WSF: Dateline Mumbai, January 18, 2004
Thanda Matlab Coca-Cola
(By Naeem Mohaiemen --

At Goregaon, Mumbai, things don't go better with Coke. One of the most powerful presences at the annual World Social Forum (WSF) is the Campaign To Hold Coke Accountable. Spearheaded by Amit Srivastava of India Resource Center, the campaign has drawn attention from European and American organizations at the meet. In particular, Coke's environmentally destructive actions have concerned many global environmental workers. In a series of complaints brought against Coke, it has been shown that bottling plants are using hundreds of thousands of gallons drained from local wells, depleting available water resources. In villages surrounding factories, once lush agricultural communities are facing starvation. Compounding this damage, Coke pumps out waste byproduct, which is being dumped into nearby fields and canals, poisoning local agriculture. The company has also been charged with evading property taxes, illegally occupying community land, and selling drinks with trace amounts of pesticide. Reacting with alarm to the pesticide report, the Indian parliament banned Coke from its cafeteria. Commenting on the pesticide case, Amit Srivastava told me, "These are double standards. Essentially Coke is engaged in practices that they could never do in the US or EU. This is an American company, selling less tainted product in the US and EU, and a much more poisonous product in India."

While environmental issues are a huge challenge for Coca Cola, the financial aspects of their operations deserve attention as well. Coke is a mighty player in Indian business, topping a list of Foreign Direct Investment (FDI). Among the American TNCs that are the largest FDI into India, Coca Cola is at the top of a list that includes GM, Ford, Enron, Hughes Electronics, Pepsico and Soros Fund Management. Coke received approval to invest Rs 2,387 Crore ($694m) in 1995, the single largest FDI approval in the 11 post-liberalization years. As the biggest FDI investor, Coke has immense clout. Added to this is the Indian government's sensitivity to the possibility of foreign investors pulling out. The rates of realization of FDI show the reasons for this sensitivity. Between 1992 and 2003, India approved FDI proposals of Rs 2,85,443 Crore ($76,651 million), but actual inflows were $32,974 million. Thus about 60% of planned foreign investment pulled out without completing, or in some cases, beginning the project. This trend was only reversed in 2002, when FDI was actually 191% of what was approved. Only two years prior to this, the rate was 60% ('99). Thus, any TNC has huge leverage with the government-- the threat to pull out investments can always be used in negotiations. Because of Enron's eventual ouster from India, US firms have been particularly nervous about entering the US market, and the Indian government has had to prove that the protests of the past against Enron, Kentucky Fried Chicken, etc. will not be repeated.

Coke has a particular history in India, which adds drama to the equation. In 1977, George Fernandes was Industry Minister in the Morarji Desai government (Fernandes is now Defense Minister under Vajpayee, who was External Affairs Minister in the 1977 cabinet). Fernandes demanded that Coke and IBM adhere to the Foreign Exchange Regulation Act, which required foreign companies to reduce their stake to 40% and sell the remainder to Indian associates. When the companies refused to dilute down, Fernandes took the dramatic step of throwing both companies out of the country. In the next two decades, local software companies sprung up to fulfill the national thirst for syrupy-sweet drinks, creating India-only brands like Thums Up, Limca and Gold Spot. Two decades later, as part of liberalization, the foreign equity dilution provision was revised so that companies only had to sell 49% of their equity to Indian partners. Under this new provision, and a government that was now aggressively wooing TNCs, Coke roared triumphantly back into India. One of their first actions was to buy up Kejriwal Beverages, which had created the made-in-India competitors like Thums Up and Limca.

As Coke expanded rapidly in India, buying and building bottling plants, the 49% equity provision soon became an issue for Corporate HQ in Atanta. Gradually the company began to pressure the BJP government to relax the provision. In these discussions, two possibilities were used as leverage against the government. First was the possibility that as much as Rs 16 Billion would be repatriated out of the country. The second possibility that was put forward by Coke executives was that it would make little sense for them to go IPO in Indian Stock Exchange because they would soon delist its shares as per existing Indian laws. The US Ambassador Robert Blackwill played a key role in all these negotiations. In a letter to the Prime Minister's Principal Secretary Brajesh Misra, he wrote: "It seems to me that in view of India's ongoing economic reforms and considerable efforts to attract and maintain greater levels of foreign direct investment, there should be some flexibility possible in resolving this issue in a way that is acceptable to both sides" (Source: Hindu Business Line, 2002). This was followed up by a letter from Commerce Assistant Secretary William Lash, which said: "I understand that this is the second time that Coca-Cola's waiver request has been denied. I find this to be very unfortunate, not just for the company but also for India's investment climate." In February 2003, after requesting and receiving extensions, the company finally gave in and sold 49% of its stake to Indian shareholders. Having lost the first portion of the negotiation, the company now focused on voting rights. The companies efforts paid off and in 2003, the government announced that Coke would retain 100% of the voting rights in the company, while holding only 51% of equity. This represented a significant defeat for the government's negotiating team, because the Department of Economic Affairs had earlier insisted that there would be no "differential rights" in the equity shares.

The significance of the Coke equity issue became clear at the WSF meet. In order to change Coke's business practices, organizers like Srivastava are taking the campaign global and bring pressure on Coke in Atanta. This is because all voting power rests with the US parent company-- Indian partners own 49% of equity, but don't have any voting rights. Unfortunately, when the equity negotiations were going on in 2003, only business newspapers like the Economic Times paid any attention to the outcomes. Environmentalists and Corporate Accountability workers missed an opportunity to influence the decisions at that level. As a result, they now face a much more uphill battle against Coke's environmentally unsound business practices.

On the train ride to Goregaon, I was discussing the case with Stefan Quenneville, a WSF delegate and consultant who works on projects for the World Bank and others. Stefan pointed out that these equity-voting issues were not unique to India. Even in his native Canada, some TNCs had been able to keep control of voting rights. But the negative impact can be higher in India, where there are so few safeguards for consumers and the environment. Coke deserves (back-handed) praise for the cool way they handles the negotiations. Walking softly, but carrying a big stick, they managed to meet most of their goals regarding governance and control. One commentator pointed out that the company had truly met its advertising slogan: "Thanda Matlab Coca Cola (Cool Means Coca Cola)." The activists at WSF now need to come up with their own cool strategies to counter Coke's sleek ways.