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War and Press

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By In Andhra Pradesh, a newspaper group and the government are locked in fierce combat. Seetha tracks the bitter battles and their impact Additional reporting by G.S. Radhakrishna in Hyderabad
  • Published 3.02.08
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Ramoji Rao, the 71-year-old feisty proprietor and editor of Eenadu, Andhra Pradesh’s largest circulated daily (over 11 lakh), and boss of television channel ETV, is a veteran of several battles against the Congress party. His newspapers have taken pot shots at more than one Congress politician. Rao was a supporter of the Telugu Desam Party (TDP) when N.T. Rama Rao launched it in the early 1980s. But this time, the pugnacious media baron — who always dresses in white — is perhaps fighting the biggest battle of his life.

The portly Rao has taken on the state’s Congress government, headed by chief minister Y.S. Rajashekhar (YSR) Reddy. A slew of news reports in Eenadu and programmes on ETV since 2005 have accused Congress ministers, politicians and senior government officials of corruption and hanky panky. One report, for instance, debunked the official claim that the number of suicides by farmers had dropped. Another attacked construction by Y.S. Vivekananda Reddy, the chief minister’s brother, on disputed land. A third said that Eenadu had discovered, based on a survey, that voter lists for elections for local bodies had omitted the names of opposition party sympathisers.

Andhra Pradesh’s 59-year-old chief minister is not one to take all this lying down. A medical doctor, YSR set up several commissions to look into the deeds of the previous N. Chandrababu Naidu government — and YSR had been friends with Naidu when they were both in the Congress in the 1970s.

Not surprising, then, that the Andhra Pradesh government and the Congress party have hit back. Last week, it seemed that there was a question mark hanging over a crucial foreign investment proposal by the Blackstone Group for one of Rao’s main businesses. The global private equity firm has a proposal for a $150 million (Rs 590 crore) investment in Ushodaya Enterprises, which owns Eenadu and ETV. Recent unconfirmed media reports, however, suggest that Nimesh N. Kampani, chairman of JM Financial Ltd, the financial services group, has invested Rs 1,200 crore in Ushodaya. If that’s the case, Rao won’t need to depend on the Blackstone investment anymore. Rao declined to comment on the development.

Meanwhile, in the fight of the stalwarts, Congress workers have been staging anti-Rao demonstrations and burned his effigies and copies of Eenadu. The state advocate general sent Eenadu a notice about a news report. The state government took back some land from Ramoji Film City and demolished buildings on it.

Rao has also alleged that Eenadu was denied government advertisements on Andhra Pradesh Formation Day in November 2006. Certainly, the government changed its policy on advertisements — small and medium newspapers got preference. “The freedom of the press and the right to free speech enshrined in our Constitution are in grave danger in Andhra Pradesh today,” Rao declared in a letter to the Editors’ Guild last February. “The message is very clear — either the media should succumb and be subservient or else face unprecedented state-sanctioned harassment.”

YSR declined to comment when contacted by The Telegraph, but has, in media interviews, denied any witch hunt against Rao. Sources close to him said that he was merely letting the law take its course without putting obstacles in its way.

The state’s Congress party believes that Rao is targeting the ruling regime because of his sympathies for the TDP. But Rao, who declined to speak to The Telegraph citing his involvement in legal cases, pointed out to the Editors’ Guild that the Eenadu group “has been unsparing in its criticism, when the situation warranted” even against TDP governments.

Two issues are at stake in this no-holds-barred war — the Fourth Estate’s right to criticise a government and its right to access foreign capital, if you view matters from Rao’s perspective. His critics, however, would argue that Rao is merely being brought to book for wrongdoing.

Certainly, two matters have taken centre-stage in this fight:

  • The proposed $150 million investment by Blackstone Group in Ushodaya. When the investment was first proposed, the sum involved was $275 million or Rs 1,080 crore — perhaps the biggest foreign investment in the media.

  • The second matter is linked to the first and involves another Rao-owned entity, Margadarsi Financiers, which collects deposits from the public. Arunakumar Vundavalli, Congress Member of Parliament from Rajahmundry in Andhra, has accused Margadarsi Financiers of having raised money illegally.

Rao rumpus

Margadarsi Financiers, part of the Ramoji Rao HUF, has been taking deposits from the public since 1972. In 1997, the RBI Act barred entities that were not companies from accepting deposits

Margadarsi Financiers
owns 95% of Ushodaya
Enterprises Ltd

Ushodaya Enterprises owns Eenadu and ETV.

Blackstone plans to invest $150 million in Ushodaya Enterprises. But Rao may have raised money elsewhere

Margadarsi Financiers is part of the Ramoji Rao Hindu Undivided Family (HUF, an entity that is assessed for tax purposes differently) and is a kind of holding entity for Ramoji Rao’s media, films, food processing, hotels and financial services businesses. Margadarsi Financiers owns a 95 per cent stake in Ushodaya and putting it in trouble would cut off a financial lifeline to Ushodaya and, therefore, to Eenadu.

Vundavalli, who’s translated Rajiv and Sonia Gandhi’s public speeches into Telugu, has mounted a campaign with the Reserve Bank of India (RBI) and the finance ministry against Margadarsi Financiers.

He is not known to be particularly close to YSR but the latter seems to be backing him fully. The 53-year-old high court lawyer has brought out a booklet, Ramoji Rao Exposed. “I am convinced that Margadarsi Financiers has committed the biggest financial scam in post-independent India,” Vundavalli told The Telegraph.

On January 18, Blackstone’s reduced investment proposal got the green signal from the Foreign Investment Promotion Board (FIPB), the government arm that vets foreign investment proposals. However, it did not figure in the 41 proposals recommended by the FIPB that the finance minister cleared, deferred or rejected on January 30. “Whatever comes to me, I take a view and decide,” finance minister P. Chidambaram told The Telegraph. Asked why the Blackstone investment was left out of the list of proposals recommended to him by the FIPB, he said, “I don’t know.”

In January 2007, plans for Blackstone to pick up a 26 per cent stake in Ushodaya for $275 million had been finalised. Ushodaya was to use this money to repay Margadarsi’s depositors. The FIPB had recommended this original proposal twice before — in July and November 2007. Formal approval by the finance minister and the cabinet committee on economic affairs (which has to clear all foreign investment proposals valued at above Rs 600 crore) never came. Blackstone then reduced the investment size to Rs 590 crore to speed things up.

Clearly, that hasn’t helped.

The investment always met all the FIPB rules, says an FIPB member who did not wish to be identified. “When a perfectly valid investment is being stymied by political lobbying, what is the guarantee that even the reduced investment will be cleared,” he asks.

Blackstone declined to answer any questions but an informed source said it was aware of Margadarsi’s holdings in Ushodaya and its background and how the money it (Blackstone) was investing would be used.

The battle, meanwhile, shifted to Delhi, with Vundavalli arguing that allowing the investment would be wrong since Margadarsi, which practically owns Ushodaya, was indulging in illegal activities by raising money from the public — only companies are allowed to do so, and Margadarsi is part of an HUF, not a company. “The government,” he asserts, “cannot give permission for funds to flow into companies which have been violating laws.” If the government is not supposed to verify the antecedents of the investor or the recipient of investment, why have a mechanism for government approval for foreign investment, he asks.

Vundavalli’s missives appeared to have their desired effect. Even after the FIPB recommended the Blackstone investment (after clearance from the home, external affairs, corporate affairs and information and broadcasting ministries), the finance ministry questioned the use of funds to repay Margadarsi investors, though foreign investment policy doesn’t have any stipulations on this.

Clearly, then, there is more to the delays in the Blackstone investment than meets the eye. Vundavalli denies being part of a larger Congress design against Rao. And sources close to YSR deny that he has been lobbying against the Blackstone-Ushodaya deal or taking undue interest in the affairs of Margadarsi.

But it is also true that YSR’s son, Y.S. Jaganamohan Reddy, is launching a Telugu daily, Sakshi, which will hit the stands in late February.

How the battle plays out will depend on the finance minister, who has to decide on the Blackstone deal, and the Supreme Court, where Rao and the Andhra government are battling it out on the Margadarsi matter.