Rbi should permit tata to pay docomo its dues

Rbi should permit tata to pay docomo its dues

One way to look at the standoff between the Reserve Bank of India (RBI) and the Tatas on the payment the Tatas want to make, to redeem their contractual obligation to Japan’s DoCoMo, reinforced by an international arbitral award, is to look at the legality or otherwise of the transaction.
Another is to see how the larger public good is served, to achieve which is the purpose of all laws and rules to begin with. DoCoMo invested in Tata’s telecom venture in India with the assurance that after a certain number of years, they could exit at half the value of the investment. However, this provision falls foul of an RBI rule meant to prevent investors passing off debt as equity. Do-CoMo wants to exit as per its contractual agreement with the Tatas, but India’s rules prevents Tata from making the payment. What is the way out?
Tata is the country’s best known industrial group, the one with the highest visibility in global markets. If it defaults on a contractual obligation with a credible global company, the effect would be equivalent to a credit downgrade by a rating agency. Indian companies would no longer be deemed credible and Indian business’ ability to forge partnerships with companies abroad would be impacted. The risk premium that foreign investors attach to investment in India would undoubtedly go up. There is also the question of India’s respect for the international arbitration process. A couple of recent Supreme Court orders have served to raise international confidence in India’s willingness and ability to honour arbitration awards. This, too, is at stake in the Tata-DoCoMo dispute. What is at stake is not just the Tatas’ reputation but that of Indian industry in general. Impairing that is an eventuality that has to be avoided.
How does one square the circle? The government could change its mind and direct the RBI to give an exemption to its rule in the present case. If that is deemed difficult, the RBI could levy a fine on the Tatas for violating rules while inducting foreign investment and permit Tata to pay DoCoMo its dues. The case should not drag on.