Why New Delhi Is Picking On Pepsi

Foreign marketers may get the unwelcome mat

When a Hindu nationalist party formed India's government in March, there was concern it might be hostile to foreign investors. After all, the Bharatiya Janata Party (BJP) rose to power chanting slogans of self-reliance. Since then, the BJP has made a point of welcoming foreign energy and infrastructure companies. But what about the consumer-products manufacturers that have invested millions of dollars in India?

They just got their answer. In mid-April, the Indian government fined PepsiCo Inc. $750,000 for an infraction it says occurred way back in 1992. While it's a niggling amount of money, the fine is the first indication that India won't be welcoming all foreign investors equally. The government claims Pepsi Foods Ltd. failed to meet an obligation to export tomato paste, soft drink concentrates, and potato chips from its Indian plants, and instead substituted rice and seafood. Pepsi, which has $400 million invested in India, is furious. It maintains the agreement is to export any foods it processed, not specific ones.

Making life difficult for foreigners is an easy way for the BJP to score political points. The party's core of ascetic, middle-class Hindus is uncomfortable with India's growing consumerism and the proliferation of multinationals. Now the BJP "can say, `Look, we did take a line,"' says Arun Kumar of Jawaharlal Nehru University.

The fine is likely to set a precedent. Many companies violate export obligations, finding them costly or untenable, and past governments looked the other way. Seagram agreed to export "liquor products" when it set up in 1995, but instead has been exporting T-shirts. That's because Seagram imports the alcohol it bottles in India, paying 270% duty. The company cannot recoup costs by reexporting bottled liquor, says Seagram India CEO Akram Fahmi.

Export Commissioner Anil Swarup insists politics don't play into the decision, but admits export monitoring was a low priority until a Parliamentary committee chaired by a BJP hard-liner criticized his office. BJP leaders know foreign investment is crucial. But with a key constituency to keep happy, the BJP has decided to draw a line between "desirable" investors and "unnecessary" ones.

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