Let me start by putting three points upfront.
Economies, modern or traditional, rest on owners having control over what they own. Ownership and control are therefore intimately linked; in this relationship lies the foundation of economy. To put it another way, what good is ownership if control is weak? Therefore, reducing shareholder control, or curtailing it, hits at the very foundation of a market-driven economy and calls into question the instincts driving regulation and policy.
This is especially so when the entity under question is deemed to be, as the RBI says, “systemically important”. India is already grappling with challenges on corporate investment, and chipping away at the ownership and control relationship will not help matters. And even more so, when owner after owner is setting up family offices outside of India, leading to a leakage of both funds and corporate control to other countries.
But of all of these and other collateral matters, the critical issue is the role of the RBI, whose actions as a regulator started it all. The RBI’s chief responsibility is to ensure that financial and macro-economic stability is maintained in the country. To do so, it must keep a close watch on large commercial and financial entities, and if their actions could affect systemic stability, it must take corrective action. On this, there can be no argument.
Therefore, the RBI was keeping to its mandate when it called out the tens of thousands of crores in loans that Tata Sons had taken from Tata companies. Such loans might cause systemic instability, and based on this concern emanating from the RBI, Tata Sons repaid and eliminated the loans. The story should have ended there. The underlying cause was eliminated.
But unfortunately, the story did not end there. Two decisions on the part of the RBI have carried the matter forward. One, the RBI has retained its call for Tata Sons to list in the equity markets, and two, it has not given an explicit note of why it is making such a request.
Taken together, what that implies is that the owner-shareholders in Tata Sons do not know why they are being forced to list, because the previously stated reason is no longer operational. The presumption, of course, is that the RBI has maintained its stance because such avoidable transactions could occur in the future. But that is a weak argument. It could also have mandated better reporting standards on Tata Sons or devised a pre-approval process for such transactions rather than forcing a listing. While the intention may be greater transparency or addressing a potential problem, the real impact will be reduced ownership, control, and changed corporate orientation. To this, add the national and global reputational impact of forcing a public listing.
Globally, forced divestitures do occur, but are rare and sporadic. They occur for specific, efficiency-related reasons. One category of re-organisations occurs when entire industries or sectors are changed to reduce concentration or break intimate links between finance and industry (Post Second World War Japanese keiretsu); or they may occur for reasons of industry-wide restructuring for economic stability (chaebol reforms in Korea in the late 1990s); or for reducing ownership concentration (South Africa post-apartheid).
The second category is when individual firms are reorganised for different reasons. These include those related to de-monopolise, such as Standard Oil in 1911 and AT&T in 1984 in the United States; there was also the case of Ant-Alibaba in China, where the government needed to neutralise a larger-than-life figure. The Tata Sons case falls in none of these buckets.
As the days pass, many questions will be asked, and many issues will be brought up. These may relate to what the previous head of the group desired, how Tata Trusts have taken commercial actions not for profit but in the national interest, what the rulebook says about the role and mandate of directors, who can and cannot vote, how board meetings and Annual General Meetings are called, who may or may not be a better manager, what a professional manager should work towards, what will lead to more efficient outcomes or create more value, and so on. Where Tata Sons’ listing is concerned, all of this is pure clutter.
The matter is simple. No legal, ethical, or, for that matter, even monopolistic violations are at stake here. Owners must have certainty that they are in control of their asset, and that this is a social contract, that there is a national consensus on it. It should not be a matter of any debate or discussion or legal nitpicking. Ownership needs to be sacrosanct and also perceived to be so. And while the issue may be seen as related to Tatas, the ramifications are systemic.
The writer is an economist. Views are personal
Two decisions on the part of the RBI have carried the matter forward. One, the RBI has retained its call for Tata Sons to list in the equity markets, and two, it has not given an explicit note of why it is making such a request. 
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