Related Links

Best Selling Case Studies
Business Case Studies
Learning With Case Studies
Cases Used in Textbooks
Prize Winning Case Studies
More Case Studies >>

Case Studies and Management Resources