COMPETITION AMONG COMPANIES MAY BE CUTHROAT AND BLOODY, BUT EVEN THE MOST IMPLACABLE BUSINESS ENEMIES come together when they perceive a common threat. And that’s what India Inc. sees in Subramanian Swamy, the articulate and indomitable Harvard-educated economist-cum-politician. Swamy is the archetypal thorn in the side of large companies (many of them on the Fortune India 500), especially those he sees as working against national interest.

How should I describe him, I ask, sitting in Swamy’s Delhi office. A life-long free-market crusader, he says immediately. So how do these free-market principles work when he’s busy fighting the entry of low-cost airline Air Asia into India, or arguing against the proposed deal between the Tata group and Singapore Airlines, or, indeed, the Etihad Airways-Jet Airways deal? Swamy doesn’t see any contradiction here. “I am not dogmatic,” he says. “I accept or reject every issue on merit.” And in all the cases above—and in several others—he is convinced that the companies in question were acting against national interest.

Swamy’s transformation from a slightly idiosyncratic, outspoken, sometimes annoying politician to the man India Inc. fears (and, grudgingly respects) started with the 2G spectrum scam in 2010. The issue of spectrum allocation by the then telecom minister,
A. Raja (from Tamil Nadu’s Dravida Munnetra Kazhagam, or DMK) had been flagged off in 2008 by Swamy. As president of the Janata Party (since merged with the Bharatiya Janata Party or BJP), he began sending letters to Prime Minister Manmohan Singh, warning him that the issue could rock the country if it was not addressed immediately. In 2009, the Central Bureau of Investigation (CBI) registered a case without mentioning any names, and no real investigation was conducted. Undeterred, Swamy filed a criminal case against Raja in 2010, following which the CBI was compelled to start serious investigations, and Raja forced to resign as telecom minister.

Swamy’s activism in the 2G case resulted in licences worth Rs 9,000 crore being cancelled. “I don’t care about what money they lose,” says Swamy, who often threatened to send Anil Ambani and Ratan Tata to prison during the 2G scandal (both Tata Tele and Reliance ADAG had bought licences). “The truth is more important to me.” (Politically, too, there was a fallout, with the DMK losing the state elections in 2011, but then, Swamy has always been an irritant to politicians.)

HIS RELENTLESS PURSUIT of truth may cost corporate India. After the telecom scam, at stake is a $900 million (Rs 5,643.9 crore) investment of Etihad in debt and equity into Jet, a $30 million investment in the Air Asia deal, and $100 million to be put in for the Tata-Singapore Airlines carrier. Apart from this, there’s also his accusation that the sale of the Indian telecom provider Aircel to Malaysia’s Maxis was manipulated to ensure that finance minister P. Chidambaram and his son Karti Chidambaram benefited financially. He also accused the Chidambarams of money-laundering via a company called Advantage. The courts cleared Chidambaram, though not to Swamy’s satisfaction.

His detractors (and there are many, although every company head that Fortune India reached out to for this story refused to comment on record) claim that many of Swamy’s battles stem from personal animosity towards Chidambaram. Both politicians are from Tamil Nadu; Swamy was born in Madurai and fought a few elections from the city, which is less than 50 km away from Sivaganga, Chidambaram’s constituency. Even people in the BJP, now Swamy’s party, say that it is this animus that, perhaps, spurs Swamy in several cases. In both the airlines and telecom cases, Swamy sees Chidambaram’s hand in laws being bent and even broken. After all, he claims, in both cases the finance ministry and the Foreign Investment Promotion Board (FIPB) cleared the licences. Swamy laughs when I ask him about this, but then, tellingly, calls Chidambaram “the only one who got away”, before adding, “but I haven’t given up yet”.

Swamy clearly has his eye on Chidambaram’s job. If he was finance minister, he tells me, he would push to abolish direct taxes but levy a surcharge of 1% on all banking transactions, while simultaneously pushing greater financial inclusion. “That would bring far more revenue than these taxes which lead people to hoard black money.” Regardless of the economic merit or otherwise of this move, what’s interesting is his mention of himself as finance minister. Party insiders believe that this is not pie in the sky; Swamy’s friendship with Narendra Modi, the BJP’s prime minister candidate, is well known. In fact, senior party members tell me, it was because Modi wanted Swamy in, that the party agreed to the Janata Party merger.

“I have known him for 30 years and was one of the first people who argued that he had it in him to be prime minister,” says Swamy about his relations with Modi. His inclusion in the inner circle is also seen as part of Modi’s efforts to create an intellectual power base, as BJP leader and former Prime Minister Atal Bihari Vajpayee did. More than a decade ago Vajpayee’s brains trust included people such as Jaswant Singh, Yashwant Sinha, and Arun Shourie.

If Modi becomes prime minister, Swamy could well be his finance minister—especially since Sinha opposed Modi in the early days (he has since come around to the party view). Modi’s group seems to be coalescing around Swamy, Shourie, Rajnath Singh, and Arun Jaitley. Swamy is a seasoned politician (he’s 73 and has been in active politics for over 30 years) and too canny to give me a categorical reply when I ask if he’s an important part of Team Modi. All he says is: “Modi and I understand each other.”

Some clues to understand his relationship with Modi and where that will go can be found in Swamy’s recent book called Virat Hindu Identity. In it he argues that the caste system as it exists today should be destroyed since it breaks the original thought that the castes are based on action, not birth, and also about an old social contract that he thinks desperately needs to be revived.

“The spiritual elite of a culture creates the appropriate intellectual and political elite to manifest it in the outer world. This was the Vedic ideal represented by the Brahmin and the Kshatriya, the king and the chief priest,” he writes. It is the apt metaphor for how he sees his relationship with Modi. Early in my interview I asked him if he thought of himself and Modi as joint crusaders. The reply: “Quite formidable against untruth, isn’t it?”

Of course, Swamy as finance minister could lead to some policy flip-flops, going by past experience. In the case of foreign direct investment in retail, he was in favour of it when the BJP-led National Democratic Alliance was in power, but came out strongly against it when the Congress tried to bring this to be last year. Tasked with this U-turn, Swamy again doesn’t answer categorically. “I believe in parity,” he says. “I am happy to welcome, say, Walmart, if the U.S. allows Indian workers to go work in their country. Otherwise, why should their low-cost capital be applied in India to earn profit while India’s surplus labour cannot earn from their country?”

ALL THIS—ANTI CORPORATE crusader meets free-market preacher meets conservative Hindu nationalist politician—is a complex mix. To understand it is to comprehend the economic mind of a man who started his career writing a definitive research paper on the theoretical aspect of index numbers with Paul Samuelson. Or just the politics of a man so opposed to communism that when told by E.M.S. Namboodiripad—the Marxist-Socialist giant of Indian politics, at the height of his power as chief minister of Kerala in the late 1960s—that the Soviet Union had barely any poverty and if India followed its path, it too would soon have no poverty, he retorted, “Soon there will be no Soviet Union.” It is also to understand where both corporate India and the BJP stand today, why both need and fret about Swamy, and how Swamy, a curious mix of mathematical intellect and aggressive piety, sees his own destiny.

One man who explains this best is the former chairman of the Telecom Regulatory Authority of India (TRAI) Pradeep Baijal. When the 2G scam broke, Raja claimed that he had only followed advice and precedence of the ministers and bureaucrats who had built policy before. Baijal had written a note saying that the first-come-first-served basis could be used as a policy to give licences. The then telecom minister, Arun Shourie, accepted the recommendation to push telecommunications depth, especially in circles which were not very lucrative, and after the market showed no interest in participating in auctions for perceived low-volume and low-value circles.

But during Raja’s time, real estate companies with little or no telecom experience were handed out licences under dubious pretexts—leading to accusations of kickbacks. The investigations took in Baijal’s decision—especially since he had opened a consulting company with the assistance of Niira Radia, the public relations agent who was a go-between for several top corporate houses and the government. Baijal’s business is now shut, and while nothing has been found to implicate him, the CBI investigation practically ruined him.

But today, Baijal has only praise for the man who was largely instrumental in triggering the events that led to his downfall. “Subramanian Swamy is a genius,” says Baijal with no hint of sarcasm. “An example needed to be set that everyone could be held accountable. I was collateral damage in the process but I cannot not support what Swamy did. He fought for the truth. He burst the bubble.”

Baijal’s take, arrived at after 40 years of public service, is that most public policy decisions are collusive—where politicians and big business work together efficiently, and their interests are taken care of, so no one ever really disturbs the goodie train. Swamy, he says, has shaken up the system. “No one in government or anywhere else ever thought that anyone could be held accountable before this. He [changed] that.”

The thing about Swamy is that his self-proclaimed role of public conscience-keeper has ensured that “even his friends have learnt to fear him”, as a top Congress politician told me. Swamy himself seems to prefer being scathingly honest—making (or keeping) friends be damned. Take the case of his views on Ratan Tata. One of the biggest public relations coups of Modi as Gujarat chief minister in recent years has been the transfer of the much-vaunted Tata Nano car factory from Singur in West Bengal to Sanand in Gujarat after protracted protests from Singur villagers against the takeover of farmland. Yet, on the eve of a make-or-break election for Modi, and when Swamy’s future in any potential BJP government led by Modi is almost solely dependent on Modi, Swamy says: “Ratan Tata has embarrassed his family by getting into a completely illegal airline deal”.

THE AIRLINES DEALS and Swamy’s crusade against them serve to project him as an unflinchingly honest man with often iconoclastic views. After decades in the public eye as an annoying politician, the 2G scam painted him as a crusading activist. The airlines cases have kept him in the limelight. Swamy has filed a public interest litigation on the Air Asia deal against the Indian government and has, in his presentations in court, suggested that the same policy (flawed, according to him) is being used for the Tata-Singapore Airlines deal. The respondent in this case is the government of India—rather, the Ministry of Civil Aviation, the FIPB, and its parent, the Ministry of Finance. Swamy, as he always does, represents himself in court.

Kiran Karnik, the former head of apex software body Nasscom, and chairman of the national committee on telecom and broadband of the Confederation of Indian Industry (CII), says that in the aviation cases, Swamy’s judicial activism is “putting question marks on many things and some of these are going back to Etihad”.

Chronologically, the Jet-Etihad deal comes first, though it’s Air Asia that really drew the wrath of Swamy. Jet Airways’ owner Naresh Goyal is a controversial figure. It is widely rumoured that it was Goyal whose lobbying expertise prevented Tata from starting an airline despite several attempts in the last 15 years.

Today, most experts Fortune India spoke to say that the Jet-Etihad deal is in fact a simple financial bailout and preparing the ground for the sale of Jet to Etihad. The $900 million payout includes $300 million in loan assistance, $150 million for Jet’s frequent flier programme, $379 million as equity investment, and $70 million as leaseback of Jet’s slots in Heathrow.

Some believe that the switch of ownership has already happened for one simple reason: The Jet-Etihad deal was concluded in tandem with the announcement that the Indian government was expanding flight rights of Abu Dhabi (its flagship carrier is Etihad). What happens through this bilateral agreement is that both countries agree to allot more seats to each other’s airlines. (India raised the allotment of seats to the United Arab Emirates from around 13,600 to 50,270 per week spread over the next three years.) Because Jet is the biggest international operator in Indian skies, it gets maximum benefit: 44.8% of the increased allocations from Abu Dhabi (compared with 28.2% for SpiceJet and 27% for Air India). But here’s the catch: Since Etihad owns a significant stake in Jet—and experts suggest the likelihood of an increase to 49% or control of Jet—the benefits accrue massively to Etihad.

Swamy says he has no problem with an investment from overseas but “Jet-Etihad is a much more sinister deal”. He suspects the entire deal was constructed for the airline finally to be sold to Etihad in its entirety. “That’s the conspiracy in this. And I have questioned why so many seats have been given away to Etihad.”

Kapil Kaul, head of the CAPA centre for aviation, an industry think tank, says: “Without this deal, Jet is another Kingfisher [meaning bankrupt].” But, he adds, “in order to get the deal going, the government has offered an unprecedented sweetened deal to the U.A.E. It’s a bizarre deal. I don’t think in any other market this would stand market scrutiny.”

It’s not exactly standing up to scrutiny here either. A Ministry of Finance bureaucrat pointed out that even around the recent clearance of the Jet-Etihad deal by the Competition Commission of India, a dissenting member in the committee that cleared the proposal said that it might have an adverse impact on competition in international flights. Underlying this worry is the fear that with nearly 200,000 seats per week now given in bilateral ties only to West Asian countries, India’s dreams of building Delhi or Mumbai as hubs may be coming to an end. “This is a strategic mistake,”
says Kaul.

Attempts to reach Etihad were in vain. Ragini Chopra, Jet’s vice president, corporate communications, says: “Since the matter is being pursued legally, it would not be appropriate to comment at this point. It is best that any clarification comes from the government side.”

An aside for those interested in ownership issues: Goyal, a London-based non-resident Indian, owns or controls Jet through an OCB or overseas corporate body called Tailwinds, based in the tax haven of the Isle of Man. But the Reserve Bank of India stopped recognising OCBs in 2003, although Goyal was given special dispensation to keep his holding pattern. The transaction with Etihad could only be completed if the shares were transferred to Goyal from Tailwinds. So in May, Tailwinds sold 25.1 million shares in Jet to Goyal. This meant Goyal now had 65.99% of Jet and Tailwinds 9.01%. Goyal’s wife owns 1,000 shares, and together the promoter group owns 75%. The rest is floated on the market.

WITHIN A DECADE, domestic air travel has gone from the promise of being cheaper than trains to being nearly as expensive as the days when only Air India (or Indian Airlines) roamed the skies. The heyday of Re 1 promotional tickets and low fares (Rs 1,500 for a flight between Delhi and Mumbai, for instance) was ushered in by low-cost carrier Air Deccan in 2003. But by 2007, Air Deccan had been sold off to Kingfisher Airlines. By the end of 2012, with losses of around $1.9 billion and debts of $2.5 billion, Kingfisher’s licence to fly was cancelled by the Directorate of Civil Aviation, the airline regulator.

The demise of the country’s first low-cost and first premium airlines left a gap at two ends of the market; the newer players have attempted to fill this—Indigo has a market share of close to 30% and SpiceJet close to 20%. But there’s room in the market for more players, which is why international carriers are interested.

Air Asia, the Malaysian low-cost carrier started by Tony Fernandes, aims to be the Virgin Atlantic of Asia. Fernandes recently signed a deal to bring the airline to India, a move that Swamy opposes. His objection is simple: Indian government rules allow foreign direct investment (FDI) only in existing airlines. Air Asia India is a joint venture between Air Asia Bhd, Tata Sons, and Arun Bhatia of Telestra Tradeplace. Neither Indian partner is an “existing airline in India”, says Swamy.

Swamy points out that when the Department of Industrial Policy and Promotion issued a note on FDI in aviation, aviation minister Ajit Singh had said that the government would not issue any licence for greenfield projects. Yet, a mere six months after this, the FIPB cleared the Air Asia deal, despite the Ministry of Civil Aviation’s objections. Both clearance and objection were based on the note which read: “The government of India has reviewed the position in this regard and decided to permit foreign airlines also to invest, in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital.”

The FIPB under the finance ministry interpreted the note as saying that foreign airlines could invest in Indian companies as well as in operating airlines—all based on the position of a comma. “Can you imagine? They have brought foreign policy down to grammar lessons!” splutters Swamy, adding: “This is a case I shall win easily.”

Ajit Singh was unavailable for comment but he has defended the change of stance in public forums, pointing to another nuance: The note did not clarify whether the Indian company had to be formed before or after seeking licence. The suggestion is that the clearance works if an Indian outfit is created before applying for licence.

Jitender Bhargava, a former executive director of Air India, agrees with Swamy that the whole issue seems odd. “It is an extraordinary flip-flop and I think Swamy is right in going to court,” says Bhargava, who is also author of a new book, The Descent of Air India. “If the courts thought it was a frivolous point, they would have dismissed it by now,” he adds.

Neither Air Asia India nor Air Asia Bhd answered queries, but its counsel Abhishek Manu Singhvi has argued in court that Swamy’s petition was “motivated”. Singhvi is an erstwhile spokesperson of the ruling Congress Party which Swamy hates (he has a dossier of allegations against Congress heads Sonia and Rahul Gandhi, and is fighting a case accusing them of fraud). In the meantime, as Swamy’s case works its way through the Delhi High Court, he has also asked for clarification on another issue: Who is really in control in the deal?

The rules say the majority share and control of the airline have to be with Indian nationals. But Swamy has pointed out in his petition that “the Indian owners Tata and Telestra are bound by clauses in their agreements that would leave control with Malaysia’s Air Asia”. He argues that for all practical purposes, the day-to-day control of the airline is with Air Asia, the operational partner. There is no dispute in this argument since the Tatas, Bhatia, and Fernandes have said that operations are the domain of the Malaysian partner. Whether this constitutes a violation of law is a matter for Swamy to ask and the courts to judge.

Again, as with his battle with Chidambaram, senior aviation officials and some party members say that Swamy’s objections to the Air Asia deal may be grounded in law and in the best interests of the country, but equally, could have been spurred on by Swamy taking offence at some of Fernandes’s statements. I ask Swamy about this, and he agrees: “I may have been egged on by some of the things he said but that’s not the only reason. He is a buccaneer. He has failed to make his business work in Japan and in other parts of the world. Even in the Malaysian parliament, they don’t like him too much anymore.”

SWAMY, WHOSE EARLY mentors and inspirations were Simon Kuznets, Paul Samuelson, and Milton Friedman, brought in the idea of nationalist capitalism to the Jan Sangh in the 1970s—a free-market swadeshi, if you will. It was based on economic liberalism, a complete breakaway from Nehruvian socialism. Even today, he says linking Indian rivers—one of Vajpayee’s pet projects—and extensive irrigation for agriculture are the two projects closest to his heart. “We have forgotten the art of self-sufficiency,” he says.

This is one of the reasons why Swamy has taken the side of Air India at a time when the chorus for its sell-off grows louder. The national carrier has around Rs 45,000 crore of accumulated debt, largely from a 2005 decision to upgrade the fleet by buying 68 new aircraft, including 27 Boeing 787 Dreamliners. “Air India will get wiped out by the kind of decisions we are taking,” says Swamy, referring to the Etihad and Air Asia deals. Bhargava agrees: “What is the point in pumping money into Air India to keep it afloat, and yet take away passengers?”

Bhargava adds: “There has never been a comprehensive policy on civil aviation. It’s a free for all.” And this, says Cyrus Guzder, aviation expert, chairman and managing director of AFL (formerly Airfreight Ltd) and earlier a director on the Air India board, might be Swamy’s biggest hurdle. “The court might agree with Swamy and say, ‘You have a point, you are making valid arguments, but where is the policy that in clear terms defines everything? On what do we base judgments?’.”

Both Guzder and Bhargava agree that Swamy’s interventions are critical not just for these cases but also for larger business processes in India. “There is need for uninhibited questioning. He can do that. He is not scared,” says Guzder.

Swamy’s lack of fear has its basis in his uncompromising honesty. “I cannot be bought off, and both the netas and industrialists know that. So no one offers me anything,” he says with a smile. Seeing some scepticism, he adds: “If I had done anything wrong, I would have been in prison long ago.” He has a point, since he’s under scrutiny by industry and politicians, both seeking to bring him down. That they haven’t succeeded so far proves his contention.

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