CHAPTER V: GROWTH OF NEW MONOPOLY CAPITAL: CASE OF THE...
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CHAPTER V: GROWTH OF NEW MONOPOLY CAPITAL: CASE OF THE RELIANCE GROUP- I Reliance represented the most developed embodiment of the process of the growth of new monopoly capital, and the shift that it reflected, during the period under consideration. It was a group that had no presence in industry till the mid-1960s, but by 1990 was amongst the largest groups. It was one of the only two representatives of new monopoly capital in the category of the 35 largest groups having an income of over Rs. 1 000 crores in 1989-90, and the larger one amongst them. The growth of the Reliance group also took place along the intersection of the textile and chemical industries, the two major industries involved in the shift in the industrial structure that underlay the change in the composition of monopoly enterprises. The Reliance group was however not merely the most prominent example of the new monopoly capital that emerged between the mid-sixties and the end of the eighties. It was also a representative of the core group of the extremely small number of Indian enterprises that stood tall even within the category of monopoly enterprises in 1990, . enterprises that reflected to the greatest extent the transformation that had taken place in Indian monopoly capital in general. The Reliance group as a type, apart from being a new enterprise, was, as we shall see, not fundamentally different from traditional Indian monopoly capital. It was a family controlled enterprise like most traditional groups; it began its history in trading activities as had most traditional groups; it sourced its technology from abroad just as other Indian enterprises did; and the use of state patronage on its part was also no different from that of traditional capital. In any case, the very dramatic success of Reliance has tended to induce explanations of that success built around a virtually exclusive focus on the innate and highly exceptional abilities of a particular individual 1 • An analysis of its growth that seeks to bring out the combination of historical forces that produced the Reliance phenomenon may also therefore serve the purpose of demystifying it. The first four parts of this particular chapter shall concentrate on identifying the broad trajectory of that growth, as well as that of the specific industries within which it was located. In Section V .1 we shall describe the contours of the Reliance group, as it had taken shape by 1990. We shall discuss the inner structure of the group, the nature of its business activities, and its relative position in its industries of operation. Section V .2 will provide a brief sketch of the history of the group, the stages and the metamorphoses which it went through to arrive at where it stood in 1990. In particular we shall highlight the common thread running through that history, which would place the history of the Reliance group within the interconnected histories of the textile, man-made fibres (and in particular synthetic fibres), and petrochemical industries. These inter-connected histories had both global and Indian dimensions, and Sections V.3 and V.4 will focus on these. In Section V.3, a brief outline of the post-war histoiy of the textile industry, its reorganization at the global level and the transformation of its technological context, the far reaching changes brought about in it by the 1 Even an attempted objective study like that ofMohnot (1987) was unable to escape from this. 189
Transcript of CHAPTER V: GROWTH OF NEW MONOPOLY CAPITAL: CASE OF THE...
CHAPTER V: GROWTH OF NEW MONOPOLY CAPITAL: CASE OF THE RELIANCE
GROUP- I Reliance represented the most developed embodiment of the process of the growth of new monopoly capital, and the shift that it reflected, during the period under consideration. It was a group that had no presence in industry till the mid-1960s, but by 1990 was amongst the largest groups. It was one of the only two representatives of new monopoly capital in the category of the 35 largest groups having an income of over Rs. 1 000 crores in 1989-90, and the larger one amongst them. The growth of the Reliance group also took place along the intersection of the textile and chemical industries, the two major industries involved in the shift in the industrial structure that underlay the change in the composition of monopoly enterprises.
The Reliance group was however not merely the most prominent example of the new monopoly capital that emerged between the mid-sixties and the end of the eighties. It was also a representative of the core group of the extremely small number of Indian enterprises that stood tall even within the category of monopoly enterprises in 1990,
. enterprises that reflected to the greatest extent the transformation that had taken place in Indian monopoly capital in general. The Reliance group as a type, apart from being
a new enterprise, was, as we shall see, not fundamentally different from traditional Indian monopoly capital. It was a family controlled enterprise like most traditional groups; it began its history in trading activities as had most traditional groups; it sourced its technology from abroad just as other Indian enterprises did; and the use of state patronage on its part was also no different from that of traditional capital.
In any case, the very dramatic success of Reliance has tended to induce explanations of that success built around a virtually exclusive focus on the innate and highly exceptional abilities of a particular individual 1
• An analysis of its growth that seeks to bring out the combination of historical forces that produced the Reliance phenomenon may also therefore serve the purpose of demystifying it.
The first four parts of this particular chapter shall concentrate on identifying the broad trajectory of that growth, as well as that of the specific industries within which it was
located. In Section V .1 we shall describe the contours of the Reliance group, as it had taken shape by 1990. We shall discuss the inner structure of the group, the nature of its business activities, and its relative position in its industries of operation. Section V .2 will provide a brief sketch of the history of the group, the stages and the
metamorphoses which it went through to arrive at where it stood in 1990. In particular we shall highlight the common thread running through that history, which would place
the history of the Reliance group within the interconnected histories of the textile, man-made fibres (and in particular synthetic fibres), and petrochemical industries.
These inter-connected histories had both global and Indian dimensions, and Sections
V.3 and V.4 will focus on these. In Section V.3, a brief outline of the post-war histoiy of the textile industry, its reorganization at the global level and the transformation of
its technological context, the far reaching changes brought about in it by the
1 Even an attempted objective study like that ofMohnot (1987) was unable to escape from this.
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emergence of synthetic fibres as an offshoot of the rise of the petrochemical industry,
and the transmission effects these had on the Third World, will be provided. The Indian dimension of this transformation, in which specific local factors operative in
India too played their part, shall be the object of discussion in Section V.4.
These four parts together will carry the analysis of Reliance's growth up to a point. It will enable us to conclude in Section V.5 that the actual historical trajectory of Indian
capitalist development, as it expressed itself in a particular set of industries, created in
its wake a potential path of expansion for individual enterprises of the kind that the
Reliance group actually traversed. This will set the stage for the next chapter, where
the emphasis will be on understanding how Reliance, the individual enterprise
operating in a context of competitive rivalry with other firms, came to be the one to
translate that potential into a reality and in a manner that produced such a spectacular
growth of the group.
V.l THE RELIANCE GROUP IN 1990
The relative position of the Reliance amongst the largest business groups in India in
1990 is highlighted in the Table 5.1, demonstrating what has been said earlier. It shows
that barring the two largest groups, Tata and Birla, Reliance had more or less caught up
by the end of the 1980s with the bulk of Indian big capital.
Table 5.1: Financial Details of the Ten Largest Private Enterprises in India in Terms of Income and Assets, 1990 (Values in Rs. Crores)
Group Paid-Up- Assets Net Fixed Income/ Asset Income Capital Assets Turnover Rank Rank
Tata 813.14 10921.51 4143.25 10434.48 I I Birla 704.83 10742.69 4793.97 9789.84 2 2
Reliance 173.62 3166.08 1503.43 . 2076.74 3 7
Goenka 243.65 3087.16 1338.72 3069.76 4 3
JK Singhania 149.96 2351.39 1288.31 1979.63 5 10
Thapar 156.61 2306.76 949.42 2387.13 6 6
Larsen & Toubro 79.26 1739.54 641.35 1191.24 7 19
MA Chidambaram 174.42 1663.52 809.91 1304.96 8 18
United Breweries 96.09 1613.74 545.94 1494.58 9 13
Mafatlal 141.63 1527.89 517.89 1862.77 10 II
Bajaj 60.04 1505.96 627.10 2045:62 II 9
Modi 195.20 1500.23 644.88 2054.91 12 8
Hindustan Lever 184.72 1217.77 243.40 2569.59 16 4
lTC (BAT) 116.18 1068.40 385.74 2532.76 19 5
Source: Appendix A.lll.6
V.I.l The Controlling Authority of the Reliance Group
The Reliance group has always been in popular imagination primarily associated with
the name of Dhirubhai (Dhirajlal Hirachand) Ambani, followed by those of his two
sons. But while this does reflect the leading role that one individual played from the very
beginnings of the enterprise, a larger extended Am bani family and other individuals with
a long association with the group formed a cohesive controlling group of the Reliance
enterprise in 1990. This extended family group included the immediate families of
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Uhirubhai Ambani and his two brothers, Natvarlal and Ramniklal, as well as those of their relations by marriage, R.L.Meswani and R.C.Patel2
• Outside of the extended family group, there was a longstanding minority financial participation in the Reliance enterprise of the Manipal group of the Pai family, a group of much longer standing in the Indian business world. This participation originated in the early days of Reliance, even before the group had any public limited company in its stable.
V.1.2 Group Companies and their Interconnections
In the Directory of MRTP Companies (1990), 10 companies and 5 partnership/ proprietorship firms, were registered under the Act and classified as belonging to the Reliance Group3
• But our independent examination found an exceptionally large number of other companies, not registered under the MRTP Act, that were also interconnected
with these companies. The large majority of these would be deemed to be integral parts of the Reliance enterprise4
• We have not however included within the Reliance group, despite the existence of interconnections, Larsen & Toubro Ltd. (L & T) and its
subsidiaries. The Reliance group had a major stake in L & T in 1990 being the largest shareholder other than the financial institutions, and Larsen & Toubro Ltd. in tum had purchased a significant number of shares of Reliance Industries Ltd. However, the group's attempt at acquiring control over L & T had been only partially successful, though the group had two representatives on the board of directors of Larsen & Toubro. Not part of the Reliance group proper, but nevertheless playing an important role in its structure that shall be shortly explained, were some companies belonging to the Manipal
group.
Table 5.2: Paid-Up Capital, Net Fixed Assets, Assets, and Income of 128 Reliance Group Companies, 1989 (Rs. Lakhs)
COMPANY PUC Assets NFA
Reliance Industries 15791 241074 150278
127 Other Reliance Group Companies 1570.36 61275.78 3441.86
Total for 128 Companies 17361.36 302349.8 153719.9
Percentage Share in Total of Reliance Industries 90.95 79.73 97.76
Source: Appendix A .Ill. 7, Annual Report of Rehance lndustnes, and Directory of Jomt-Stock Companies, 1990
Though the official.MRTP list of Reliance companies was a severe underestimatio~f,_.,.., ..... ~
the size of the group in terms of number of companies, the same cannot be said of other size dimensions. Most of the companies that were not registered under the Act were very
small companies5• In fact, unlike other groups in the same size-range, the Reliance
group had only one major active company, namely Reliance Industries Ltd. Apart from
this, the only other company that had any significant assets in 1990 was Reliance
2 Another family, ofth~ late Gulabchand Shah, also appeared to have some involvement in the early days of Reliance. 3 Company News and Notes, August 1990. 4 See Appendix A.lll.7 for the comprehensive list. J 5 They were nevertheless important for the group, as shall be shown later. Their importance is also indicated by the fact that there was a tendency for their names to be changed on a significant scale. This would suggest attempts to obscure their links with the group.
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Petrochemicals Ltd., but it had not begun its manufacturing activities by that year (and was subsequently merged with Reliance Industries). The overwhelming concentration of the Reliance group's size in Reliance Industries is brought out in the Table 5.2, which gives the financial details of 128 companies belonging to the Group for 1989 for which these were available. The conclusion derived from it would stand despite its incomplete. coverage because most of the companies for whom the data are unavailable were registered in the late 1980s and were likely to have been small in size.
The evidence on the basis of which the companies taken to be part of the Reliance Group have been identified is more substantive than that which formed the basis for the
more general exercise of classifYing companies into groups in Chapter 3. Company wise information was collected for 115 companies from the documents submitted by them to the Registrar of Companies, including their Annual Returns. Ofthese 115 companies, no information on shareholding was available for 6 of them. Of the remaining 109, shareholding patterns were not available for all years but usually it was possible to get it
for at least one year close to 1990. The information on shareholding patterns wherever available also tended to be complete because most of them, unlike Reliance Industries, were narrowly held companies where the major shareholders were the only shareholders. In addition, the balance sheets of 59 of these 115 companies that were available also provided information on their own shareholding in other companies. Many of the
companies about whose shareholding no direct information was available thus got partially indirectly covered in this manner.
Table 5.3: Structure of Ownership of Shares of Selected Narrowly Held Reliance Group Companies, 1985 to 1989
Year 1985 1986 1987 1988 1989 Equity Shares
Number of Companies 56 70 81 64 48
Total Number of Shares 2149238 2743448 6830480 5587990 3751340
Value of Shares (Rs. Lakhs) 220.64 280.25 734.37 563.77 380.10
Distribution of Ownership(%)
Bodies Corporate 33.61 48.20 93.86 91.16 95.96
Individuals 66.39 51.80 6.14 8.84 4.04
Preference Shares
Number of Companies ., ••. - 24 23 17 ' 16 14
Total Number of Shares 588700 581200 550100 564500 551250
Value of Shares (Rs. Lakhs) 60.27 59.52 56.36 57.85 56.52
Distribution of Ownership(%)
Bodies Corporate 82.93 82.79 84.70 81.21 83.17
Individuals 17.07 17.28 15.37 18.86 16.91
Source: Annual Returns of Companies
. The structure of ownership of shares in individual companies by itself did not always reveal their ultimate controlling authority. As the Table 5.3 shows, the large majority of
the ownership of the shares of these companies was vested in other companies. Even if
individuals initially held the shares, these would tend to get transferred to companies in
course of time. For example in 1987, the year for which the most substantive
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information is available, more than 64 lakh equity shares in 81 narrowly held
companies, with a face value of nearly Rs. 7 crores were in the form of inter-corporate
investments. It is only by identifying the chain of inter-connections between companies
that they can be linked to a common control. The structure of such interconnections
between these companies of the group was of course an extremely complex one, with an . .
intricate web of inter-corporate investments linking them to each other. Limitations of
information as well as the complexity of the structure do not permit a complete
description. In addition, the structure was not static and changed from time to time with
transfers of shares within the group.
But a summary presentation of the structure of inter-corporate investments within the
Reliance Group is shown in Figures V.IA and V.IB. Figure V.IA, which includes 141
companies, is based on actual shareholding in companies, though not of the same year.
What has been used is information on shareholding for the period 1983 to 1990. With
very few exceptions, however, the bulk of the information pertains to the period 1985 to
1989. Figure lA however does not include the shareholding in Reliance Industries, an
extremely widely held company. Nor is the shareholding of its subsidiary, Reliance
Petrochemicals, other than that held by the holding company included. The presentation
is in a somewhat simplified form and not all the cross-investments have been depicted.
Each box consists of companies, combinations of which held shares in companies in
another box. That is, each box's composition of companies has been so worked out that
most of them tended to either hold shares in a roughly common set of companies, or had
a roughly common set of companies holding their own shares.
Figure V.l B shows the corporate shareholding in Reliance Industries. In this case, all
companies holding shares between 1983 and 1987 are considered. However, unlike in
the case of Figure lA~ the shareholding refers to a particular year also as all the
companies' covered held shares of Reliance Industries in 1987. 96 companies in Figure
V.IB (Box A), other than Reliance Industries itself, also appear in Figure V.IA. Of the 47 other companies (Box B) that held shares in Reliance Industries in 1987, at least 5
belonged to the Manipal Group.
The particular structure of inter-corporate investments described by the combination of
Figures V.IA and V.IB, for reasons of the lack of synchrony of the underlying
information base, was of· course not the exact structure at any point of time. But it can be
considered to be a reasonably accurate description of the structure of inter-connections
within the Reliance group. The time frame, over which the information used is spread,
was not so long that substantial changes within it would be likely. Further the available
information on transfers of ownership of shares indicates that such transfers were within
the same set of companies, and were not linked to any change of management.
Moreover, share transfers of more than one company tended to take place on the same
day. In other words, they were likely to have been only intra-group transfers.
By its sheer existence, the described structure of interconnections between companies is
fairly significant evidence of the existence of a common control extending over them.
They show these companies being linked through an unbroken chain of inter-corporate
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FIGURE V.1.A: STRUCTURE OF INTERCONNECTIONS BETWEEN RELIANCE GROUP COMPANIES IN THE LATE 19605, PART A
~R~EL~I·~~~E~IN~OO~S~T~RI~ES~L~mT.~-=~---------------~~
~ I RELIANCE PETROCHEMICALS L TO. M
A NIL FABRICS l TO. M
OJPTI TEXTILE INDUSTRIES LTC. M
NINA TEXTILE INDUSTRIES L TO. M
M
---NAVI':ETAN COMMERCIALS PVT l TO
RAJKIRAN SYNTlfETICS LTD
RISHIRAJ MERCHANDISE L TO
SHRUT1 TRADERS L. TO. RELIANCE EXPORTS LTD.
THYRISTORS CONTROL L TO.
VIMAL FABRICS L TO. M
M L ____ _
JAOOANAND INVESTMENTS & TRAOCNQ CO. L TO.
KANK:HAL INVESTMENTS & TRADING CO. PVT. l TO.
KASHTOP TJ\AOINO PVT.l TO.
KIRTAN TRAOCNO PVT. LTD.
KUORAT INVESTMENT & LEAS/NO (INDIA) l TO.
MAANSI TRAOING PVT. L TO.
MARKSON TRADING l TO.
MITVL TRADING l TO.
NIKHIL INVESTMENT CO. LTD. NIM INVESTMENT & LEASING l TO.
REAL INVESTMENT CO. L TO.
SCOl\.JNE TRADING l TO.
OAOHICHIINVESTMENTS PVT. LTD.
PROLINE INVESTMENTS PVT. L TO.
r-- SHANQAILA INVESTMENTS & TRACING CO. PVf. L TO
VA YUOOOT FINANCE & LEASING l1'D.
VK:AAZE INVESTMENTS & TRAOINO CO. PVT. L to YASHASVI HOLOtNQS PVT. LTD.
CHANORAGVPTA TRADERS LTD.
HA.NSDHWAM TRADING CO. LTD.
MAC tNVESTMEHT LTD.
SINCERE LEASING & INVESTMENTS LTD.
r
CEZA.Rf INVIi:STMENT & TRADING CO. PYT. L TO.
HERCULES INVESTMENTS LTD.
JAOOISHWAR INVESTfltENT & TR.AOfNO CO. L TO.
KEOAI'tESHWA!It tNVESI'niENT & TRAOfNO L TO. HEHAL HOLOINOS & TltAOING CO. ~. L TO.
ORSON rN'VE:STMENT. TRA.OfNO LtD.
PANS eNVt:sTM[NT & tRACING co. l. Tll. RIYAZ INVESTMENT & fRADINO LTO. RIYAZ TlllADINO LTD.
DEVTl FABRICS L TO. M
1 ORNAMENTAL TRADING ENTERPRISES L TO
AAVARAN TEXTlLES L TO.
ASCENT TRADE COM l TO.
ATLANTA TEXTlLES PVT. LTD.
BARKHA INVESTMENT & TRADING CO. PVT L TO
BIRAAJ TEXTllES TRADING LTD.
BLOOM TRADING L TO.
CAPABLE COMMERCIALS LTD.
OADHICHI TRADERS L TO.
OAOHICHI TEXFAB LTC.
ELITE MERCANTlLE L TO.
GAYLORD INVESTMENTS & TRADING CO. LTD HERO TEXTlLE & TRADING l TO.
!NNOVA TRAOECOM L TO.
INSPIR.AllONS INVESTMENT & TRADING CO. PVT. L TO
JOGIYA TRADERS LTD.
KAVERI cofltMERCIALS LTO. KUNJIVAN F~ANCE' LEAIING PVT.l TO
MUDRA COMkUNICATlONS PVT. LTC.
NIHARIKA SYNTHETICS TRADING LTD
OPERA INVESTMENTS & TltADINO PVT. L to. ORATOR TRADING ENTER~ISES l TO.
PRA TlK HOL.O!NOS & TRA.otNa PVT. L TO.
PURUR.AVA TRADERS L TO.
R.AOMAR.AMAN TExnL.ES TRADING LTD.
RAJNIKETAN TRADERS LTD.
RELIANCE CONSULTANCY IERvtCES LTD.
RELIANCE lllA.NSPOAT & 111t.AVELS l TO
SANDOZ TEXtiLES & TJitADIHO LTD.
SITCOM COMiiiiERCIALS LTC.
SPEUBOUND TRAOINO LTD.
-
-lcvMROZA TRADING PVT. L TO
ADVITIYA FABRICS L TO.
KUNJVAN TEXFAB L TO.
NEEU.SHISH INVESTMENT CO. L TO.
ORSON TRADINO L TO.
RAJKIRAN FINANCE & LEASING L TO
RISHIRAJ FINANCE & LEASING LTD.
SANA TAN HOLDINGS I TRADING LTD
SANA TAN TEXTR.ADE LTD.
SHRENIK TRADERS L TO.
VASISTHA FINANCE & LEASING L TO
VASISTHA TRAOECOM L TO.
i CONCORD COMMERCIAL PVT.l TO
,------ILORDWEST INVESTMENT & TRADING L TO
VITA INVESTMENTS & TRADING CO. PVT. L TO
ABHINAV FINANCE & LEASING CO PVT. L TO.
ALA.KH FINANCE & LEASING PVT. L TO
ALAKH TRADERS
ALISHA TEXFAB PVT. L TO.
CLARION INVESTMENT I TRADING CO. PVT. L TO
DAINTY INVESTMENTS & LEASING L TO.
FIERY INVESTMENTS & LEASING PVT. L TO
MADONNA COMMERCIALS L TO.
NACHIKETA INVESTMENT & TRADING CO PVT. L TO
PRATlKSHA FINANCE & LEASINO L TO.
SA~AN FINANCE & LEASING L TO.
SHERLON TRADING L TO.
SHERON TEXTllES l TO
SRICHAKRA TEXTllES PVT. L TO.
SWAOEE CHEMICALS l TO.
RADIANT TEXFAB L TO.
r------jMANOR TR.ADINO LTD.
UHtCOM TR.ACfNO ENTERPft!SES L TO. CANTONY TRA.otNO ENTERPRISES LTD.
YATAYAN Svtn"HETlcS LTD. LAZOR DETERGENTS PVT. LTO
L ____ _!=====~VI=SI=oN~TRA~OINO~=CO~.~F'VT~. L~m=. ==========:!.__L ___ _JMEHER MERCANTlLE LTD NAVYUG HOLDINGS LTO.
_!__ PROLAB SYNTHETlCS & OETEROENTS PVT. L TO.
I CREDITABLE tN'VESTMENTt L TO. SANKET COMMERCIALS L TO
SOUMYA FINANCE & LEASiffCJ CO. LTD. SINOR.A TR.ADINQ LTD
ALKEUTE INTt:RMEDIATES ftvl. L TO.
CHANORAVA0AN INVESTMlNT PVT. L TO.
OURUYAS TE.Tll£5 LTD.
LAZOR SYNTtX L TO.
MAXWEll. 0YtS & OETERCINTS PVT L TO.
OSCAR CHEMICALS PVT. L~.
PARADOX TRADERS LTO.dNATE SILKINA TRADING L TO.
UTl(A.RSH TEXTlLES TRADING L TO.
VERONICA TR.AOINO L TO.
ALMANAC TEXTlLES PVT. L TO.
IMAGE HOLDINGS PVT. L TO
~SOEN TEXFAB L TO
ADAMSON CoHIMERCIALS L TO.
,----;NAVJYOTlHOLDfNOPVT.LTO NOVELTY HOL.OINOS L TO.
L_ _____ _.l ORAGON FABRICS lTD.
1--
1--
Not•s: 1. Companllts markltd "fill'" Mtt r.glltlt~ under the MRTP Act In 1990; 2. All•rrows ortgtrtate from contpanles hotdlng shares; 3. Arrows from/to top/bottom or any boa valid tor all companies tn the bo1 while those from/to the stdu Valid only tor companies In the relevant sub-bol.
FIG. V.1.B: STRUCTURE OF INTERCONNECTIONS OF RELIANCE GROUP, PART B
AAVAAAN TEXTILES lTD.
ADAMSON COMMERCJALS l TO.
AKHIL FABRICS LTD.
BOXA
ALAKH FINANCE & LEASING PVT. l TO.
AUSHA TEXFAB PVT. l TO.
ALMANAC TEXntES PVT. l TO.
ASCENT TRADE COM l TO.
BARKHA INVESTMENT & TRADING CO. PVT. l TO.
BIRAAJ TEXTILES TRADING l TO.
BlOOM TRADING l TO.
CAHTONY TRADING ENTERPRJSES l TO.
CAPABLE COMMERCIALS L TO.
CARESS TEXTILES l TO.
CEZAfU INVESTMENT & TRADING CO, PVT.l TO.
CHANDRAGUPTA TRADERS LTD.
CHANDRAVAOAN INVESTMENT PVT.LTD.
CLARION INVESTMENT & TRADING CO. PVT.l TO.
CONCORD COMMERCIAL PVT. l TO.
CYMROZA TRADING PVT. LTD.
OAOHICHI TRADERS L TO.
OAOHICH11NVESTMENTS PVT. LTD.
OADHIOU TEXFAB L TO.
ELITE MERCANTILE l TO.
GURUVAS TEXTILES L TO.
HANSOHWANI TRADING CO. l TO.
HERCULES INVESTMENTS lTD.
HERO TEXTILE & TRADING l TO.
JNNOVA TRADECOM lTD.
INSPIRATIONS INVESTMENT & TRADING CO. PVT.LTD.
JAGOANAND INVESTMENTS & TRADING CO. l TO.
JAGOISHWAR INVESTMENT & TRADING CO. l TO.
JOGIYA TRADERS l TO.
KANKHALINVESTMENTS & TRADING CO. PVT.l TO.
KASHTOP TRADING PVT. l TO.
KAVERI COMMERCIALS LTD.
KEOARESHWAR INVESTMENT & TRADING L TO.
KIRTAH TRADING PVT. LTD.
KUNJVAN FINANCE & LEASING PVT.L TD.L TO.
LORO'M:ST INVESTMENT & TRADING L TO.
MAANSI TRADING PVT.LTO.
MAC INVESTMENT L TO.
MANOR TRADING L TO.
MARKSON TRADING L TO.
MAXWELL DYES & DETERGENTS PVT. L TO.
MEHER MERCANTILE L TO.
MITUL TRADING L TO.
MUDRA COMMUNICATIONS PVT.LTD.
NACHIKETA INVESTMENT & TRADING CO. PVT.LTO.
NAVXETAN COMMERCIAlS PVT. L TO.
NEELASHISH INVESTMENT CO. l TO
NEHAL HOLDINGS & TRADING CO. PVT. L TO.
NIHARIKA SYNTHEnCS TRADING L TO.
NIKHIL INVESTMENT CO. L TO.
OPERA INVESTMENTS & TRADING PVT. L TO.
DRAGON FABRICS LTD.
ORA TOR TRADING ENTERPRISES L TO.
ORNAMENTAl TRADING ENTERPRISES L TO.
ORSON INVESTMENT & TRADING L TO.
PAMS INVESTMENT & TRADING CO. L TO.
PARADOX TRADERS L TO.
PRAnK HOlDINGS & TRADING PVT. L TO.
PROLINE INVESTMENTS PVT. L TO.
PURURAVA TRADERS LTD.
RAOHARAMAN TEXTILES TR/I.DII:G l TO
RAOfANT TEXFAB L TO. .,..r·
RAJKlRAN FINANCE & lEASING l TO.
RAJNIKET AN TRADERS L TO.
REAL INVESTMENT CO. L TO.
RELIANCE CONSULTANCY SERVICES L TO.
RELIANCE TRANSPORT & TRAVELS LTD
RISHIRAJ FINANCE & LEASING L TO.
RIY AZ TRADING L TO.
ROSSVEL TEXTILES TRADING PVT. L TO.
SANATAH HOlDINGS & TRADING L TO.
SANDOZ TEXTILES & TRADING LTD.
SANKET COMMERCIALS LTD.
SAN MAN FINANCE & LEASING L TO.
SANTOOR COMMERCIALS PVT. L TO.
SCOTLINE TRADING L TO.
SHAHGRILA INVESTMENTS & TRADING CO. PVT.L TO.
SILKfNA TRADING L TO.
AAKARSH FINANCE & INVESTMENTS L TO.
ABHIMANYU TRADERS L TO.
AOVITIYA HOLDINGS LTD.
BOXB
ARISTOCRAT FINANCE & LEASING CO. PVT. LTD.
AVSHESH FINANCE & LEASING L TO.
BHRUGESH TRADERS lTD.
CHALLENGE HOlDINGS & TRADING CO. PVT. L TO.
CHANCE INVESTMENT & TRADING L TO.
CHITRAKAI.A INVESTMENT TRADE & BUSINESS FINANCE L TO.
OEVAl.INVESTMENTS & TRADING CO. PVT.l TO.
DHANRAJ lHVESTMENTS & TRADING COMPANY l TO.
ESTEEM TEXTILES TRADING CO.L TO.
EVESLAND PVT. L Tll.
EXPRESS LEASING L Tll.
GENERAL INVESTMENT & COMMERCIAL CORPORA OON l TO.
GOPAl.KRISHNA INVESTMENT & TRADING L TO.
GUNSUNDARI TRADING CO. L TO.
GURJARI HOlDINGS & TRADING PVT.LTO.
HEJMADY FINANCE & TRADING l TO.
HOPE HOUHNGS & TRADING CO. PVT. L TO.
INDUSTRIAL CREDIT & OEV. SYNDICATE lTD.
MADONNA INVESTMENTS & LEASING l TO.
MANIPAL FINANCE CORPORATION l TO.
MEDHA TRADERS LTD.
MEGHNAD TRADERS L TO.
MORGAN INVESTMENT I COMMERCIAL ENTERPRISES L TO.
N G PRITT PVT. LTD.
NAVXETAN Hot.DINGS & TRADING L TO.
NatAL TRADING & INVESTMENTS LTD.
PANCHWATI TRADING CO. LTD.
PATALGANGA TEXnLESPVT.LTD.
PIONEER HOLDINGS PVT. LTD.
PlA~LL COMMUNICAOONS l TO.
PRAOEEP SAN DEEP TRADING & INVESTMENT (P) L TO.
R P K INVESTMENTS & CONSUL fANCY L TO.
RAJKAMAl HOLDINGS & TRADING L TO.
RAI<SHA TRADING l TO.
RAMCHANDRA HOLDINGS & TRADING L TO.
RANJANA TRADERS PVT. L TO.
SAPNA FINANCE P L TO.
SEA ROCK INVESTMENTS LTD.
SIHASAN HOlDINGS & TRADING LTD.
SPARSH TRADING & INVESTMENTS L TO.
SPRING HOLDINGS & TRADING l TO.
STIRRINGS TRADING L TO.
VELVET TRADING PVT. LTD.
VIBHISHAN TRADERS l TO.
RELIANCE INDUSTRIES l TO.
BOX A (Continued)
SINORA. TRADING L TO.
SITCOM COMMERCIALS L TO.
SPELLBOUND TRADING L TO.
SRICHAKRA TEXTILES PVT.l TO.
UNICOM TRADING ENTERPRISES L TO.
UTKARSH TEXTILES TRADING L TO.
VASISTHA FINANCE & LEASING LTD.
VATAYAN SYNTHETICS L TO.
VAYUDOOT FINANCE & LEASING L TO.
VERONICA TRADING l TO.
\ltCRAZE INVESTMENTS & TRADING CO. PVT. L TO.
VIMAL FABRICS l TO.
VISION TRADING CO. PVT. LTD.
VITA INVESTMENTS & TRADING CO. L TO.
'MSOEN TEXFABL TO.
Note: Companies In Box A appear In Fig. 1A too.
l
195
investments that included the I 0 official Reliance companies, and strongly indicate that
the controlling stakes in each one of these companies consisted of the combined shareholding of one or more of other companies in the chain .. As it turns out, directly or
indirectly, the controlling stakes in at least 9 of the 10 official companies could not have
been so without the remaining companies being under the same controlling authority's
control.' Most of the inter-corporate holding could hardly be considered incidental, as the
companies other than Reliance industries were narrowly held. That is, we can assume
away impersonal relationships between shareholders and absence of linkage between shareholders and management. In addition, there is other corroborating evidence of their
inter-connections. Many of these companies were also linked through inter-locking
directorates and had common addresses. The directors and individual shareholders of
these companies mostly consisted of individuals otherwise having a close association
with the Reliance group. Further, in many cases, these companies had adopted
resolutions to keep their records at the office '?(Reliance Industries for "administrative convenience".
V.1.3 Business Activities of the Group
Direct information with regard to the nature of business they were apparently engaged in
was available for only 62 companies of the group. Of these, only 5 companies were
engaged in manufacturing activity. 48 had investment and trading as their area of
business while another 6 were exclusively engaged in trading. Three companies were in
other service activities. The .other companies, for whom we do not have any information,
also probably fell in the category of non-manufacturing companies, particularly
investment and/or trading. This is suggested by the fact that they tended to have no or
limited fixed assets, though many had fairly large current assets. Moreover, as shown in
Figure V .I B, a number of these companies held shares of Reliance Industries.
Manufacturing activities, which could entirely be classed under two industrial
classification categories, namely textiles and chemicals (or more precisely
petrochemicals), undoubtedly constituted the major focus of the Reliance group. These
were largely concentrated in one company, Reliance Industries. Two subsidiaries of
Reliance Industries were also amongst the 5 manufacturing companies. These were,
Reliance Petrochemicals whose unit was still under commission in 1989-90, and Devti
Fabrics. Two others;Sandoz Textiles and Trading and Atlanta Textiles produced grey
fabrics on a job-work basis.
Much of the trading of the 54 companies engaged in that activity revolved around items
that were part of the product profile of the manufacturing companies in the group. The
48 investment and trading companies were mostly engaged in buying and selling yam
and fabrics, though a few of them also traded in steel and some were engaged in
financing and leasing too. 5 of the 6 pure trading companies were also engaged in the
business of trading in yam and fabrics. Of these, Vimal Fabrics had for long been a sales
represe~tative of fabrics produced by Reliance Industries. 3 others, Anil Fabrics, Dipti
Textiles, and Nina Textiles, were earlier engaged in manufacturing fabrics that were
purchased by Reliance Industries. But they ceased production activity in 1979 and leased
out their equipment to Reliance Industries. The fifth company, Reliance Exports, was
196
previously involved in a number of business activities before ultimately taking to trading in yam and fabrics. Finally, Prolab Synthetics and Detergents traded in the chemicals Purified Terepthalic Acid (PTA) and Linear Alkyl Benzene (LAB).
The linkage between the manufacturing and trading activities of the group is obvious. However, while one might speculate that such was the case, the available evidence does not permit a definite conclusion that the trading activity of group companies was entirely or mainly concentrated in marketing the group's own products6
• But if it were so, it would reflect a pattern observed in the case of other non-manufacturing activities too. The investment activity of the investment companies was often exclusively concentrated in trading in shares and debentures of a single company, Reliance Industries. Two ofthe companies involved in other services too showed a similar linkage of their activities to
Reliance Industries. Reliance Consultancy Services, which was engaged in the consultancy and share registry businesses, was also the share registrar of Reliance Industries. Mudra Communications, involved in the advertising and media business, was the advertising agency of Reliance Industries and began business with a single client that was probably Reliance7
•
The Reliance group in 1990 may thus be easily classified as a mainly manufacturing
enterprise, with any additional diversification of its activities being of a supplementary nature. Even in its manufacturing business, it was a fairly integrated enterprise despite straddling both the chemical and textile industries. Indeed its product profile was such that a common set of products formed the basis for its deep involvement in both these industries.
With the exception of LAB, an intermediate used in the manufacture of detergents, all the other products produced by Reliance in 1990 were ultimately linked to the manufacture of textiles - in particular synthetic textiles. These included synthetic fabrics, spun yam (synthetic and blended), polyester filament yam and staple fibres (PFY and PSF), polyester chips, the polyester intermediate PTA and its own intermediate
paraxylene. However, of these different products only synthetic fabrics and spun yam are normally considered textile products produced by textile firms. All the others
including LAB, by virtue of the nature of their production processes and their ultimate raw material are usually categorized as chemical or petrochemical products, and their production normally falls within the domain of chemical firms. ·-"- .<:'·"-·-
The product profile of Reliance, along with its value of sales figures in 1989-90 (Table 5.4) might immediately give an impression that Reliance was more of a vertically integrated textile manufacturing enterprise than a chemical firm, with yam and fabrics
accounting for over 68% of its total sales. But there are a number of qualifications to any such assertion.
6 Apart from the case of Vimal Fabrics, there is some evidence only in the case of Pro lab Synthetics and Detergents. One item traded by it, PTA, was produced only by Reliance Industries in the country, while in the case of another, LAB, Reliance was one of only three producers. 7 The third company in the other services category was Reliance Transport and Travels, which had three divisions- Travel Agency, Clearing Agency, and Transportation. Whether it directly did business with Reliance Industries or not is however not clear.
197
Table 5.4: Major Sales oftbe Reliaace Group: 1989-90
Product Reliance Industries Devti Fabrics Total of Reliance and Devti Value (Rs. Crores)
Yam 1019.9 1.13 1021.03 Fabrics 230.73 10.77 241.5 Polyester chips 36.49 36.49 Polyester Staple fibre 238.24 238.24 Purified Terepthalic Acid 130.34 130.34 Linear Alkyl Benzene 129.85 129.85 Paraxylene 18.51 18.51 TOTAL 1840.66 11.9 1852.56
Percenta2e Shares to Total Yam 55.41 9.50 55.11 Fabrics 12.54 90.50 13.04 Polyester chips 1.98 1.97 Polyester Staple Fibre 12.94 12.86 Purified Terepthalic Acid 7.08 7.04 Linear Alkyl Benzene 7.05 1.01 Paraxylene 1.01 1.00
Source: Annual Reports of Companies
Firstly, the above table itself shows that the relative importance of fabric sales was small compared to the sales that would have been to other textile firms, namely those of yarn and PSF. When taken along with the other products it sold, this would mean that Reliance was primarily an intermediate products seller rather than one of final products. Secondly, it needs to be noted that value figures for yarn production and sales in Reliance's own accounts did not make a distinction between spun yarn and PFY. That the latter overwhelmingly dominated yarn sales is indicated by the quantity of Reliance's
PFY production in 1989-90 (55000 MT) available from a different source8, and also the
fact that for a number of years preceding 1989-90, the only capacity increases that had accompanied the substantial increases in yam production had been for the production of PFY, with spinning capacity having been held constant9• The above points would mean that the bulk of Reliance's production as well as selling activity was in either case spread between polyester fibres and yarns, synthetic fibre intermediates, and LAB. Thus there
was a combination of vertical and horizontal integration in petrochemical products. Moreover, the chain of backward vertical integration should appropriately be considered as mainly beginning from the manufacture of polyester. Unlike in the case of the
polyester products, whose production was mainly for external sale-rather than for captive consumption, in the case of both PTA and paraxylene, the captive consumption component was significant (Table 5.5).
Table 5.5: Total Production, Production for Final Sale, and Sales of PTA and Paraxylene by Reliance Industries, 1989-90 (All quantities in M.T.)
Product A. Total Production B. Production for Final Sale C. Bas% of A D. Sales PTA 125124 39306 31.41 44146 Paraxylene 94962 10402 10.95 8807 Source: Column A 1s taken from Government of lnd1a (GO I), BICP ( 1994),; Columns B and D from the Annual Report, 1989-90 of Reliance Industries Ltd.
8 CMIE, Markets & Market Shares, 1991 9 See Section V .2.4
198
If we add to all these, the investments of the group in the pipeline in 1989-90, the conclusion that is warranted is that the Reliance group by 1989-90 was primarily a chemical firm.
V.1.4 Market Dominance . .
The characterization of Reliance as primarily a producer and seller of petrochemicals is also important for fully appreciating its status as a dominant oligopolistic firm. In its fabric and spun yam activities, it was confronted by an extremely large number of competing firms in the organized and unorganized sectors, including a number of other large enterprises. In the organized sector itself in 1990, there were 770 spinning
mills, 140 weaving units, and 281 composite mills, with Reliance Industries and Devti Fabrics being only two amongst the last of these. There is no doubt that the market for fabrics was segmented and extremely differentiated, and Reliance could be considered a
leading firm in the segments and products it operated in. Reliance Industries fabric sales in 1989-90 in value terms were also the highest for any individual company. But fabrics accounted for only 13% of its total sales. Moreover, as a group, the sales of Reliance's textile products paled in comparison with that of other major groups like Birla, Mafatlal,
and Kasturbhai Lalbhai.
Table 5.6: Number of Companies and Installed Capacity in Selected Industries, 1990
Product Number of Installed Capacity(tpa) Companies Total Industry Reliance %Share of Reliance
PFY 16 102925 25125 24.41
PSF 10 I96062 45000 22.95
LAB 3 I40000 60000 42.86
PTA I (4) I 00000 (235000) I 00000 (I 00000) 100.00 (42.55)
Paraxylene 3 I81000 I35000 74.59
Figures m brackets represent the position with regard to the aggregate of PTA and 1/s subslltute, DMT. Source: DGTD, Handbook of Indigenous Manufacturers, I990; CMIE, Markets & Market Shares, 199I; GOI, BICP (I994).
Unlike in the case of fabrics, in the market for the intermediates that Reliance produced, brand names and product differentiation did not play a major role as sources of market power. Within them, it was in the case of the capital-intensive petrochemical products
that economies of scale were more significant and the minimum efficient scales larger. Not only were the numbers of firms in these industries relatively small, amongst them
Reliance occupied a pre-eminent position in industry capacity of a kind it could not have had in the textile industry.
The dominant positions of Reliance in each of these industries were further fortified by not only its vertical integration, but also because its share in industry capacity increased
with more upstream production. In other words, for its competing firms in downstream
products, particularly in polyester manufacture, Reliance was also one of the very few domestic suppliers of intermediates. Given this structure of its capacities, Reliance's
dominant shares in production and sales of each .of its petrochemical products was not surpnsmg.
199
Table 5.7: Production Shares and Market Shares of Reliance Industries in 1989-90 (Percentages to Industry Totals)
Product Production Ouantitv
PFY 38.04 N.A. PSF 41.93 44.32 LAB 38.54 . 45.53 PTA 100.00 (50.35) 100.00 Paraxylene 76.89
Source: CMIE, Markets & Market Shares, 1991and GOI, BICP (1994).
V.l.S The Inner Structure ofthe Reliance Group
Sales Value N.A. 33.61 43.78 100.00
If the Reliance group in relation to its external market environment occupied a dominant position, partly this was also due to its internal structure that can now be described on the basis of what has been highlighted previously. The structure was an extremely tightly integrated one, and centred around one key company, namely Reliance Industries. The
strength of the group was overwhelmingly concentrated in, and its status as a large business group was decisively dependent on, this one company.
Reliance Industries itself was a vertically integrated polyester and other chemicals manufacturer with a parallel synthetic textiles division. Two of the other manufacturing companies, which were also involved in textiles and petrochemicals, were its subsidiaries10
• The remaining two manufacturing companies of the group probably acted as suppliers of grey fabrics for its textile activities to Reliance Industries 11
• The Reliance group was thus atypical amongst Indian monopoly enterprises of such large size, both on account of the specialization in its manufacturing activity as well due to the preeminent position of a single company in the group.
The large number of companies of the Reliance group were however important for the same reason as in the case of other enterprises - the control over the enterprise. One of the key functions performed by the large number of investment and trading companies was to serves as repositories for not only each other's controlling stakes but also those of other group companies. The control over these companies themselves however derived its rationale, not from the direct worth of their own businesses to the group, but because the controlling stake in Reliance Industries was held through them. Even their trading
activities other than in the shares. and debentures of Reliance Industries, as we shall see in the subsequent chapter, were apparently directed towards collectively performing
their role as holding companies for the shares of Reliance Industries and as instruments of the group's intervention in the market for these shares. Indeed, that the existence of these companies was not due to a genuine group interest in the business of investment
and trading companies is reflected by the diametrically opposite approach of the group in these apparent business activities compared to that in its manufacturing activities. If in
its manufacturing business there was a tendency towards large scales concentrated in a single company, in these spheres there were a plethora of small companies.
10 The amalgamation of the petrochemical subsidiary, Reliance Petrochemicals, took place once it began its actual manufacturing activities. 11 Grey fabrics appeared as purchased raw materials in the accounts of Reliance Industries
200
The other service companies too also mainly came into being to serve the major requirements of Reliance Industries for the services they provided. All in all, therefore, the Reliance group structure was one that was extremely closed. It was designed to minimize the external dependence, or maximize the self-sufficiency, of the group in meeting the requirements of its principal business activities in manufacturing and to dominate in those activities; and to block any potential external threat to the group's control over its businesses and companies. The closed nature of the group structure was also reflected in the heavy concentration of directorial positions and key managerial responsibilities in group companies within the controlling family and close associates.
In Reliance Industries itself, in 1990, for example, family members dominated in the Board of Directors occupying 6 out of 12 positions including those of Chairman,
Managing and Joint Managing Directors, and four Executive Directors. A seventh director wasT Ramesh U. Pai from the Manipal group. Two other directors, Jayantilal R. Shah and Mansingh L. Bhakta, were according to Mohnot sleeping directors because the former was a tax-consultant and the latter a advocate-solicitor and both were directors of many companies. But he did not note that both had also been directors ofthe
company at the time it was still a private limited company (before 1977) suggesting a long-standing close association. The only remaining director other than the two nominee directors, U.V. Rao, had just replaced another director, K. Gopal Rao, who too had been a director from the private limited company days and retired on health grounds in 1989-90. Indeed, the Board of Directors of Reliance Industries in 1990 did not look very different from what it had been nearly a decade and a half back. The Secretary of the companywas also the same, as were the auditors and the advocates and solicitors12
•
V.2. BRIEF HISTORICAL SKETCH OF THE RELIANCE GROUP
The commercial history of the Reliance group began with the creation of Reliance Commercial Corporation, a partnership firm, in 1958. From then on till 1966, when Reliance Textiles and Engineers Ltd. was registered, the group had apparently no
manufacturing activity and was engaged in trading. Reliance Textiles and Engineers was also the first joint-stock company of the group. This was also thereafter always its most important company, being the entity that eventually became Reliance Industries Ltd. in 1985 13
. Its growth served as the barometer for the growth of the entire group
···- ·after 1966. Till 1977 it was a private limited company, going public in that year.
In terms of its organizational features therefore, three phases of the growth of the enterprise up to 1990 may initially be distinguished: 1958 to 1966, when it operated
through non-corporate entities; 1966 to 1977, when first one and then a few other private limited narrowly held companies were added to the group's stable; and 1977 to
1990, the period in which the principal group company became an extremely widely held public limited company, and there was a rapid proliferation in the number of
12 The founder of one of the auditing firms, D.N. Chaturvedi, was supposed to be part of the inner think-tank of the Reliance group [Mohnot ( 1987)]. 13 Incorporated as Reliance Textiles and Engineers Ltd., it was eventually transformed into Reliance Textile Industries Ltd. before finally acquiring the name Reliance Industries Ltd. Technically however there was a discontinuity in between which is explained shortly.
201
companies in the group. Each of the two transitions that marked the initiation of a new phase was critical to the subsequent history of the enterprise in that phase. But while the first of these neatly coincides with the entry of the enterprise into manufacturing, the subsequent period till 1990 can also be divided into two phases on a different basis whose dividing line is 1982. Thus the phases identified on these two separate bases do not exactly coincide, though there is an ·essential interrelationship between them.
Prior to Reliance going public, and for a period subsequent to that, Reliance's principal involvement was in the textile industries. In the 1980s, the focus shifted to polyester and other petrochemicals, and these became the locus of its growth from 1982 onwards and gave rise to the picture in 1990 that has been described before. Thus the period till 1982 may be called the textiles phase of Reliance's growth and the subsequent period the
polyester fibres/petrochemicals phase. But if a more disaggregated approach were to be followed, it would appear that there are two separate sub-phases in each of the two phases identified on the basis of the industries driving Reliance's growth. The textiles
phase after 1977 was not just a mere expansion of past activities, and the same was the case with the polyester/petrochemicals phase from 1986. There was also an essential continuity that accompanied each transition and aided it. However, since the elaboration of all of these has to wait for the actual account of Reliance's history, we shall use the three phases initially identified as the basis for organizing that account.
V.2.1 The Early Years: 1958 to 1966
Reliance Commercial Corporation (RCC) began its business activities with the export of spices and other items to the Middle East and East Africa 14
• Somewhere along the line the trading activities were extended to include textiles. RCC apparently exported
rayon fabrics purchased from domestic producers in order to take advantage of an export-promotion scheme that allowed import of nylon fibre against the export of rayon fabrics. Nylon fibre commanded a high premium in the domestic market which was so
high that it was worthwhile for Reliance to even export at a loss because such loss could be compensated by the high premium on the import replenishment licenses for nylon it could earn with those exports 15
. By the mid-sixties, Reliance's business involvement
with the textile and man-made fibres industry, in particular with what was known as the 'art silk' industry, would appear to have been fairly deep. The two of the earliest pieces of direct information we were able to find, pertaining to the year 1965, indicate this.
The Directory of Indian Exporters, 1965, listed RCC as an exporter of artificial silk, nylon, pure silk, and cotton piece-goods. The same source showed that RCC was affiliated at that time to three organizations - Bombay Yam Merchants Association and Exchange Ltd., The Cotton Textiles Export Promotion Council, and The Silk and Rayon Textiles Export Promotion Council (SRTEPC). The last of these was the organization through which the applications for import licenses had to be routed, under the Special Export Promotion Scheme mentioned previ~usly 16 .
14 Piramal & Herdeck (I 984 ), Mohnot (I 987) 15 It is not however clear how Reliance managed this, because the relevant Special Export Promotion Scheme specifically debarred sale of the imported material (GOI (I 96 I)] 16 GOI (1961)
202
The SRTEPC had itself had been promoted by the Silk and Art Silk Mills Association
(SASMA), and in tum promoted a company, Rayex (India) Ltd that was incorporated on 23 January 1965. The records ofRayex (India) show that D.H.Ambani was appointed as a director of the company on 3 February of the same year. At that time he was a partner in Reliance Commercial Corporation and a committee member of the SRTEPC. The SRTEPC had as its members both manufacturer-exporters as well as merchant-exporters· and RCC obviously belonged to the latter category. This is also indicated by the fact that
it was itself not a member of SA SMA 17•
Though the art silk industry in those days was an export oriented industry, and was given various incentives by the Government for that reason, Reliance's primary focus in this period was not really on exports of rayon textiles but on the domestic market for
synthetic fibres, the former being only the instrument for the latter. At that time rayon was the principal man-made fibre being produced in India. The production of synthetic
fibres had not yet taken off though their use in the manufacture of fabrics had acquired proportions of some significance.
This early period in the history of the Reliance group could be said to be important for its subsequent trajectory in many ways. The group would have gained experience,
acquired contacts and established relationships, in the synthetic fibres and textiles business when these were still in their incipient stages in the country. Its export activities would also have resulted in establishing contacts outside the country. The group also probably gained experience in dealing with government agencies, and using policies, rules and regulations to its advantage. The milieu in which the group operated during
this period was one in which were present both traditional large groups, as well as smaller enterprises which like Reliance were to subsequently follow a similar trajectory as it did and convert themselves into large groups. The members of SASMA included companies affiliated to some large groups that had a traditional presence in the textile
industry, though most were proprietary and partnership concems18. Amongst the smaller
groups in SASMA, a particularly significant instance was the Orkay group of the
Mehras, which was like Reliance based in Bombay and with whom Reliance was to have an intense and bitter rivalry more than a decade later. Though it was into
manufacturing activity before Reliance's entry into that sphere, the Orkay group's gJJ>wth path from the mid 1960s till the early 1980s was very similar.to~tlfat.,o.f,Reliance.
The activities in the first phase however do not seem to have provided the Reliance
group either with a sufficiently large accumulation of capital for its entry into manufacturing, nor created easy access to finance from external sources. The group
reportedly had great difficulty in raising the resources for setting up of its first manufacturing unit19
, which would mean that the transition to the second phase was not
a smooth one.
17 SASMA ( 1964) listed all its 223 members. 18 Further elaboration in V.4. But it may be noted that Dhirubhai Ambani did develop a close relationship with D.N. Shroff, who was Chairman ofSASMA in 1964 [Mohnot {1987), p. 10] 19 Piramal & Herdeck ( 1984 ); Mohnot ( 1987)
203
V.2.2 The First Manufacturing Phase: 1966 to 1977
If there are constraints on the availability of information on the Reliance group before 1966 due to it operating through unincorporated entities, a different reason lies behind a similar constraint for the period after. The documents pertaining to Reliance Textiles and Engineers Industries Ltd. from its incorporation till 1974-75 were unavailable in the company file maintained by the Registrar of Companies, Maharashtra State20
. As it was a private limited company in that period, information on the company was also not available from other document sources such as the Bombay Stock Exchange Official Directory. The annual returns for 1975-76, and 1976-77 were however available, and the balance sheet of 1975-76 also contained some limited information for the period 1970-
71 to 1974-75. These, along with the documents pertaining to other companies, and the references to this phase in the literature on Reliance, therefore serve as a somewhat unsatisfactory basis for the discussion of the second phase.
Subsequent to the coming into being of Reliance Textiles and Engineers (which became Reliance Textile Industries), the Reliance group in this phase incorporated only 5 other companies. Reliance Exports was registered in 1969, and Virna! Fabrics in 1973. Three more companies - Ani! Fabrics, Dipti Textile Industries, and Nina Textile Industries
were all incorporated in 1975 to take over the running businesses of three partnership firms in which the members of the controlling family were partners. A summary presentation of the company-wise growth of the group from 1970-71 is given in the
following table, which also clearly shows that Reliance Textiles occupied a dominant position in the group from the very beginning.
Table 5.8: Selected Balance Sheet Items of Reliance Group Companies, 1970-71 to 1976-77 (Values in Rs. Lakhs)
Year Share Capital Net Worth Gross Block Net Block Total Assets/Liabilities RELIANCE TEXTILE INDUSTRIES
1970-71 65 152.18 289.14 . 265.03 399.81 1971-72 75 235.45 385.72 344.92 624.04 1972-73 75 331.07 531 466.66 981.77 1973-74 80 503.16 694.48 602.16 1405.91 1974-75 170 550.06 973.75 839.67 1353.75 1975-76 595.11 720.38 1278.9 1164.8 1906.11 1976-77 595.11 . · :,., ..... 954.16 1699.92 1451.45 2910.87
TOTAL for All6 Group Companies 1970-71 65 152.18 289.14 265.03 399.81 1971-72 75 235.45 385.72 344.92 624.04 1972-73 75 331.07 531 466.66 981.77
1973-74 80.1 503.268 694.7 602.34 1406.63 1974-75 170.85 550.93 974.3 840.1 1356.05
1975-76 655.33 791.06 1335.89 1208.33 2062.01
1976-77 655.33 1023.37 1756.91 1489.03 3082.93
Source: Company Balance Sheets
20 As explained later, the company was amalgamated into a company with its registered office in Bangalore w.e.f. 1975-76, whose registered office was in turn shifted to to Bombay in quick succession. Each of these would have required transfer of the documents between the offices of the Registrar of Companies of the two respective states and the documents up to 1974-75 may have consequently been misplaced.
204
The growth of the Reliance group was clearly quite impressive growth in the very first decade after the entry into manufacturing activities. The substantial portion of this growth took place in the 1970s - in terms of assets, over 86 % of the growth was between 1970-71 and 1976-77, and over 50% was in the last two years. By 1975-76, the group had crossed the Rs. 20 crores mark in terms of value of assets which at that time was the asset limit beyond which registration under the MRTP Act was required (even though the actual registration of Reliance companies under the Act was in 1978). The combined sales of the group had nearly touched the Rs. 100 crores mark by 1976-77. Thus, the Reliance Group had acquired fairly large dimensions even before it included
any public company.
As in the first phase, the core of the group's business activities remained centred around the synthetic textile industry. While Reliance Exports occasionally dabbled in other
business, the dominant sector in the group's operations was textiles and ultimately every company within the group focused itself on the textile industry. Reliance's entry into manufacturing in 1966 was as a manufacturer of synthetic textiles, and that the group's manufacturing activity remained entirely in the synthetic textiles industry throughout
this phase can be quite definitely established.
The machinery initially installed by Reliance Textiles and Engineers consisted of 4 imported warp-knitting machines used in the manufacture of knitted synthetic fabrics, and in addition there was a dyeing section21
• By the end of the period, as Table 5.9
shows, the installed machinery in the group's manufacturing companies, apart from knitting machines included looms, crimping machines and twisting machines22
. This
machinery was the standard machinery possessed by concerns officially designated as art-silk weaving units, and Reliance Industries Annual Reports also recorded its installed
capacity as that for the manufacture of art silk fabrics, etc. A World Bank Report had also identified Reliance Textile Industries as having the most sophisticated synthetic textile mill in the country at that time23
.
The Indian Business Directory of 1972, brought out by the Indian National Committee
of the International Chamber of Commerce, listed Reliance as a manufacturer of knitted, woven, art silk and synthetic fabrics, and texturised and bulk stabilized yam. Moreover, in the commodity-wise classification of companies, Reliance was listed under synthetic
fibres and fabrics, but not under cotton. The Stock Exchange Official Directory, when it
first covered Reliance Textiles, in 1979, also described it as a manufacturer of specialized twisted, texturised, stretch, doubled and dyed nylon and polyester yams and
synthetic fabrics. While these may indicate that Reliance's manufacturing activity included not only production of fabrics but also synthetic yam, this can be slightly
misleading. Reliance was actually a processor of synthetic yams, and not a producer of
21 The total initial investment was Rs. 15 lakhs [Piramal & Herdeck ( 1984)] 22 The available evidence indicates that 12 ofthe knitting machines were warp knitting machines, while the remaining ten were circular knitting ones. Apart from the 4 warp knitting machines initially installed, Reliance Textile Industries was sanctioned 2 circular knitting machines in 1974 and 8 warp and 8 circular knitting machines in 1975 [Kumar, L.R. (1986)] 23 Pi ramal & Herdeck ( 1984 ), Mohnot (1987)
205
the basic yarns. The crimping and twisting machines that it possessed were actually
machinery used for the processing of synthetic filament yarn.
While the nature of its machinery indicated that by the mid-1970s, the Reliance Textiles
was manufacturing both knitted and woven fabrics, the break-up of the total production
between the two is not available. However, the per-machine fabric production derived
from the fabric production and installed capacity figures for other group companies not
having any looms would indicate that knitted fabrics accounted for 20-25 % of the
group's fabric production. Since half the installed looms had been acquired in 1975
while the knitting machines were of older vintage, the relative importance of knitted
fabrics was probably greater before 1975. In other words, after beginning with the
manufacture of knitted fabrics, it then added woven fabrics to its production spectrum.
Table 5.9: Manufacturing Activity and Capacities of Reliance Group Companies, 1975-76 and 1976-77 (Yarn quantities in kgs. and Fabric quantities in metres)
Item Reliance Textile Industries Dipti Textile Industries Anil Fabrics 1975-76 1976-77 1975-76 I 1976-77 1975-76 1976-77
Raw Materials Consumed Yam 1992524 2254746 19025 I 51570 40682 58181 Fabrics(Gre_}') 8648496 6089677 0 I 0 0 0
PRODUCTION CrimiJ_ed Yam 1466571 1762983 0 0 16366 0 Fabrics 14768980 13380699 115063 332707 153615 342866
Installed Ca_l)acitv (Nos./Spindles in case of crimping machines) Looms 246 246 0 0 0 0 Knittin_g Machines 22 22 4 4 4 4 Crimping Machines 2464 2464 0 0 192 192 [_wistino Machines 20 20 0 0 0 0 Item Nina Textile Industries Total for 4 companies % Share of Reliance
1975-76 1976-77 1975-76 1976-77 1975-76 1976-77 Raw Materials Consumed
Yam ·49022 51763 2101253 2416260 94.83 93.32 Fabrics (Grey) 0 0 8648496 6089677 100.00 100.00
PRODUCTION Crimped Yarn 15513 0 1498450 1762983 97.87 100.00 Fabrics 235602 335002 15273260 14391274 96.70 92.98
Installed Capacitv (Nos./Spindles in case of crimping machines) Looms 0 0 246 246 100.00 100.00 Knitting Machines 4 4 34 34 64.71 64.71 Crimpino Machines 192 192 2848 2848 86.52 86.52 Iwisting Machines 0 0 20 20 100.00 100.00
Source: Company Annual Reports
But a significant part of Reliance Textiles' fabric production included fabrics it neither
wove nor knitted, but rather processed after purchasing in grey form. This is quite clear
from the figures of consumption of grey fabrics which was equivalent to close to or
more than half its total production of fabrics in the two years 1975-76 and 1976-77.
Moreover, these grey fabrics would have largely been purchased from other
manufacturers since the quantities of fabrics produced by the other manufacturing group
companies were small in relation to the consumption of grey fabrics24. This would of
24 Pi ramal and Herdeck ( 1984) also make a mention of such activity being undertaken by Reliance.
206
course mean that the proportion of knitted fabrics to woven fabrics amongst the fabrics actually woven or knitted by the group and not purchased in grey form was even higher than the figure suggested earlier (around 50%).
In addition, Reliance group companies were also significant purchasers of fabrics as well as yam for trading sales. The combined sales/purchases figures can involve double counting in the event of transactions between the group companies. But even if a comparison is made between the combined production figures of all the group
companies with the sales of fabrics and yam by just Reliance Textiles (given in the table below), it would be quite evident that at least close to a third of the group's fabric sales, and a somewhat lower proportion of yam sales, consisted of such trading sales. In
addition, Reliance also sold other items (sea foods, necklaces, viscose fibre, cotton garments, handicrafts, carpets, dyes and chemicals) by way of trading, in some cases at a loss.
Table 5.10: Sales of Reliance Textile Industries, 1975-76 & 1976-77 (Values in Rs. Lakhs)
Item 1975-76 1976-77 Yam (Quantity in Kgs.) 1681521 2263987 Yam (Value) 2742.03 3150.09 Fabrics (Quantity in Metres) 22656534 20751623 Fabrics (Value) 3465.78 3381.83 Sales of Fabrics & Yam (Value) 6207.81 6531.91 Trading Sales of Others (Value) 191.19 161.09 Total Sales 6399.00 6693 Of Which: Exports 682 621
PERCENT AGE TO VALUE OF TOTAL SALES Yam 42.85 47.07 Fabrics 54.16 50.53 Other Trading 2.99 2.41 Exports 10.66 9.28
Source: Company Annual Reports
If we put all the above together, then the following conclusion emerges. Though the Reliance group's sales figures at the end of the second phase were large, a substantial
component ofthe chain of production that ultimately gave rise to these sales was outside the-boundaries of the enterprise, reflected in the group's size in terms of assets being
significantly lower than in terms of sales. This was in marked contrast to the highly vertically integrated character that it had acquired by 1990. The Reliance enterprise in
1977 was a combination of an art-silk weaving/knitting unit, a processing house for
synthetic fabrics and yams, and a trader in fabrics and yam. Thus while it had graduated from its purely trading enterprise character in the first phase, it still remained on the intersection between trading and manufacturing. But apart from this, two things remained common between the first and the second phases. ·
The first was the focus' on the synthetic textiles industry. This meant that by the end of
the second phase, there would have been an additional accumulation of experience and
relationships in that sector for the Reliance group. Of particular significance in this
regard would have been the close links it established with the domestic market for
207
synthetic yams. Both those who ultimately produced the grey synthetic fabrics that Reliance purchased and those who ultimately purchased its processed yam would have been users of synthetic yam.
The second common factor between the first and second phases was the use by the
Reliance group of international transactions as an instrument for furthering its exploitation of the domestic market. Reliance is supposed to have benefited greatly during this period from the "high unit value scheme" introduced in 1971, which allowed liberal import entitlements for polyester filament yam against export of nylon fabrics25
.
The same method used earlier, whereby the exports could be made at a loss in order to import PFY that could be sold at a high premium, was employed for this purpose, and Reliance was estimated to have accounted for 60% of the exports under this scheme. The evidence available to us does not permit quantifying the extent of benefit Reliance received from this particular scheme. But that it did benefit from export incentives is
indicated by the fact that Reliance Textiles incurred losses on exports of art silk fabrics throughout the period from 1971-72 to 1975-7626
, and the acknowledgement by
Reliance Exports that it had a "very good business of distribution of PFY imported by Reliance Textile Industries against their export incentives"27
.
Table 5.11: Import Intensity of Reliance Textile Industries Investment and Production, 1975-76 and 1976-77 (Values in Rs. Lakhs)
1975-76 1976-77 I. Imports
Raw Materials 420 350 Dyes, Chemicals, Stores and Spare parts 18 16 Capital Goods 84 154 [Total Imports 522 520
2. Import Intensity of Investment Increase in Plant and Machinery 300 310 Capital Goods Imports as% of above 28 49.68
3. Import Intensity in Current Costs Value Percent Share Value Percent Share
Raw Materials Consumed Imported 1126 44.54 1480 52.52 Indigenous 1402 55.46 1338 47.48
lfotal 2528 100.00 2818 100.00 Dyes, Ch'emicals, Stores and Spare parts Consumed
Imported 39 12.87 37 11.31 Indigenous 264 87.13 290 88.69 [Total 303 100.00 327 100.00
Total of Raw materials and Dyes, Chemicals, etc. Imported 1165 41.15 1517 48.24
Indigenous 1666 58.85 1628 51.76
lfotal 2831 100.00 3145 100.00
Source: Company Annual Reports
25 Pi ramal & Herdeck ( 1984), Mohnot ( 1987) 26 Its profit and loss accounts recorded two separate figures in costs, one negative and one positive - Net loss on export of Art silk fabrics/ cost of export incentives; and Loss on export of art silk fabrics recoverable against export incentives. 27 Annual Report ofReliance Exports Ltd., 1972.
208
But as the earlier table showed, Reliance was not primarily an exporter. Its manufacturing and selling activity was, by the mid-seventies at least, mainly directed towards the domestic market. By 1976-77 even Reliance Exports Ltd. had ceased to be an exporter and its export earnings had been steadily declining before that from Rs.
1,07,56,804 in 1973-74 toRs. 4,95,832 in 1975-76. Moreover, if Reliance's entry into manufacturing involved the installation of imported machinery, its dependence on imports for its production and expansion activity was substantial even at the end of the phase. Indeed by that time, in its imports of raw material for its own consumption, a major part is likely to have been synthetic yarns because the other item in raw materials, grey fabrics, would have been mainly accessed from domestic sources. Its exports on the other hand would have perhaps partially also included the assortment of other items it traded in. These items had no direct relationship with its core activities nor were they
traded on large enough scales to be treated as an independent business activity, suggesting that the purpose they served was the securing of import entitlements.
But whether it was the profits earned through the unit-value scheme, or from other activities, they were not adequate for the financing of Reliance group's rapid expansion
during this phase. Much of that expansion was debt financed, and loans accounted for two-thirds ofthe total liabilities in 1976-77.
Table 5.12: Structure of Liabilities of the Reliance Group, 1970-71 to 1976-77
Year Amounts Rs. Lakhs As Percenta~e of Total Liabilities Net Secured Unsecure Total Net Secured Unsecured Total
Reliance Textile Industries 1970-71 152.18 192.31 55.32 399.81 38.06 48.10 13.84 100.00 1971-72 235.45 381.69 6.9 624.04 37.73 61.16 1.1 I 100.00 1972-73 331.07 642.4 8.3 981.77 33.72 65.43 0.85 100.00 1973-74 503.16 892.71 10.04 1405.91 35.79 63.50 0.71 100.00 1974-75 550.06 802.01 0.78 1353.75 40.63 59.24 0.06 100.00 1975-76 720.38 1157.05 27.53 1906.11 37.79 60.70 1.44 100.00 1976-77 954.16 1893.16 63.55 2910.87 32.78 65.04 2.18 100.00
All6 Group Companies 1970-71 152.18 192.31 55.32 399.81 38.06 48.10 13.84 100.00 1971-72 235.45 381.69 6.9 624.04 37.73 61.16 1.1 I 100.00 1972-73 331.07 642.4 8.3 981.77 33.72 65.43 0.85 100.00 1973-74 503.268 892.71 10.66 1406.63 35.78 63.46 0.76 100.00 1974-75 550.93 802.01 2.21 1356.05 40.63 59.14-- 0.16 100.00 1975-76 791.06 1280.76 29.46 2062.01 38.36 62.11 1.43 100.00 1976-77 1023.37 1968.26 67.81 3082.93 33.19 63.84 2.20 100.00
Source: Company Balance Sheets
The second phase of Reliance's history is also the one in which it established an association of an unusually close kind with the Pais of Manipal. How and t~nder precisely what circumstance this association was formed is unclear, but there is evidence of its existence. During the early 70s (till 1972), Reliance Exports operated a business of
rubberised coir products on the agency of Karnataka Coir Products Ltd., a Manipal Group company. The Manipal Group, as mentioned earlier, also acquired in this period a
minority shareholding in Reliance Textiles, when it was still a private company. So too
did Syndicate Bank, with which the Pais had a close association both before and after its
209
nationalization in 196928• Again, Syndicate Bank gave irrevocable guarantee in lieu of
hypothecation of plant & machinery for Reliance's borrowing from the ICICI in this
period. MAC Investments, an investment company which ultimately was to become
(with its eight subsidiaries), a crucial link in the chain connecting various Reliance
companies was originally a subsidiary of Maharashtra Apex Corporation, another
Manipal Group Company. Another piece of striking evidence of the association with the
Pais is the event described in the next section.
The significance of this close personal association, with a group that had a long history
in financial businesses, and with individuals who were part of the political
establishment, for Reliance's growth in this phase and thereafter cannot of course be
calculated from any statistics. But it could be reasonably speculated that it would not
have been insignificant. It meant that, in opening up the way to securing crucial
ingredients for its expansion in a context of rivalry, the Reliance group had potential
help not available to every enterprise, particularly a new entrant seeking entry into the
big league of the Indian private corporate sector.
V.2.3 Prelude to the Third Phase: The End and the Rebirth of Reliance Textiles
The first manufacturing phase of Reliance's growth came to an end with the public offer
for the equity shares of Reliance Textiles in end 1977, and its subsequent listing on the
Bombay and Ahmedabad Stock Exchanges in January 1978. According to the official
statement by the company in its Annual Report for 197 6-77, this move was immediately
prompted by the condition laid down by financial institutions while granting assistance
for Reliance Textiles' expansion projects. But perhaps the move for the conversion of
Reliance Textiles into a public company was planned much before it actually happened,
reflected in the rather dramatic development that preceded it.
In 1975, an application was made for approval of the amalgamation of Reliance Textile
Industries into a company called Mynylon Ltd. Mynylon was a company registered in
Bangalore in 1973 ostensibly to exploit the opportunity available because of the grant of
a letter of intent to the Kamataka State Industries & Investment Development
Corporation (KSIIDC) for setting up of a Nylon Filament Yam Project in the state of
Kamataka under the Joint Sector. The Manipal Group and the KSIIDC correspondingly
jointly promoted the company, and DJd.Ambani became one of its Directors.
Government approval was received for Syndicate Bank's involvement in the project with
Syndicate Bank to hold 25 % of the equity and KSIIDC 26%. Subsequently the site for
the project was approved and ari application made for approval of foreign collaboration.
Only 1100 shares of Rs. 10/- each were allotted, in 1975, 500 to KSIIDC and 100 each
to six individuals, and the certificate of commencement of business was granted to the
Company in January 1976. Mynylon was thus not doing any business at the time the
28 Dattaraj Salgaocar, of the Salgaocar group and son in law of Dhirubhai Ambani, in a tribute to his father-in-law stated that both K.K. Pai (Chairman and Managing Director of Syndicate Bank from 1972 to 1978, and custodian of the Bank after nationalization) and T.A. Pai (Chairman of Syndicate Bank before nationalization, and subsequently a Union Minister) were close common friends of Dhirubhai Am bani and his father in the early I Q70s [Goa Today, August 2002].
210
move for the amalgamation into it of Reliance Textiles was initiated, and in fact never
did implement the project for which it was created.
The courts approved the amalgamation in 1977, but with effect from 1st July 1975. Thus
Reliance Textile Industries ceased to exist and was absorbed into Mynylon. But four
days after the final court approval was granted, an Extraordinary General Meeting
passed a resolution approving the change of name of Mynylon to Reliance Textile
Industries, and the Registrar of Companies, Karnataka State, gave approval for the
change in March that year. After a brief interregnum therefore, Reliance Textile
Industries was reborn, and soon after its registered office was shifted from Bangalore to
its original location, Bombay. At the conclusion of this entire exercise therefore,
Reliance Textile Industries was seemingly back to square one, with only minuscule
changes in its real assets and shareholders. The entire amalgamation exercise would
appear to have been an entirely meaningless one. It was also a rather odd one given that
a relatively large operating company was amalgamated into one that had no business.
But a closer scrutiny does throw up a possible rationale for the undertaking of this
strange move by the Reliance group, insofar as it enabled one significant change that
perhaps would not have been otherwise possible.
Prior to its amalgamation with Mynylon, Reliance Textile Industries had a share capital
of Rs. 170 lakhs divided into I7 lakh shares each with a face value of Rs. I 0. Under the
scheme of amalgamation, the original shareholders of Reliance Textile Industries were
allotted 59.5 lakh shares of Mynylon, adding up to a total face value of Rs. 595 lakhs,
without payment being received in cash. This amount was Rs. 41,36,281 in excess of the
total net worth of the amalgamating company, which included Rs. 84,10,000 in the
development rebate reserve. While retaining the amount in the development rebate
reserve, the scheme of amalgamation adjusted the consequent imbalance of Rs.
I,25,46,28I (84,IO,OOO plus 4I,36,28I) between Mynylon's liabilities and assets after
the amalgamation by ascribing that amount to an asset- "goodwill" - acquired from the
amalgamating company. I2.5 lakh shares of the 59.5 lakh shares were thus allotted to
the shareholders of Reliance Textile Industries against this goodwill29.
Thus, consequent upon the amalgamation of their company into Mynylon, the number of
equity shares held by the original shareholders of Reliance Textile Industries increased
from 17 to 59.5 lakhs without any financial liability having to be incurred by them for
the same. These 59.5 lakh shares however still continued to be virtually the entire share
capital of the company, since there were only II 00 other shares of Mynylon. With the
change in the name of Mynylon, all these shares of course once again became those of
Reliance Textile Industries.
Without the amalgamation exercise, a similar increase in Reliance Textile Industries'
share capital would have been possible only through a revaluation of assets and the issue
of bonus shares by capitalizing the company's reserves. But the prevailing provisions
with regard to bonus issues were such that even if that option were to be exercised, it
could not have allowed an increase of the same order as was actually achieved. The I8-
29 This 'goodwill' till date appears as an asset on the balance sheet of Reliance Industries.
211
point guidelines for the issue of bonus shares issued by the Ministry of Finance had at that time, among others, the following significant restrictive provisions30
.
- Bonus issues were permitted to be made out of only free reserves built out of genuine profits or share premium collected in cash and reserves created by revaluation of fixed assets were not permitted to be capitalized [Logically therefore, reserves created by adding "goodwill" to Reliance Textile Industries' assets could also not have been
capitalized even if such addition was possible].
- The residual reserves after capitalization had to be at least 33 113 % of the increased paid-up capital [This would mean that the entire reserves could not be converted into share capital].
- 30% of the average profits before tax of the company for the previous three years had to be adequate to yield a rate of dividend on the expanded capital base of the company at 9% [In Reliance's case, 9% of the expanded capital consequent to amalgamation (5.95
crores) would have been Rs. 53.55 lakhs, requiring the average profit before tax for the previous three years to have been Rs. 178.5 lakhs whereas the actual figure was Rs. 102.42 lakhs].
- Between two bonus issues, there had to be a time lag of at least 24 months and not more than two bonus issues were permissible over a period of five years [It appears from the limited balance sheet figures available that Reliance had capitalized a part of its
reserves even in the year prior to the effective date of amalgamation, raising its share capital from Rs. 80 lakhs in 1973-74 toRs. 170 lakhs in 1974-75 even while its reserves
and surplus declined from Rs. 423.16lakhs toRs. 380.06lakhs despite a transfer ofRs. 40.05 lakhs from its profits to reserves and surplus in that year. If so, then the option of a
bonus issue was not only not available in 1975 at least, even exercising that option at a later date instead of that of amalgamation would have meant that Reliance would have been restricted in making any subsequent bonus issues].
The above points therefore lend themselves quite strongly to the conclusion that the
otherwise inexplicable exercise of amalgamation was undertaken as a means of circumventing the restrictive provisions with regard to bonus issues and enable the shareholders of Reliance Textile Industries to enlarge the number of shares they held31
•
The importance of this lay in the fact that it is from this enlarged holding of theirs that the existing shareholders of Reliance Textile Industries offered 28.2 lakh shares in 1977
for sale to the public in order to get the company listed on the stock exchanges, and it still left in their possession 31.5 lakh shares, more than they held before the
amalgamation. That first public offer, and the subscription to it, of course did not bring any additional finance into the company because it only amounted to a change of ownership of existing shares. But for the subsequent public issue of share capital, the
original shareholders had a larger ni.1mber of shares to serve as part of the controlling
30 Appendix V-A in A. Ramaiya: Guide to the Companies Act, 1980. 31 There appear to be other instances of similar peculiar amalgamations indicating that it was probably not an entirely uncommon mechanism used by business enterprises.
212
bloc than would have been the case if the Issue had been made without the
amalgamation preceding it.
V.2.4 From Textiles to Petrochemicals: 1977 to 1990
The conversion of Reliance Textile Industries into a public company (name changes to
Reliance Industries in )985) marked the initiation of the process by which the Reliance
group was catapulted from the fringes of the large corporate sector into its center. That
conversion proved to be of immense significance insofar as in this phase recurrent large
public capital issues became a major source of financing the rapid expansion that made
Reliance one of the largest business groups in the country. The initial public offer made
by the shareholders of Reliance Textiles in 1977 itself was oversubscribed by over 7
times. This was quite a remarkable change from the position the Reliance group faced
just a little over a decade before when it had such difficulty in finding the finances for its
entry into manufacturing. Such was the phenomenal success of the group in mobilizing
finance through public issues in this phase, largely through debentures in conformity
with the general pattern of the capital market boom in the 1980s mentioned previously,
that it appeared that finance ceased to be an operative constraint on its expansion.
Table 5.13: Public Capital Issues of Reliance Group Companies, 1978-79 to 1988-89 (Amounts Raised in Rs. Crores)
Instrument Shares Debentures Total Cumulative Cumulative Year Equity Preference Convertible Non- Total otal as% ol
RELIANCE INDUSTRIES 1979 1.62 0 7 0 8.62 8.62 17.97 1980 0 0 10.8 0 10.8 19.42 25.90 1981 5.95 0 24 0 29.95 49.37 36.99 1982 0.02 5.5 50 0 55.52 104.89 29.40 1983 0 0 0 0 0 104.89 26.56 1984 0 0 80 0 80 184.89 34.82 1985 0 0 0 270 270 454.89 61.83 1986 0 0 500 0 500 954.89 83.94 1987-88 198 0 0 80 278 1232.89 67.27 TOTAL 205.59 5.5 671.8 350 1232.89
RELIANCE PETROCHEMICALS 1988-89 0 I 0 I 600.9 0 600.9
Souree: Company Annual Reports
The new dimension added to the expansion of the Reliance group's gro\vtfiin ·the
second phase was a consistent process of proliferation of the number of its companies
whose beginning more or less coincided with its transformation of Reliance Industries
into a public company.
Table 5.14: Increase in the Number of Companies of the Reliance Group, 1978 to 1989
Year-::> 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 Companies Registered 6 7 2 10 17 21 3 I 6 49 5 2 5 in the Year Cumulative Total of 12 19 21 31 48 69 100 106 ISS 160 162 167 Grou~ Companies Note: The above table excludes companies for whom the relevant information was not available. 7 companies that were registered earlier but acquired during this period have also not been included.
Source: Company Memorandums of Association and Directory of Joint Stock Companies, I 990
213
Table 5.15: Growth of Reliance Industries: 1977-78 to 1989-90 (Values in Rs. Crores)
Year Share Net Worth Net Block Gross Block Total Sales 1977-78(15) 6.25 14.44 25.03 30.91 57.98 120.11
1979 7.84 23.63 37.74 47.96 85.42 155.13 1980 12.36 31.79 57.95 74.97 124.66 214.58 1981 16.97 57.09 105.56 133.46 222.51 312.22 1982 24.40 . 91.54 314.61 356.71 317.98 421.03 1983 41.95 129.88 321.46 394.88 388.42 520.35 1984 51.98 246.39 426.28 530.93 490.45 622.01 1985 57.41 311.12 606.80 735.68 946.76 733.14 1986 57.41 311.53 949.46 1137.55 1137.34 905.48
1987-88(18) 157.90 1022.12 1584.08 1862.66 1956.69 1770.74 1988-89(9) 157.91 1071.31 1502.78 1871.76 2123.65 1112.45 1989-90 157.92 1086.98 1469.01 1998.79 2203.31 1840.66 Note: Figures in brackets indicate number of months in the relevant accounting period when different from a year Source: Company Annual Reports
The growth of Reliance Industries however still served as the barometer of the growth of
the group, and it individually became one of the largest companies in the country. The
growth of its assets however was more rapid than of its sales. At the end of the previous
phase its sales had been significantly greater than its assets, but over this phase the
relative magnitudes of the two were reversed. This reversal, as indicated earlier, was a
result of the gradual replacement by the group of trading and processing related sales by
sales based on its own production and its increasing vertical integration. This happened
in two stages, indicated by Table 5.16, which shows the sequence of major expansion of
the installed capacity ofthe Reliance group in the second phase.
Table 5.16: Installed Capacity of Reliance Group Companies, 1977-78 to 1989-90
TEXTILES PETROCHEMICALS Product Cotton/Blended/ MMF Fabrics PFY PSF PTA LAB
> Crimped Yarn Unit-> Spindles/ Crimping and Looms/ Knitting M.T. M.T. M.T. M.T.
Nos. Twisting Nos. Machines/ Machines/Nos. Nos.
End-Year RELIANCE INDUSTRIES 1977-78 0 61 450 22 0 0 0 0
1979 9582 80 450 22 0 0 0 0 1980 12494 122 450 22 0 0 0 0 1981 50682 130 940 22 0 0 0 0 1982 50682 200 940 22 10000 0 0 0 1983 50682 221 940 22 10000 0 0 0 1984 50682 0 940 22 10000 0 0 0 1985 12494 0 450 18 25125 45000 0 0
1986 12494 0 450 16 25125 45000 0 0
1987-88 12494 0 450 20 25125 45000 100000 60000
1988-89 12494 0 450 20 25125 45000 100000 60000
1989-90 12494 0 450 20 25125 45000 100000 60000
DEVTI FABRICS 1986 36448 0 490 0 0 0 0 0 1987 35496 0 490 0 0 0 0 0
1988-89 36546 0 490 0 0 0 0 0
1989-90 37536 0 490 0 0 0 0 0
Source: Company Annual Reports
214
The initial expansion after Reliance Industries became a public company was within the
textile industry itself. Part of this expansion was the completion of the expansion project
in 1978 that was begun in 1975-76, which saw an increase in the number of installed
looms. The group also entered into the spinning of yam for the first time when it set up a
new unit for the manufacture of man-made fibre yam on the worsted system with an
ultimate capacity of 12,494 spindles, which was commissioned in December 1979. The
weaving and spinning capacities were also expanded by the acquisition of a sick
industrial unit, Sidhpur Mills (originally belonging to the Shri Ambica group). The
process of amalgamation of Sidhpur Mills into Reliance Textiles was initiated in 1979,
and Reliance Textiles operated the mill on a lease and license basis from December
1979 till the amalgamation formalities were concluded in 1981. The increase in the
number of looms and spindles of Reliance Industries showing up in the table in 1981
were the effects of this acquisition, and the sharp drop a few years later was the result of
the transfer, from November 1985, of the Sidhpur unit to Reliance Industries' subsidiary
Devti Fabrics. In 1979, all the textile-manufacturing activities were also concentrated in
Reliance Industries, which leased in the plant and machinery of the other manufacturing
companies of the group, and Reliance Industries acquired the character of a conventional
composite textile mill (albeit specializing in synthetics) combining spinning and
weaving. In other words, it had moved beyond its early character of being a mainly
knitting unit. But even as Reliance Industries became a conventional textile mill, it also
ceased to grow on that basis.
What is quite sharply evident from the table and the previous discussion is that the
Reliance group's textile manufacturing capacities, measured in terms of spindlage and
loomage, remained virtually frozen from 1979 onwards. There was some increase in the
capacity for processing synthetic yams, but this too ceased in 1983 and the machinery
was subsequently disposed of. Whatever expansion occurred in the group's textile
capacities was thereafter only on account of modernization operations. The entire thmst
of expansion shifted towards petrochemicals, which was in fact initiated alongside the
last major expansion in textiles. The commissioning of the PFY project in 1982 marked
the first realized step of this change in course. But Reliance had applied for a Letter of
Intent for setting up a PFY plant with a capacity of 4000 tpa in 1978 itself. Subsequently
its proposed capacity was revised to I 0,000 tpa and the Letter of Intent for the same was .
received in 1980.
In 1983, Reliance entered into an agreement with Union Carbide India to acquire the
latter's chemicals and plastics unit in Bombay that was producing a number of
petrochemicals. That unit, according to the Annual Report of 1983, was, with its
technology and personnel, conceived as one that would, " in the long mn, form a nucleus
for the company's growth in the field of petrochemicals." The acquisition was however
not ultimately effected because of delays in necessary government clearances. But by the
mid 1980s, Reliance had applied for and secured clearances (partial or complete) for
expanding its PFY capacity and setting up large capacities for the manufacture of a
range of petrochemicals - PSF, PTA, Monoethylene Glycol (MEG), Linear Alkyl
Benzene (LAB), High Density Polyethylene (HOPE), Polyvinyl Chloride (PVC), and
215
Synthetic Filament Yam including Industrial Yarn/Tyre Cord. By the end of the 1980s,
it had secured further Letters of Intent or Licenses for the manufacture of Ethylene,
Propylene, and Butadiene, Synthetic Rubber, as well as acrylic fibre. In other words, its
planned areas of expansion covered the entire range of the four main categories of
petrochemicals - viz. plastics, synthetic fibres, S)'nthetic rubber, as well as synthetic
organic chemicals used in their manufacture. The group also in this period secured
clearances for a few projects outside the sphere of petrochemicals - for the manufacture
of coloured glass shells and TV tubes as well as Chlorine (with Caustic Soda and
Hydrogen as By-products).
Of course not all of these approvals had been converted into actual capacities by 1990.
In 1985, the capacity of the PFY plant was increased by 2.5 times and a horizontal
diversification was achieved with the commissioning of the PSF plant. In 1987-88, the
PTA and LAB capacities were commissioned, the former representing a backward
integration from PFY and PSF manufacture. A further step in backward integration was
achieved with the commencement of paraxylene production for manufacture of PTA in
1989. The MEG, HEG, HOPE, PVC, and Chlorine and by-products projects were still
under implementation in 1990 while those of others had not been initiated.
This description of the sequence of events in the history of the Reliance group's
manufacturing activities serves as an additional confirmation of our characterization of
the Reliance group in 1990. The strategy of growth that Reliance pursued in the 1980s
was clearly not that of the backward integration of a synthetic textile manufacturer. On
the contrary, the expansion strategy adopted was one of using its base in the synthetic
textile industry to transform itself into an enterprise with the manufacture of
petrochemicals as its core activity. Facilitating that metamorphosis was the essential link
between its earlier base in textiles and its new thrust in petrochemicals provided by
synthetic yams. Though it began their manufacture only in 1982, Reliance had been a
seller of some sorts of synthetic yams and man-made fibre fabrics virtually throughout
its history from 1958, and a user since its entry into manufacturing in 1966.
Significantly, however, Reliance concentrated primarily on one single man-made fibre,
polyester, and to some extent on acrylic, avoiding any foray into the other major
synthetic, nylon, or into the manufacture of rayon fibres and yams.
In principle there existed a scope for the backward integration of Reliance from
synthetic textile manufacturing to that of synthetic yams and fibres and their
intermediates. That in tum could have produced the two mutually reinforcing effects, of
strengthening of its competitive position as a textile manufacturer by giving it control
over its supplies and of providing it an internal market for the petrochemicals produced.
But for this, given the feasible scales of petrochemical manufacture and those actually
opted for by Reliance, it was necessary for its textile manufacturing capacities to
increase manifold. That is precisely what did not happen, and its base in textiles
therefore could not have assured the success of its diversification into petrochemicals.
The Reliance group's exceptional ability to command imports and foreign exchange
from its very beginnings remained a crucial element in its expansion in the third phase
too. Large capital goods and technology imports were associated with its major foray
216
into petrochemical manufacture in the 1980s, though the relative importance of capital
goods imports declined sharply in the last few years of the 1980s. Further, its backward
integration process only involved the replacement of one set of its imports of current
inputs by another so that the imported component of its raw material consumption
remained high throughout, as shown in summary form in the following table. A more
detailed discussion of these is imdertaken in the next chapter.
Table 5.17: Import Intensity of Current Consumption of Reliance Industries, 1977-78 to 1989-90
Raw material Dyes, Chemicals,Spares and Total Consumption Parts Consumed
Values (Rs. Crores) Total 2739.49 324.23 3063.72 Imported 1555.10 119.96 1675.06 Indigenous 1184.39 204.27 1388.66
Percentage Shares Total 100.00 100.00 100.00 Imported 56.77 37.00 54.67 Indigenous 43.23 63.00 45.33
Source: Company Annual Reports
The end of this phase also saw the attempt by Reliance to take over Larsen & Toubro,
one of the very few large enterprises that was not family controlled. A large stake was
acquired in the principal company of the group, Larsen & Toubro Ltd., through the
investment subsidiary of Reliance Industries, Trishna Investment and Leasing. This was
at a time when L & T had the contract for setting up of the plant of Reliance
Petrochemicals. The only other major shareholders in L & T were the financial
institutions, who did not initially block_ the takeover attempt. Reliance's temporary
control over L & T was however attempted to be used to the group's advantage in a
manner that attracted adverse public attention. Both Reliance Petrochemicals and L & T
made public issues of capital for what amounted to financing the same project twice
over because L & T was supposed to use the proceeds of the issue to finance its
construction of the Reliance Petrochemicals project on credit. The financial institutions
eventually vetoed this, and thereafter though the Reliance group occupied two positions
on the Board of Directors, it could not acquire full control over the L & T group. By the
end of 1989-90, Reliance had spent nearly Rs. 100 crores in acquiring the equity shares
(Rs. 86.2 crores) and debentures (Rs. 13.5 crores) of Larsen & Toubro. In 1989-90
however, there was a reciprocal transaction by L & T which in that year acquired Rs.
65.8 crores worth of equity shares of Reliance Industries.
V.2.5 The Common Thread
The brief sketch of the history of the Reliance group clearly confim1s the conclusion
indicated at the very beginning of this chapter. In different ways in different periods of
its growth from 1958 to 1990, through its transitions from trading to processing and
manufacturing activities, and from textiles to petrochemicals, the trajectory of
movement of the Reliance group remained firmly tied to that of the synthetic textiles
industry in India. This was true even of Reliance's rapid growth in the 1980s. Even
217
though much of this growth was outside the textile industry proper, it was also largely
based on products that were part of the chain of production of synthetic textiles.
Synthetic textiles constituted one component of a larger set of textiles, and of its sub-set,
namely man-made fibre textiles, with a high degree of substitution possibilities existing
within them. On the production side, synthetic textiles had a backward linkage with the
petrochemical industry, which in tum had forward linkages with a variety of industries
other than synthetic textiles. The textile industry worldwide and in India was a much
older industry than those of petrochemicals, man-made fibres and synthetics. The
emergence of the latter industries had a major transformative effect on the former and
this in tum partially facilitated their growth. This happened first at the global level, and
then only gradually through international transmission effects, in India. It is in these
interrelated processes of transformation and growth, the international economic linkages
through which it worked, and the transforming domestic Indian context that was the
background for its particularly Indian dimension, therefore that one must situate
Reliance in order to understand the underlying tendencies that made its phenomenal growth possible.
V.3. MAN-MADE FIBRES, PETROCHEMICALS, AND THE INTERNATIONAL TEXTILE
INDUSTRY AFTER THE SECOND WORLD WAR
Historically, the textile industry was a slow changing industry. Even after the advent
of the modem textile factory with the Industrial Revolution produced a radical break
with the past, many things remained unchanged, and those that did became the
established characteristics of the industry for a long period thereafter. For a long
period up till the Second World War, the textile industry was characterized by the
following features, which were to change radically over the two and a half decade
period after the War32. The principal raw materials of the industry were restricted to a
few natural fibres. Cotton was by far the dominant fibre even though man-made
cellulosic fibres had appeared on the scene by the tum of the century. The industry
was labour-intensive and involved machinery reflecting no significant improvements
over the past century. Textile production was based on the classical spinning,
weaving, and finishing process. The industry produced a limited range of goods for a
uniform market, whether domestic or foreign. It was a production-oriented industry
with product distribution and marketing being the preserve of the wholesale and retail
trade. Unlike many other industries, it was not a heavily concentrated industry with
production being spread over many units. Vertical integration was relatively rare.
As far as location was concerned, the production of textiles was heavily concentrated in
the advanced regions of USA, Western Europe and Japan, with only India amongst the
underdeveloped countries having a textile industry of some significant size in the early
twentieth century. The former three dominated world exports of textiles. Exports had for
a long period involved a substantial part of world output of textiles ( 40% in 1912-13),
even though the importance of trade had declined somewhat during the inter-war period.
32 The discussion of the major contours of this transformation draws heavily on Kroese ( 1971 a, 1971 b, 1972a, 1972b)
218
The trade in textiles was also principally in piece goods. As far as production of tht principal fibre, cotton, was concerned, even though climatic conditions did not favour its production in substantial parts of the advanced regions, the US, which accounted for as much as 48% of the world's raw cotton production in 1947-49, ensured that the advanced regions dominated here too. The production of man-made cellulosic fibres was
also more or less completely concentrated in these countries.
By 1970, however, much of this picture of the global textile indus~ry had undergone a radical transformation. The major impetuses for this transformation did not primarily come from within the textile industry. Rather it was the changed international political context after the War, technological developments originating in the chemical industries and textile machinery industries, and the general environment of the 'Golden Age',
which acted in tandem to produce it.
One of the major elements of this transformation was the redistribution of textile
production capacities away from the advanced capitalist countries and towards the underdeveloped regions of the world. In terms of the number of spindles (spinning capacity), looms (weaving capacity), and employment, most of the advanced capitalist
countries experienced a major contraction33. By contrast, the underdeveloped countries
experienced a significant increase, though the redistribution in terms of actual production was less dramatic. Even in the case of cotton production, underdeveloped countries and the socialist countries became the dominant producers. The US's share of world production of cotton had declined to 19% by 1970 and that of all developed
countries to 24.1 %34.
World trade in textiles also underwent a transformation. Partly as a result of the increased geographical . spread of textile production, there was a decline in the
-·· .· importance of trade relative to production in comparison to the levels before the First World War. The share of trade in total world production was between 15-17% during this period. The direction of trade also moved with some developing countries emerging
as major exporters to advanced capitalist countries and underdeveloped countries as a whole declining in importance as importers. In addition, the composition of textile trade
also shifted increasingly towards clothing (made-up articles) relative to piecegoods.
The other elements in the transformation of the textile industry, partially in response to
its global redistribution, were in this period primarily concentrated in the advanced capitalist countries. These had a wide spectrum including changes, in the raw materials used by the textile industry, its production processes and the levels of concentration in the industry, and the degree of product differentiation in textile products and their
marketing process35.
33 In Western Europe, the number of spindles declined by 60% between 1950 and 1970 and the number of looms by 59%. In the USA, the corresponding declines were to the order of 15% and 41% respectively. The decline in comparison to pre-war levels was even more major. Japan experienced some growth in this period primarily on account of post-war recovery but just about reached pre-war levels by the late 1960s. 34 By the mid 1970s, both USSR and China had surpassed the US in cotton production [Tisdell and Macdonald ( 1979)]. 35 Kroese ( 1971 a, 1971 b, 1972a, 1972b ), Clairmonte and Cavanagh ( 1981 ).
219
This period saw the dramatic rise of Man-Made Fibres (MMFs) as an alternative to
natural fibres. Though the production and consumption of cotton and other natural fibres
grew during this period, and cotton remained the single most important fibre in the
world, much of the growth in consumption of fibres was contributed by MMFs. By the
end of the 1960s, MMFs accounted for about 40% of global fibre consumption by
weight. In terms or"cotton bales equivalents36, their significance· was even higher - the
share of cotton had fallen below 45% while that of MMFs had nearly touched 50%. In
1950, Western Europe, USA and Japan produced 23.1 billion yards of cotton fabrics and
5.3 billion yards of MMF fabrics. By 1970, the corresponding figures were 20.25 and
18.1 billion yards respectively.
Amongst the MMFs, it was the not the cellulosic fibres or rayon which had been
available for a long time, but the synthetic fibres of more recent origin that dominated
the growth in their use. Du Pont, the American chemical firm, was involved in the
development and promotion of all the three major synthetic fibres, nylon, acrylic and
polyester. In the case of polyester, ICI ofUK, another chemical firm, also played a major
role. The commercial production of the first synthetic fibre, nylon, began only in 1939,
and polyester emerged only after the war. In 1950, only 4% of MMF production was
accounted for by synthetics. By 1970 their share had gone up to 59%. In fact, by the late
1960s, the share of cellulosic fibres in total world fibre consumption had started
declining. Polyester, the last of the three major synthetic fibres to be introduced, showed
the most impressive growth and by the 1970s its. share amongst synthetic fibres
exceeded that of the first synthetic fibre, nylon.
The changes in the technology oftextile production were no less dramatic. The classical
spinning-weaving-finishing method of textile production experienced a process of rapid
technological development. In spinning and weaving, significant increases in the speed
of machinery greatly improved the productivity per manufacturing unit. This played a
significant role in ensuring that textile production in the advanced capitalist countries
did not decline despite the massive contraction of spindleage and loomage. The higher
automation of these processes also reduced the man-hour requirements per unit of
output. Finishing techniques also underwent significant progress.
Apart from the improvements in conventional methods, there was the emergence of
entirely different processes as alternatives to them. The availability of continuous
filament yams meant that the spinning of yam could be dispensed with. Knitting also
came to the fore as an alternative to weaving, as a method capable of much higher speed
and in some aspects greater flexibility than weaving. Yam consumption by the knitting
industry grew more rapidly than in weaving in the advanced capitalist countries. By
1970, 19% of all cloth manufacture in Western Europe and USA was through the
knitting technique. In certain areas of use, non-wovens emerged as an alternative to both
spinning and weaving.
36 Cotton and MMFs are not exactly comparable by weight since cotton involves much greater wastage, extraneous material, and has a higher moisture content.
220
The multiplication of processes and finishing, and increases in the variety of fibres and
their blends, tremendously increased the variety of textile fabrics that could be produced.
With this, and the emergence of large markets (as a result of rising incomes and
economic integration, particularly in Europe), and the growth of mass fashion, the
marketing side of the textile industry experienced a major revolution. In this respect, the
textile ·industry ultimately followed the other consumer goods industries with the
increased importance of advertising, promotion and brand competition, and the
development of new marketing channels.
The technological innovations in textile manufacturing and in processing methods had
also transformed the textile industry into a capital-intensive industry requiring
substantial investments in plant and machinery. The growing importance of marketing
and the increased capital intensity contributed to unleashing a process of increased
concentration in the textile industry in the advanced capitalist countries by means of
buying up of smaller units, mergers, joint-ventures and other forms of co-operative inter
firm arrangements. This process was more dramatic in Europe than in the USA and
Japan, where large textile enterprises had existed even earlier. Virtually in every
advanced capitalist country large textile enterprises emerged alongside large enterprises
operating in other industries amongst the leading enterprises. In fact, concentration
became a significantly more characteristic feature along the entire chain of production of
textiles. Unlike in the case of production of raw cotton, the man-made fibre industries
were highly concentrated. In the textile machinery industry too, a few enterprises came
to dominate and were the main drivers of the technological advancement in such machinery.
V.3.1 MMFs and the Transformation of The Textile Industry
It has been argued that it is the MMF and textile machinery industries, the smaller but
the more powerful and dynamic industries in the chain of production of textiles, which
were the driving forces behind the transformation of the textile industry in the advanced
centers of capitalism37. The advent of MMFs specifically, itself a significant element in
that transformation, also played also a major role directly or indirectly, in the other
spheres of change of the textile industry in the post-war period. MMFs, and in particular
synthetics, were described as one of the major catalysts of the entire process38.
MMFs of course enabled increases in fibre consumption beyond levels that may have
been feasible with natural fibres only. They also possessed certain superior qualities to
natural fibres that in tum induced improvements in natural fibres. This process also
worked in the reverse in the form of the development of texturizing39. MMFs directly
enabled the partial replacement of spinning since only they were available in continuous
form. Many of the improvements in finishing of fabrics and dyestuffs were an offshoot
of the research on MMFs or induced by them. Many of the improvements in textile
'7 Clainnonte and Cavanagh (1981)
38 Winterbottom ( 1966) 39 Initially, due to the fact that spun yam possessed certain qualities that the continuous filament yarns did 10t possess, the use of the latter tended to be restricted and much of the synthetic fibres were used in staple 'Orm. But the development oftexturizing of filament yarns expanded their use.
221
machinery were also made commercially viable because of MMFs and their higher strength enabled substantial increases in machine speed. The growth of the knitting industry, which became a major user of synthetic continuous yams, is a major case in point. MMFs, other than directly increasing the variety of fibres, vastly expanded the
scope for blending. MMF producers also spent heavily on the promotion of their fibres (including advertising) and also heavily subsidized the promotion of textile units using
these fibres thereby making a substantial contribution to the growing importance of marketing.
Insofar as it was the synthetic fibres that were at the centre of the growing importance of MMFs, apart from the other factors mentioned above acting as an inducement for this,
the development of the petrochemical industry from the 1920s and 1930s, which was subsequently greatly accelerated by the Second World War particularly in the US, also
played a major role40. Most of the basic organic chemicals that ultimately came to be
characterized as the petrochemical building blocks could and had been earlier produced without the use of petroleum or natural gas as feedstock. All the basic categories of petrochemicals - plastics, synthetic rubber, synthetic fibres and intermediates had been developed before the war primarily from coal41
• But by the end of the War petroleum
and natural gas had come to be established as the primary source of feed stocks, because of their ability to produce both cheaply and in large volumes a steady stream of basic
organic chemicals, and an entire range of organic chemicals and the products derived from them came under the rubric of the petrochemical industry.
Notwithstanding the consequent lowering of the costs of production of synthetic fibres,
which continued to come down as a result of further reductions in prices of intermediates, price advantage was not initially the decisive factor in explaining the
success of synthetic fibres vis-a-vis cotton. From the time it was introduced, the price of the most dynamic of synthetic fibres, polyester, was higher than that of cotton though the continued reduction of the former price, and a general upward trend in that of the latter, was leading to a scissor like movement towards convergence of the two prices. But it is
only in the 1970s that polyester actually became cheaper than cotton, and slightly earlier if one takes into account the lack of equivalence of equal weights of the two fibres. Thus
for much of the period upto 1970, synthetic fibres were more expensive than cotton. On the other hand, the relative and then absolute importance of cellulosic fibres declined,
even though they were cheaper than cotton for much of the post-war period till 1970. Leading manufacturers like DuPont, the creator of both nylon and polyester, even exited from rayon in the 1960s42
.
V.3.2 The Structure of the MMF Industry till the 1970s
Apart from the geographical concentration of MMF production m the advanced
capitalist world that was mt1ch more pronounced in the case of synthetics, the MMF industries were also highly concentrated. While the emergence of synthetic fibres had
40 Spitz ( 1988), The Petroleum Handbook [Royal Dutch Shell ( 1983)] 41 In fact, when DuPont first commercialised nylon, it announced it as a fibre developed from "coal, air and water". 4
: Tisdell and Macdonald ( 1979)
222
attracted entry into the industry, only about 30 MNCs and their subsidiaries controlled
virtually the entire global production of MMFs outside the socialist countries43. The
global concentration levels were higher for different MMFs since each was not a manufacturer of all fibres, though most were involved in synthetic fibre manufacture,
particularly of nylon and polyester. In each country/region too, the number of producers was even less and typically a few .firms were dominant producers. That is, the MMF
industries were invariably highly oligopolistic in character. Vertical integration was
quite common, with most synthetic fibre manufacturers manufacturing both the
polymers as well as intermediates. Intra-firm trade, both intra-plant as well as
internationally, was also common on account of the fact that the minimum economic
scale declined with production moving downstream44.
The reasons for such dominance of global MMF production by a few MNCs were the
standard ones. A few companies controlled the technology for manufacture of fibres
through patents, and many of the later entrants also licensed technology from them.
MMF manufacture was also characterized by the existence of substantial economies of
scale and requirements of large investments to realize them, and these were even greater
in the case of synthetics. They also required heavy expenditures, on R & 0 for product
develop~ent and on promotion. History also favoured concentration. Most leading
manufacturers of synthetic fibres had also been dominant rayon manufacturers in the
pre-war period, while others at least had a strong base in chemicals or textiles from
which they diversified into synthetic fibre manufacture. Many of the leading companies
also had a long history of different forms of collaboration and collusion and different degrees of state support.
Despite their relatively small number and common characteristics however, fibre
manufacturers were still a heterogeneous lot. Most American and European companies
had major interests in other chemicals and petrochemicals and, barring a few exceptions,
substantial part. of their sales came from businesses other than fibres. Chemical
companies also exhibited a greater degree of backward integration. The Japanese
:ompanies on the other hand derived a substantial part of their sales (usually between
50-75%) from fibres and also had a greater degree of forward integration into the textile
ndustries. As far as foreign investment patterns were concerned, there too there was
:ubstantial variation. The European and American companies mostly concentrated on
he advanced capirnfist countries with some investments in Latin America. Amongst
1em also, European companies had more foreign operations while American
ompanies, with the exception of Celanese and Du Pont, primarily concentrated on the
omestic market. Japanese companies on the other hand had virtually no foreign
!Vestments in other industrialized countries but substantial ones in Latin America and
outh East Asia. The investments in Latin America were largely for textile processing
hereas in South East Asia they had been extended to fibre manufacture. In fact by the
id-70s, a substantial part of synthetic fibre capacity in South East Asia ( 10% in
fisdell and Macdonald ( 1979), Clairmonte and Cavanagh ( 1981) ~ead (1984)
223
Taiwan, 42% in S.Korea, 32% in Philippines, 85% in Thailand, and 100% in Indonesia
and Malaysia) was controlled by Japanese enterprises45.
V.3.3 1970-90: The Global Shift in MMF Production
In 1970, North America (primarily the US), Western Europe and Japan accounted for
77.61% of all world production of MMFs, 66.13% in the case of cellulosic fibres and as
much as 85.84% of synthetic fibre production. The socialist countries of Eastern Europe
and USSR were the next most significant group accounting for 14.28% of global MMF
production. But their share was largely built on cellulosics where they accounted for
23.58% of global production, their share in synthetics being only 7.67%. The Third
World therefore accounted for an insignificant proportion of global MMF production,
and the global distribution of MMF production was in a broad sense the exact opposite
of that of cotton.
But in the 1970s, the MMF industry in the advanced capitalist countries entered into a
new phase marked by a severe slowdown in its growth due to reasons both external and
internal to the industry46. The decline of cellulosics had begun earlier, but that was
largely attributable to the rise of synthetic fibres. But even synthetic fibre growth started
plateauing in this decade. Following the oil shocks, the trend of decline of raw material
costs was arrested and then reversed (though raw material costs accounted for a
relatively small proportion of costs of fibre manufacture). Many of the original patents
had also started expiring though patents on specific process know-hows remained. Even
as the accumulated process improvements had led over time to a manifold increase in
plant capacities, the post-war boom in the advanced capitalist countries came to an end.
The resultant overcapacity in the synthetic fibre industries was further aggravated by it
itself inducing further technological improvements for reduction in per unit costs
without substantial investments. Profits in the fibre industry were thus squeezed with
many companies running up losses eventually leading to a number of plant closures.
From a period in the previous decade when diversification into fibre manufacture was
considered attractive by many enterprises, many of the later entrants into the industry
started exiting from the industry in the 1970s. By the end of the 1970s, synthetic fibre
production levels had stagnated in the advanced capitalist countries showing little or no
growth in the 1980s even as the production levels of cellulosic fibres declined.
But even as this happened in the advanced capitalist countries, global production of
MMFs continued to increase. Synthetic fibres accounted for virtually all the growth with
cellulosic fibres experiencing a slow decline. But in the production of both, the share of
developing countries in global production showed a marked increase, beginning later but
also being faster in case of synthetics. This became even more rapid in the 1980s. Thus
the process that had earlier occurred in the case of cotton and textile production in
general began in this period to repeat itself in the case of MMFs too. This shift of global
production of MMFs towards the Third World however was entirely concentrated- in the
Asian continent. The Asian Third World economies accounted for 90% of the increase
45 Read (1984) 46 Tisdell and Macdonald ( 1979), Clairmonte and Cavanagh (I 981 ), Boon (198 I)
224
in world production of MMFs between 1980 and 1990 while their contribution to global
synthetic fibre growth over the same period was 80%. Given that cellulosic fibre
production was declining while that of synthetics was increasing (by 34% between 1980
and 1990), the shift in the case of non-cellulosic fibres was the more significant one.
And just as earlier in the case of advanced capitalist countries, polyester was the major
synthetic fibre driving this growth.
Table 5.18: Distribution of World Production of Man-Made Fibres, 1970-90 (Percentage Shares)
Year North Japan Western E. Europe Asia Africa South Total America Europe &USSR ( excl. America World
Japan) Production ('000 MT)
NON- CELLULOSICS
1970 35.56 21.02 29.26 7.67 2.02 0.38 2.06 4890.3
1980 35.63 14.00 22.15 13.35 9.84 0.63 3.70 9995.8
1990 24.77 10.61 20.55 11.70 27.60 1.06 2.99 13430.7
CELLULOSICS f--
1970 20.01 14.73 31.30 23.58 5.06 0.34 2.20 3479.6
1980 13.36 13.18 24.78 30.96 11.17 0.30 2.04 3279.5
1990 9.61 9.08 33.05 25.08 18.09 0.43 2.26 3039.1
ALL MMFs
1970 29.10 18.40 30.11 14.28 3.28 0.37 2.11 8369.9
1980 30.13 13.80 22.80 17.70 10.17 0.55 3.29 13275.3
1990 21.97 10.33 22.85 14.17 25.85 0.94 2.86 16469.8
Note: Production figures in case of each MMF have been arrived at by adding the productions figures by weight of staple fibres and continuous filaments.
Source: UN, Yearbook of Industrial Statistics
A combination of factors would have contributed to the Asian region becoming the
locus of growth of MMF and synthetic fibre production during this period. This trend
was in the first place consistent with the overall trend in this period of Third World Asia
growing faster than the rest of the world. That reinforced the process of the Asian
developing economies becoming the major centers of world textile production. Their
share even in MMF based fabrics was higher than that in fibre production in the mid
1970s. but by 1990 the latter tended to catch up with the former despite its increase over
the interim period.
Table 5.19: Percentage Shares of Asian Developing Economies in World Textile Production
Year Cotton Yarn of Total Cotton Woven Fabrics Woven Fabrics Total Yarn, Pure Man-made Yarn Woven of Cellulosic of Non- Fabrics and Mixed staple Fabrics fibres Cellulosic Fibres
1975· 42.57 8.55 33.96 41.87 23.65 15.96 36.52
1990 57.48 24.89 50.63 68.97 26.87 30.57 60.62
Source: UN, Yearbook of Industrial Statistics
225
Conditions also became more conducive for the diffusion of technology to the Third World.n. The expiry of many of the original patents was only one factor. For the MNC
manufacturers who had hitherto dominated the industry, trade in technology had been a secondary activity to the business of production and sale of synthetic fibres. But the troubles o_f the industry in the advanced capitalist countries would have made transfer of technology relatively more attractive busine.ss, particularly if it also enabled them to dispose of their surplus plant and machinery. Despite their expanding markets, technologies of an older vintage because of their smaller scales were often also more suitable for the markets of Third World countries. A group of specialized engineering/consultancy firms in the business of selling synthetic fibre manufacturing, and other petrochemicals, technologies to Third World producers had also emerged in
the meanwhile in the advanced capitalist countries. Thus a wide range of technological choices were opened up for firms operating in Third World economies, made more meaningful by the fact that technological development in synthetic fibre manufacture
had been mainly of the cost reducing kind with different technologies producing comparable quality outputs.
All of these factors mentioned above were operative, not merely for synthetic fibre manufacture, but for the petrochemical industries in general. The steady process of global redistribution of the basic petrochemical _industries, from the US (the dominant
petrochemical power in the post-war period) first to Western Europe and Japan, and then to the rest of the world, would also have been an additional contributory factor in the trend of MMF production moving towards Asia. However, this spread of basic petrochemical production and synthetic fibre intermediates to the Asian economies was not a precondition for that of fibre production as such because these could be accessed through imports.
A more detailed examination of the growth of the man-made fibre industry in India is part of the subject matter of the next section. But here one may note where India was positioned in the process of the global redistribution of MMF production. It was definitely part of the faster expansion in Asia, though this began relatively slowly and
somewhat later in India than in the case of other Asian countries. Between 1970 and 1980, India's share in global MMF production remained stagnant, but between 1980 and
1990, it grew from 1.53% to 3.97%. In the first of these decades though MMF production was growing in India, its share amongst the total for Asian developing countries declined since others grew more rapidly. But in the 1980s, the growth rate in
India caught up and even marginally exceeded the average for these countries. This was even more so in the case of synthetic fibres, and over the decade of the 1980s India's share in synthetic fibre production amongst them increased from 7% to 11 %.
V.4. MAN-MADE FIBRES AND THE TEXTILE INDUSTRY IN INDIA
Changes in the Indian textile industry after independence, although influenced by the
processes of transformation of the textile industry in the post-war period in the advanced capitalist countries, had their own distinctive features shaped by the different domestic
47 Boon ( 1981 ), A lam ( 1982)
226
context. India was somewhat unique in that it was a developing country where a significant textile industry existed at the time of independence. It was one of the largest in the world at that time, and as has been mentioned earlier it was by far the largest industry in India.
The textile industry in . India, like in other parts of the world, was originally primarily based on cotton classical spinning - weaving - finishing manufacturing process. Spinning activity was concentrated in the spinning mills that manufactured yam for sale, and the composite mills that combined spinning and weaving. These two sets of mills constituted the mill sector. Weaving activity, apart from that in the composite mills also took place in other largely small weaving units, the powerloom and handloom sectors.
These two together constituted the decentralized sector, the primary market for the yam produced by the spinning mills. Handlooms of course had been in existence for a long time. Powerloom units started getting established in some major centres, particularly in Maharashtra, Gujarat and Tamil Nadu, during the early part of the century and from the
inter-war period48• The continued co-existence of these three components of the textile
sector in India was one of its distinctive characteristics after independence.
In addition to above broad categories based on the principal fibre and process used -there existed also the overlapping woollen textiles, hosiery and art silk weaving segments. The woollen textiles industry too had an organized mill sector as well as a decentralized sector, with the other two being classed in the decentralized sector49
•
These were the main sectors that came to use the alternative knitting process. The '"art silk weaving sector" had begun in a small way in the pre-independence period using imported rayon yams.
V.4.1 Main Trends in the Indian Textile Industry after Independence
At the time of independence the organized sector mills did virtually the entire spinning activity, and the major part of weaving of fabrics accounting for about four-fifths of total fabric production. By independence, domestic production supplied the bulk of textiles consumed in India. As a consequence, there was little scope for the Indian textile
industry to benefit from the import substitution possibilities implicit in the redistribution of global textile capacity that took place after the Second World War. On the contrary what happened in India after independence was the redistribution of textile capacity and
production within the domestic economy, from the mill sector to the decentralized, mainly powerloom, sector. By 1990, cloth production by mills in absolute terms was a little over half of what it had been at its peak in the 1950s. The mills' share in total cloth
production in India was less than 13%, while the powerloom sector on the other hand accounted for 68%.
The factors mostly described as responsible for the crisis in the textile industry were
mainly, the restrictions· imposed on organized mills by government policy and the restricted growth of demand for textiles in India50
• Textile weaving capacity in the mill
48 GOI (1964a) 49 GOI ( 1985). 50 Misra, S. (1993), Chaudhuri ( 1994), Chandrasekhar (1984), Khanna ( 1992), Goswami (1990a, 1990b)
227
sector was frozen at the existing level in 1956 with expansion being permitted only for exports and this restriction lasted ti11 198551
• While this created entry barriers in the mi11 sector, it did not protect the mi11s from competition from the decentralized sector. Authorized and unauthorized powerlooms expanded on a large scale. For a long period, mi11s were also prevented from manufacturing pure non-cotton cloth, restricted even in the use of non-cotton fibres in blends without special licenses, and prohibited from using filament yam in the warp. For a period since the 1960s, mills were also subjected to statutory price controls, with all composite mi11s being required to produce stipulated
minimum amounts of such controlled cloth.
Spinning activity in the organized mills was however not restricted in the same way as weaving. Yet it grew slowly despite the continued dominance of spun over filament yams, primarily on account of the slow growth of textile demand in India. Per capita
consumption of textiles in quantitative terms did not increase significantly between independence and 1990, except in the case of a small segment of the population falling in the highest income brackets. There was an increasing segmentation of the market rather than a rapid expansion of the aggregate market, mainly due to income-distribution
trends. Thus growth in textile consumption was primarily due to increases in population. However, particularly from the mid-1970s, in value terms, there was a more rapid increase in the purchases of textiles, indicating a shift towards higher value textiles52
•
Under these circumstances, there was also very little modernization of production techniques in the mills, and automation levels remained remained extremely low. Thus the major improvements in textile machinery after the Second World War had very little penetration into the Indian textile industry. And unlike the trend in the advanced economies towards increased concentration in the textile industry, the broad pattern of movement in the Indian textile industry was apparently in the opposite direction.
However the mill sector was not homogenous in nature. From the mid-1960s onwards, there was an increasing differentiation between the organized sector textile mills catering to different market segments53
• A dominant oligopolistic segment emerged within the mills that catered to the luxury market where non-price competition
dominated. These mills, mostly those historically producing the finer varieties of cotton fabrics, were more successful in meeting the challenge of the powerloom sector and were able to abw.rb the improvements in technology of production and processing of
textiles, aided by income distribution trends expanding their market. For other units, such technological improvements were not viable. Thus while on the one end a small
group of oligopolistic large textile units emerged, the production of fabrics for the mass market was generally increasingly dispersed in smaller manufacturing units in the
decentralized sector.
The oligopolistic segment within the mill sector was also the one that came to increasingly use MMFs in blends, and· in the production of blended fabrics the mill sector retained its lead over the decentralized sector till the mid-1980s. The penetration
51 Misra, S, ( 1993) 52 Misra, S. (1993) 5' , Chandrasekhar ( 1984), Khanna ( 1992)
228
of MMFs into Indian textile production was slow, and though its share was declining cotton remained the dominant fibre till 1990. Cotton accounted for over 73% of the Indian textile industry's total fibre consumption by weight in 1989-90 compared to 82% in 1980-81. But there was a continuous redistribution of textile demand and consumption from pure cotton fabrics to blended and pure non-cotton fabrics, which accelerated in the 1980s.
Table 5.20: Fibre Wise Percentage Shares in Quantities of Consumer Purchases of Textiles
~ear Cotton Blended Non-Cotton
1973 89.10 5.66 5.24 1980-81 78.63 12.36 9.01 1989-90 53.03 27.30 19.67
Source: Consumer Purchases of Textiles, Market Research Wing, Textiles Committee
Though cellulosics were the first MMFs to be used by the Indian textile industry, and till the mid-1980s their consumption exceeded that of synthetics, the demand for the latter increased more rapidly after they made their appearance in the 1960s. As had happened in the advanced world earlier, polyester was without doubt the leading synthetic fibre and the increasing demand for polyester based fabrics preceded polyester fibres becoming cheaper than cotton or rayon. Polyester and polyester blended fabrics accounted for virtually the entire displacement of cotton fabrics, and in 1990 polyester and cotton were the exclusive fibres used for over 90% of fabrics consumed in India. In India polyester remained more expen~ than cotton even in 1990, long after their relative positions were reversed internationally. But there was in India a replication of the trend of the gap between the prices of the two fibres closing, as is indicated by the fact that the share of polyester fabrics in quantities purchased increased more rapidly than in the value of purchases.
Table 6.21: Percentage Shares of Polyester and Polyester Blended Fabrics in Quantities and Values of Consumer Purchases of Textiles
Year 1973 1980 1990
Fibre Quantity Value Quantity Value Quantity Value
Polyester 1.24 2.92 4.24 9.29 13.90 21.75
Polyester-Cotton 4.62 15.71 10.05 25.36 23.45 30.84
Polyester-Woolen . ·0.07 0.63 0.15 1.20 0.21 1.2 I
Polyester-Viscose Neg. Neg. Neg. 0.02 1.00 1.63
Total 5.94 19.25 14.45 35.88 38.56 55.44
Source: Consumer Purchases of Textiles, Market Research Wing, Textiles Committee
V.4.2 The Structure of the Synthetic Textiles Industry
The powerloom sector undoubtedly had an important role in the increasing penetration of MMFs in India. It was throughout the principal consumer of filament yams. Nearly the entire production of 1 00% non-cotton fabrics from the very beginning was concentrated in the powerloom sector, and so was an increasing part of that of blended fabrics. It was also the sector that acquired the most pronounced orientation towards MMF fabrics.
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Table 5.22: Distribution of Fabric Production By Sector and Fibre, 1989-90
Fibre Cotton Blended Non-Cotton Total Sector Distribution of Fabric Production by Sector Hand looms 27.53 0.66 1.61 19.05 Powerlooms 58.42 68.27 97.25 68.00 Total Decentralized 85.96 68.93 98.86 87.05 Mills 14.04 31.07 1.14 12.95 Total 100.00 100.00 100.00 100.00
Distribution of Fabric Production by Fibre Hand looms 97.78 0.36 1.86 100.00 Powerlooms 58.13 10.32 31.55 100.00 Total Decentralized 66.81 8.14 25.05 100.00 Mills 73.38 24.67 1.95 100.00 Total 67.66 10.28 22.06 100.00
Source: Compendium ofTextile Statistics, 1993
How the powerloom sector came to play such a decisive role in the penetration of
synthetics like polyester, particularly in its early stages, represents a bit of a paradox. In the ultimate analysis, the competitive advantage of the decentralized sector over organized mills in cloth production was supposed to be related to their lower costs of production, an advantage that mattered significantly in the price-sensitive mass market for textiles. In the upper segment of the market on the other hand, where price was not the decisive variable, a section of mills managed to hold their own and acquired dominant positions. But it was precisely this segment of the market that was also the
major consumer of synthetic textiles before the 1980s. In the 1960s and 1970s, the price differentials between cotton and synthetic fibre textiles were greater than in the 1980s and synthetic fibre textiles were clearly luxury products whose mass usage was extremely limited54
• How then did the powerloom sector come to dominate in a low volume high value product whose market was concentrated in a narrow upper income and urban segment, where usually organised units had a relative competitive advantage?
This apparent contradiction can be resolved if we recognize the fact that like the mill sector, the powerloom sector too was heterogeneous in nature, with the existence of
organized and unorganized, large and small, segments within the sector. As mentioned earlier, the art silk weaving industry was entirely classified as belonging to the powerloom sector. But it included a number of relatively larger organized units that
were registered under the Industries (Development and Regulation) Act, 1951 but were not included under the mill sector because they were not cotton spinning or composite
mills. The Powerloom Enquiry Committee (1964), had in its report acknowledged the existence of such large units and identified the Silk and Art Silk Mills Association (SASMA) as their representative organization55
. The members of that Association with art silk weaving units included manufacturing units belonging to then big business
54 In 1978, urban India accounted for less than 27o/o of all textile consumption, but its ·share in consumption of polyester fabrics was 60%, and that in polyester-cotton fabrics was above 41%. In terms of shares in value of polyester or polyester blended fabrics, these were even higher at over 62 and 47% respectively [Textiles Committee, 1980]. 55 The average number of looms per member of Association in 1965-66 was 83.73 with more than a third of the total looms belonging to just 20 units (out of a total of 209), each having more than 200 looms [SASMA (1966)].
230
groups like Birla. Modi, Shri Ram, Rohit. and Podar, and those who subsequently became big groups - like Orkay and Garden Silk. In fact. the largest contingent of its members (98 out of 223 in 1964) was from Bombay, not considered one of the major power loom centres56
•
This category of large units who more closely resembled the organized cotton miJJs rather than the vast majority of the decentralized sector smaJJ powerloom units, appear to have played a significant role in the increasing penetration of synthetic fibres in the 1960s and 70s, particularly of continuous filament yams. Detailed statistics of this segment are not available, but from 1980, the Indian Textile BuJJetin started publishing some limited statistics on Art Silk Weaving Units registered under the IDR Act. These are given in Table 5.23 for the years 1979-80 and 1980-81, and can be used to arrive at a number of important conclusions about the structure of the synthetic fibre textiles industry in its early stages.
Table 5.23: Statistics of the Art Silk Industry Registered under the IDR Act, 1979-80 and 1980-81
Year 1979-80 1980-81 Quarter I II Ill IV Total I II Ill IV Total
No. ofUnits 163 163 163 163 163 163 163 163 Registered No. of Units 39 42 35 56 56 51 50 44 Reporting
INSTALLED CAPACITY (NOS.) Spindles 45728 47452 43204 62100 60340 57788 64100 60876 !(Twisting) Looms 5628 6378 5266 8175 8152 7311 7279 6005 Knitting 15 28 20 74 74 72 74 70 machines
YARN CONSUMPTION '000 KGS.) Total 662 762 525 3128 5077 3207 3429 4772 4708 16116 Filament Cellulosic 342 424 225 583 1574 532 328 326 252 1438 Polyester 143 207 193 2320 2863 2426 2833 4222 4183 /3664 Nylon 177 131 107 225 640 249 268 224 273 /014 Total Spun 1202 1148 1195 1735 5280 1612 1477 1631 1444 6164 Cellulosic 47 85 88 89 309 42 24 21 15 102 Polyester 21 6 3 9 39 6 7 9 8 30 Blended 1134 1057 1104 1637 4931 __ ... 1564 1446 1601 1421 6032.. Total Spun 1864 1910 1720 4863 10357 4819 4906 6403 6152 22280 and Filament
PRODUCTION OF FABRICS ('000 metres) Total 12722 14849 12736 23999 64306 26557 21547 26748 21216 96068
Source: Indian Textile Bulletin, Vol. XXVII, No. I, January-March 1981
That there were differences within these organized units with regard to yam usage is indicated by the different relative consumption figures of blended and filament yams in different quarters. The consumption of filament yams is also clearly heavier in the quarter's where the coverage of units with more knitting machines is greater. Moreover, amongst units using relatively greater proportions of filament yams, polyester was the
56 SASMA (1964)
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dominant fibre. In fact the consumption of polyester filament yams in some quarters is so high as to indicate that a few units dominated domestic PFY consumption. The total annual consumption of PFY of just the reporting units for 1980-81 works out to be 13664 tonnes. In the same year, domestic production and imports of PFY were I 0,685 tonnes and 11,072 tonnes respectively. In other words, the consumption ofPFY by these reporting units, some 50 odd in number, was nearly 62% oftotal domestic availability.
Thus it would appear that the synthetic fabrics industry was far more concentrated in character up to the 1970s than would appear at first sight. There is also some other evidence to corroborate this with regard to the knitting segment. In the early 1970s, it was estimated that there were about 5000 knitting factories in India (of which companies owned only 8% ), but only a few had the sophisticated machinery like warp knitting machines required for use of synthetic filament yams57
• Most of the machinery required
was not produced domestically, and imports were highly restricted, with those of warp knitting machines being even banned for a period. Figures for 1974, published in another source58
, show that there were 307 warp-knitting units using MMFs, mainly located in Maharashtra and Punjab. They had a total of 844 knitting machines installed of different vintages, 656 of which were warp knitting looms. 474 of these knitting
machines, and 380 of the warp knitting ones, belonged to the 150 units in Maharashtra. The picture was not very different in 1979, when there were 878 authorized knitting machines installed in the "powerloom" sector using man-made fibres and yam, with Maharashtra accounting for 288 of the 606 warp knitting machines and 365 of the total 59
.
A few large units also monopolized the ownership of facilities for crimping synthetic continuous yams, there being 37 such units with 93 crimping machines in 197460
•
Moreover, even if smaller powerloom units did some of the manufacturing activity, larger units would have controlled the processing and marketing of such fabrics61
•
Putting these together one could conclude that the early penetration of synthetic fibres into the market for textiles was through a relatively small group of organized sector units from within the cotton mill and art silk weaving sectors. The former took the lead in the case of blended fabrics, the latter in the use of synthetic filament yams and the knitting
process. While some enterprises straddled both the sectors, the restrictions on cotton mills in the use ofsynthetic filament yarns meant a degree. of separation between the
two. The art silk weaving sector also contained enterprises that were not involved in the cotton mill sector. However, in the eighties, as synthetic textiles gradually moved beyond the narrow boundaries of the upper segment and acquired a wider market, the process of increasing redistribution of production which had earlier taken place in the
case of cotton, from the larger organised units to smaller units took place even in the
57 Sreenivasan and Doraiswamy ( 1973) 58 SASMIRA ( 1974). 59 ASFI, Handbook of Statistics, 1979 60 SASMIRA ( 1974). 61 The Powerloom Enquiry Committee indicated that this was the established practice since processing facilities required larger capacities to be viable.
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case of synthetic textiles, albeit only in relative terms, and perhaps this was even the necessary mechanism for a wider penetration of synthetic fibres.
V.4.3 The Growth of the Synthetic Fibre Industry
The growth of the MMF production in India largely mirrored that of its consumption with a time-lag. Every MMF first penetrated into India in the form of imports to be subsequently folJowed by domestic production through a process of import substitution in a protected market. MMF production in India was initiated in 1950 with the setting up of the first Viscose Filament Yam unit. Viscose Staple Fibre manufacture commenced in 1954 and that of Rayon Tyre Yam in 1961. By 1965, aU the units manufacturing
rayon fibres ti11 1990 had come into being and subsequent expansion was concentrated in these units. Synthetic fibre production began only in 1962 through the first Nylon Filament Yam producing unit, Polyester Staple Fibre manufacture in 1965, and that of Polyester Filament Yam in 1967. Thus by the end of the 1960s, except for acrylic
(whose production started only in 1979), aU the major man-made fibres were being produced in India.
The growth of ceUulosic fibre production was rapid ti11 the advent of the synthetic fibres, slowing down substantia11y in the 1970s. Only in the case of VSF was there a revival of growth in the 1980s. Synthetic fibres, primarily polyester, showed impressive growth
rates in both the 1970s as wen as 1980s. By 1983 their production levels exceeded that of ce11u1osic fibres.
Table 5.24: Growth of Man-Made Fibre Production in India, 1960-90 (Annual Average Growth Rate)
Fibre/Yarn 1960-70 1970-80 1980-90
Nvlon Filament Yam - 7.43 6.87 Polvester Filament Yam - 31.78 32.68 Polvester Stante Fibre - 15.60 18.80 Viscose Filament Yam 6.70 1.44 1.70 Viscose Staole Fibre 11.24 0.93 7.85 Source: ASFI, Handbook ofStatistics, Compendium ofTextile Statistics, 1993
Despite the more rapid growth of synthetics since 1970, it was in ce11ulosic fibres that production levels in India came to be amongst the highest in the world, comparable even with countries like Japan· ,and USA. In the case of synthetics, on the other hand,
production levels in India were significantly lower than not only these two countries, but also others like China, South Korea, and Taiwan.
Table 5.25: Production of Man-Made Fibres in Selected Countries, 1990 (Thousand Tonnes)
Country VSF VFY PSF PFY NFY INDIA 159 51 138 181 41 CHINA 143 39 622 420 Ill SOUTH KOREA - II 408 474 198 TAIWAN 146 2 622 676· 190 INDONESIA 60 - 109 157 14 JAPAN 175 48 311 406 274 USA 136 - 948 501 758
Source: Compendium ofTextile Statistics, 1993
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In the 1980s, except in the case of VFY, there were significant increases in capacities of all major MMFs, the largest increases being in PSF and PFY. The synthetic fibre capacity in existence in 1990 was mainly created during that decade. Till these happened, domestic capacities for many MMFs had remained inadequate to meet domestic demand necessitating continuous imports. But by the end of the 1980s domestic production met most of the demand for all MMFs. In the case of PSF, in fact; domestic capacity had substantially exceeded demand.
But the relationship in the 1980s between capacity creation, production, import replacement and consumption trends, was different in the case of different MMFs. In the case of both VSF and PFY, expansion of production mirrored that of capacity. But the growth of the former was largely a result of replacement of imports, while PFY growth was a result of a combination of import replacement and an explosive growth of domestic PFY consumption. The extent of import replacement was much less in the case ofPSF. Its consumption too showed a fairly rapid growth but capacity expansion was at a much higher pace than production. NFY capacity creation, production and consumption trends were roughly similar to each other, with import replacement being least important in its case.
Table 5.26: Domestic Capacity, Production and Availability of Major Man-Made Fibres in India, 1981 to 1990
VSF Year Capacity Production DP/A 1981 97400 82668 58.07 1982 97670 84199 47.14 1983 . 97670 49288 41.11 1984 97670 82784 75.66 1985 107670 102018 84.61 1986 107670 89981 88.10 1987 112700 96301 97.98 1988 112700 119451 98.87 1989 116700 125702 99.79 1990 157850 147646 99.79
VFY PFY Capacity Producti DP/A Capacity Producti
1981 41835 41361 93.21 9046 10685 1982 43385 41053 94.47 15286 15508 1983 43385 33185 84.79 27251 24687 1984 43381), 35415 86.45 33710 47989 1985 43385 32949 96.72 41869 55323 1986 44825 42041 92.45 43342 67428 1987 45185 44641 103.30 70843 81432 1988 54985 45933 107.14 74181 111456 1989 54985 44364 101.19 107045* 142971 1990 53213 49328 104.65 158670* 156484
DP/A =Domestic Production as percentage of Availability
Source: Compendium ofTextile Statistics, 1993
PSF Capacity Production DP/A 33575 22434 83.96 35825 29709 90.28 36925 25773 70.88 44368 26872 61.40 44994 38976 87.35 43272 42828 72.69 128506 65627 70.91 146218 79434 96.82 204062 111579 116.16 230062 127120 133.04
NFY DP/A Capacity Producti DP/A 49.11 21740 20727 93.33 44.15 25290 23136 83.83 56.87 29985 25510 95.73 81.91 30499 30635 .86.9"3'''"' . 91.39 34018 34535 94.00 89.77 41918 39377 94.85 91.45 43518 36724 97.51 96.16 47520 34316 98.03 95.17 68196* 35760 96.58 93.26 94000* 38731 96.13 *Includes capacity under broad-bandmg
Given the relatively small sizes, by global standards, of the MMF industries in India, it was natural that they be concentrated. But as had happened amongst the MNC fibre manufacturers earlier, entry into synthetic fibre production was more "popular" amongst firms. Likewise, despite the relatively greater importance of scale factors in the synthetic
234
fibre industries, the cellulosic fibre industries had fewer producers and comparable or larger average scales (Table 5.27).
Table 5.27: Number of Units and Average Capacity in the Man-Made Fibre Industries in India, 1990 (Capacity in Tpa)
Product Number of Units Average Capacity per Unit VSF 3 52616.67 PSF 10 23006.20 PFY 17 9338.82 NFY II 8545.45 VFY 8 6651.63
Note: In case ofNFY and PFY, installed capacity includes that under Broad-Banding Source: Compendium ofTextile Statistics, 1993
It was mainly domestic enterprises that dominated MMF production in India. Except for ICI, which introduced PSF into India, Modipon (a joint venture between the Modi group and Rohm and Haas),· and Century Enka (a Birla-Akzo joint venture), MNC involvement in the MMF sector was limited to provision of technology/plant &
machinery. This was despite the fact that many of the major global producers ofMMFs, particularly of synthetics, like Hoechst, Bayer, BASF, Celanese (acquired by Hoechst in 1989), Monsanto, Courtalds, ICI, etc. did have a significant presence in India in other sectors. Even in the case of synthetic fibre technology, most domestic enterprises sourced it not from MNC fibre manufacturers but from the specialized engineering/consultancy firms62
• The technology for MMF production came mostly
from Europe and the US. Unlike therefore in the case of East and South East Asia, Japanese MNC firms had virtually no role in the development of the MMF industries in India.
The growth of MMF demand in India, though rapid in the 1980s, was nevertheless inhibited on account of the fact that relative to cotton, MMFs remained, for the entire period till 1990, substantially higher priced. The differential between domestic and international prices was virtually non-existent in the case of cotton, highest in the case of synthetic fibres whose domestic prices were three to four times the international prices, ·
and relatively less in case of cellulosic fibres. There were mainly two contributory factors to the relatively higher prices of synthetic fibres. One was that domestic scales of
production, of both fibres as well as fibre intermediates, were relatively small and could be sustained only by high import tariffs raisfu~he-price of imported fibres ano'·~·
intermediates too. Secondly, in relation to cotton, MMFs bore a much heavier burden of excise duties. Even within the category of MMFs, the synthetics were affected more severely since their minimum efficient scales were higher than those for cellulosics and
the excise burden on them was greater.
However, relative price movements were more conducive to the increasing penetration
of polyester, which to begin with was the by far the most expensive of all fibres. The prices of all polyester or polyester blended fibres showed a fairly stable or declining
trend from the mid-1970s, contrary to the trend in the case of other fibres and in the general price level. This happened despite the fact that import duties on PSF and PFY
62 A lam ( 1982)
235
were consistently higher in the 1980s than in the previous decade, indicating declining relative costs of production.
Table 5.28: Prices of Textile Fibres and Yams (Rs. Per Kg.), 1976 to 1990
Fibres Cotton Yarn Blended and MMF Spun Filament Yarns Yarns
Year Raw VSF PSF Hank Cone Polyester Polyester Viscose VFY NFY PFY Cotton -Viscose -Cotton (76 D)
1976 9.61 10.70 86.67 16.17 13.00 90.75 92.50 29.79 116.83 185.00 1981 15.28 16.80 87.79 22.37 27.31 24.00 46.26 146.56 174.00 1985 16.17 23.75 93.00 28.37 33.26 91.06 32.40 74.09 179.23 199.00 1990 18.15 38.63 70.40 47.32 56.41 105.21 125.44 73.20 127.69 253.99 190.00
Source: Compendium ofTextile Statistics, 1991 and 1993
V.4.4 Petrochemicals and Synthetic Fibre Intermediates
The production of basic bulk petrochemicals in India began in the mid-1960s with the
state playing an active role in its promotion63• The first petrochemical complexes were
set up in the private sector, one by an affiliate of an MNC, Union Carbide, and the other two interlinked units by the Mafatlal group in collaboration with Royal Dutch Shell and Hoechst. Thereafter, however, till the 1980s, private Indian firms did not show any keenness in investing in basic petrochemical production, and the main responsibility was
borne by the state in nurturing its development. The Indian Petrochemicals Corporation (IPCL) was formed in the public sector in 1969, and its petrochemical complex was commissioned in 1973. IPCL was even required to take over implementation of six downstream projects initially earmarked for the private sector64
• The public sector Bongaigon Refinery and Petrochemicals was also established in 1974, but its petrochemical complex was not commissioned till the mid-1980s.
As a result of this development of the petrochemical industry, from the 1970s all the basic synthetic fibre intermediates came to be produced in India, though imports were still required to supplement domestic production. IPCL itself produced all the three basic polyester intermediates given in the table below, and was the only producer of these till the 1980s, when the rapid expansion of the synthetic fibre industry also resulted in
increasing demand for fibre intermediates. The production trends in them also followed suit as part of a general trend of expansion of the petrochemical industries in the 1980s.
Though new firms d!d enter their.production, the polyester intermediates industries were far more concentrated than the PSF and PFY yarn industries.
Table 5.29: Production of Polyester Intermediates (Tonnes)
Year MEG DMT/PTA (In DMT equivalent) Year Para xylene
1981-82 15491 27317 1985-86 20840 53496 1985-86 17348
1990 31168 304120 .1989-90 123476
Source: ASFI, Handbook of Statistics; GOJ, BICP (1994)
63 Khanna ( 1984) 64 1PCL set up II plants in upstream and downstream products between 1969 and 1975.
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V .5. RELIANCE AND THE TRANSFORMATION IN THE INDIAN TEXTILE INDUSTRY
Fundamentally, the overall demand situation for textiles in post-independence India made for a relative stagnation of the textile industry. But the transmission to India of technological developments in the international textile industry, by creating alternatives to both cotton textiles as well as in techniques of textile production, enabled a process of expansion centred ori certain paris of the textile industry. This expansion involved MMF and MMF blended textiles increasingly substituting pure cotton fabrics in Indian textile consumption. This growth through substitution could be rapid because though per capita consumption was stagnant, the demand for texiles in India was large given the vast population and relatively high rates of growth of population. The expanding demand for synthetic fibre, primarily polyester, based textiles created growth opportunities not only in the production of these textiles but also in tum outside the textile industry, in the production of fibres and fibre intermediates, which also involved a transmission of technological developments in the petrochemical industries.
Though the growth of synthetic fibre and fibre intermediate production was in itself of an import-substituting kind, the growth of the synthetic textiles and fibres industry at the same time had a domestic production replacing character. In comparison to the cotton textiles that they replaced, synthetic textile growth had to be significantly more import-dep~ndent. Domestic capacity and technology largely existed for the production of the larger proportion of cotton textile production, from the most basic raw material through to fabric stages. But that was not the case with synthetic textiles or fibres, and foreign exchange availability and the import-policy environment therefore were important factors conditioning their growth.
The pattern of, and trends in, the demand for textiles in India were also such that worked towards a dispersion of fabric production away from large scale mills, and into smaller units in the decentralized sector. The market for textiles was of a kind that had in volume terms a large price-sensitive segment. At the same time it inhibited the large investments required for mills to achieve major improvements in productivity. In the absence of these investments, the decentralized sector enjoyed a decisive competitive advantage in the mass market for textiles and increasingly came
it*'~·~Uueplace mill production of fabrics. Only the increasing segmentation of the market for textiles created a niche where a relatively few organized mills dominated. It is this niche that formed the basis, from the 1960s, for the initial replication of the trends in textile production first observed in the advanced world - concentrated production, introduction of technological improvements, and increased use of synthetic fibres.
The production of synthetic fibres and yams was also the natural preserve of organized sector units, and in comparison to the other textile related activity that was their preserve too, namely spinning of yam, technological factors made the minimum levels of concentration in their production significantly higher. But large-scale production of synthetic fibres and their intermediates was inhibited as long as the consumption of these fibres was limited to a narrow segment of the market. The large opportunities for growth in these industries required an increasing penetration of
237
synthetic fibres into the mass market for textiles, something that was inhibited by the high prices of synthetic fibres which were themselves partially a result of their limited production scales. This penetration, to the extent it did take place in the 1980s, involved a replication in of what had happened earlier in the case of cotton and rayon fibre textiles, the erosion of the relative monopoly of the organized mills and the increasing dispersion of synthetic fabric production into the decentralized powerloom units.
These trends in the textile industry associated with the rise of MMFs, with regard to their impacted on organized sector manufacturing directly or indirectly connected with the textile industry, therefore had mutually interrelated contradictory effects at two poles. On the one side they aggravated the crisis of the organized cotton textile industry, which was dominant not only in textiles but in the manufacturing sector as a whole at the time of independence. The spinning segment of it was less affected than the weaving one because the requirement of spun staple fibre yam had to be also met by the sector, but its growth too was partially checked by the increased use of filament yams. The deepening of the crisis of the old textile industry was accompanied by the emergence of growth and investment opportunities, for organized manufacturing units, in the manufacture of higher value fabrics, including synthetic textiles, and the inputs involved in the chain of production of synthetic textiles. This growth took place in two phases up to the end of the 1980s.
In the first phase from the 1960s to the mid- and late-1970s, the growth of the synthetic textiles and fibres industries in India was held back below potential levels due to a number of factors other than purely the demand situation for textiles. Foreign exchange constraints, the restrictive conditions in the market for synthetic fibre and petrochemical manufacture technology, and the overall crisis afflicting Indian industry, were the major restraining factors. Organized units dominated in the manufacture of synthetic textiles and its market was restricted to the upper segment, and yet domestic production of synthetic fibres was inadequate and scales of production of synthetic fibre manufacturing units tended to be very small. In the 1980s however, as the process of substitution in the upper end of the market approached completion, the upswing in overall growth, the changed situtation in the international market for fibre and petrochemical technology, and import liberalization, enabled it to. extend itself to the··;nass market for textiles. This expanded investment opportunities for organized units not so much in synthetic fabrics production, but more so in synthetic fibre manufacture. This coincided, partly for similar reasons, with a context favourable to the expansion of other petrochemical products, which in combination made the petrochemicals sector including synthetic fibres one of the major sectors partaking in the rapid growth of industrial and private corporate investment in
thel980s.
If we were to place the growth of the Reliance group in this background, it is firstly clear that its trajectory of growth was one that closely mirrored the overall trajectory of expansion for organized units connected to the textile industry. The common thread running through its entire history had its basis in that, with the Reliance group's
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expansion riding on the trends in the textile industry associated with the increasing penetration of synthetic fibres. In its textile phase, the group grew through its participation in the process of substitution of cotton textiles by synthetic textiles in the upper segment of the market, avoiding the crisis that afflicted the cotton textiles industry. This enabled the group to grow to a particular level, but it was a growth that would have been tending to plateau towards the end of its textile phase as a result·of saturation in the upper end of the synthetic textiles market and entry of newer units. Had the Reliance group simply continued in those activities, it would perhaps still have grown, but that growth would have at best sustained or marginally improved the relatively small monopoly status that it had achieved by the end of its textiles phase. It could not have seen the spectacular rate at expansion it actually experienced in the 1980s. That was achieved by taking advantage of the continued rapid expansion in the synthetic textiles industry by moving backwards, thereby tying its fortunes with the synthetic fibre and petrochemical industries, where the potential growth opportunities for individual organized sector enterprises came to be greater. The financing of this rapid expansion was facilitated by the boom in the capital issues market associated with the increased significance of financial savings of the household sector that emerged from the late 1970s.
Neither in the activities with which the Reliance group began its manufacturing history, nor in any one of those it subsequently diversified into, was it a pioneering enterprise in the Indian context. It was typically a later entrant in all of them, though Reliance's entry was before they had achieved full maturity. Synthetic textile manufacturing including both knitting and weaving units existed before 1966 and Reliance as a trading enterprise in fact did business with them. The spinning of synthetic fibre yarn began much before Reliance entered into that field in the late 1970s. Reliance's entry into PFY manufacture was nearly a decade and a half after its first production in India, while the same gap in the case of PSF was two decades. IPCL initiated the manufacture of polyester intermediates in 1973, again a decade and a half before Reliance's entry into them. Even in the case of LAB, Reliance followed IPCL and the private sector Tamil Nadu Petroproducts of the M.A. Chidambaram group.
Not only was it typically a later entrant, Reliance's entry in most. of the industries it entered into was also at a time of a generalized trend of investmerifin them in which other new entrants or incumbent firms also participated, some moving in that direction before and some after Reliance. In other words, the directions in which it chose to seek growth opportunities for itself were not typically unique.
In its textiles phase, as has been mentioned earlier, the Orkay group closely resembled the Reliance group. The Orkay group, like Reliance, was not a traditional large group, and began its business activities through partnership. firms. Orkay Silk Mills, the principal Group Company in 1990, was incorporated in 1968 to take over the business of a partnership firm set up in 1957. The group was involved in the organized synthetic textiles industry till the 1980s, like Reliance combining the knitting and weaving of textiles with the processing of fabrics and synthetic yams. In the 1980s, it too like
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Reliance and in the same year diversified into the manufacture of PFY as part of a proposed expansion into chemicals65
•
In 1981, apart from Reliance and Orkay, two of the existing manufacturers of PFY, Petrofils Co-operative and J.K. Synthetics, were also granted approval for substantial increases in their capacity. Between that year and 1984, before Reliance secured approval for its entry into PSF manufacture, two existing units, J .K. Synthetics and BRPL, and two new entrants, India Polyfibres and Orissa Synthetics, secured approvals for a large addition to the industry capacity. Indeed in the 1980s, about fourfifths of the capacity expansion in PFY and PSF manufacture was by some 20 odd firms other than Reliance. Apart from Reliance, J .K. Synthetics, Bombay Dyeing of the Nowrosjee Wadia group, and the public sector BRPL and IPCL expanded or
created capacities for polyester intermediate manufacture. The combining of PSF and PFY manufacture was done before Reliance by J.K. Synthetics, which along with BRPL also preceded Reliance in going in for a degree of vertical integration in
polyester manufacture.
The transition of the Reliance group into one of the largest in India in a short span of
two and a half decades was thus not based on finding investment opportunities in areas overlooked by other enterprises or considered too risky by them. Neither was it the only enterprise to take advantage of the capital market boom. What marked out Reliance as distinct were the following two dimensions associated with its growth.
The first was that no other enterprise operating in the same industries as Reliance managed to combine involvement in all the industries it managed to diversify into through its sequence of expansion. Orkay for example matched its trajectory up to the point of entry into polyester manufacture but could not match Reliance's further diversification's in petrochemicals. BRPL, manufacturing paraxylene, DMT, and PSF,
came the closest to Reliance's petrochemical product profile, but did not have the same past or present involvement in the textile industry. Neither did IPCL, a producer of paraxylene and DMT, and a host of other petrochemicals in whose production
Reliance was still creating its entry capacities in 1990. The host of other enterprises combining involvement in the textile and synthetic fibre industries on the other hand had no presence in fibre intermediate and petrochemical industries, with the exception
of the limited captive capacities for DMT and MEG of the JK group. Bombay Dyeing produced one fibre intermediate, DMT, but the Nowrosjee Wadia group was not
involved in synthetic fibre manufacture.
The second unique feature associated with Reliance was that in both its textiles phase as well petrochemicals phases, the group managed to secure for itself a larger share in
the expansion in its chosen areas as compared to most other enterprises participating in it. This leading share was also true with regard to the mobilization of finance
through capital issues66• In each venture that it undertook, Reliance acquired a
dominant position despite being a later entrant. Its large share in 1990 in
65 The sanctions for the establishment of PFY plants by Reliance and Orkay were on the same date. 66 Discussed in greater detail in the next chapter
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petrochemical products has been highlighted in the first part of the chapter. This was attained entirely in the 1980s, in a decade when their production grew rapidly. In its earlier phase, Reliance also clearly became one of the dominant enterprises within the organized art-silk industry. In 1974 it had the second largest share in crimping capacity amongst the 37 units referred to earlier, accounting for just under a tenth of the total number of crimping machines67
• With its 34 knitting machines, it would also have been amongst the few larger knitting enterprises using synthetic filament yams, and also one in possession of more modem machines. The same was true of its synthetic textiles weaving capacity, and it was also amongst the large processors of synthetic textiles.
The emergence of a dominant enterprise of the type that Reliance became in either phase was in itself a likely possibility given th.e inherently concentrated structure of the industries it operated in. In its textiles phase, the limited size of the upper end of the market for synthetic textiles, the prevalence of non-price competition in it, and the restricted access of firms to imported machinery and inputs, gave it an inherently oligopolistic character. In synthetic fibre and petrochemical manufacture, the existence of significant economies of scale made for highly concentrated industries. Indeed, as the Reliance group graduated from the synthetic textiles to fibres and then to the fibre intermediates industries, it moved in the direction of industries where scale factors were more and more significant. This made the sequence of its diversification something that could not be easily replicated by a number of enterprises. By achieving it, the Reliance group successively left behind other enterprises competing with it in an earlier stage of its expansion, even as its scales of production and vertical integration reinforced its competitive position vis-a-vis these competitors.
To sum it up then, the story that the Reliance group scripted for itself over its life span from its birth to 1990 had its objective basis in factors largely originating outside the enterprise itself, and in making which it had little direct contribution or influence. These factors created the potential path of expansion for individual enterprises through which the Reliance group grew into one of the largest business groups in the Indian private corporate sector. In each stage of that path, the group was induced to move in particular directions by a combination of its own past history as well as the operation of generalized inducements to which other enterprises also responded. But in its entire sequence· of diversification across phases, and the consequent ultimate combination across industries, in its relative position in each industry and the capital issues market, as well as in the scale of its expansion, Reliance was unique amongst all these enterprises68
. But here again objective circumstances dictated that the Reliance kind of story at least in terms of its magnitude had to be a somewhat unique one.
None of this should however be interpreted to mean that the story of Reliance was historically inevitable, nor that if it had not been Reliance then it would necessarily have been some other group realizing what it did through a similar course. The strategic
67 SASMIRA (1974) 68 This statement needs a small qualification in that in tenns of the absolute increase in size between 1966 and 1990, the Tata and Birla groups achieved a greater expansion than Reliance.
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choices and decisions that the group made at different points of time were essential links in the making of the Reliance story, and to say that these were influenced by given conditions does not amount to asserting that they were the only ones that could have been made in those conditions. Indeed, the very fact that Reliance expanded in directions chosen by other enterprises too poses the question as to how in a competitive context did this late entrant become the most successful exploiter of the opportunities that were in principle open to other enterprises too. Moreover, it is not as if every enterprise involved in the sectors in which Reliance grew did very wen - for example, at least three synthetic fibre manufacturers by the end of the 1980s were sick companies. A fu]]er understanding of the Reliance story therefore requires us to focus on the factors which made for the success of specifica]]y Reliance in relation to its competitors.
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