YSR Reddy and Ramoji Rao

Media Czar’s last battle

Ramoji Vs Reddy

Ramesh Kandula | Andhra Pradesh | 11 May 2009 |

It’s a fight between a media baron and the state chief minister. Each is out to get the other.

It may sound strange for those not familiar with Andhra politics, but the election outcome in the state will make or mar the fortunes of a media baron who himself is not officially associated with any political party.

Ramoji Rao, the most influential media personality in the state, is certain to find himself cornered from all sides, if the Congress government were to come back to power in the state. This is because YS Rajasekhara Reddy (YSR), Congress Chief Minister of Andhra Pradesh, sees the media czar as his most lethal opponent, wherefrom the opposition draws its strength.

The owner of the largest-circulated Telugu daily in Andhra Pradesh has always been anti-Congress since he launched the path-breaking Eenadu in 1974. It is now part of history that he played a key role in the launch and successful campaign of Telugu Desam Party (TDP) led by NT Rama Rao in 1982 that stormed into power the next year, putting brakes on the three-decade uninterrupted rule of the Congress Party in the state.

Though the 69-year-old chairman of the empire that has interests in media, financial services, exports, films and the largest film studio in the world, has never been known to be friendly towards the Congress, his spat with YSR is unprecedented in the history of the state’s politics.

Ramoji may be compared in many ways to the Indian Express founder Ramnath Goenka for his fierceness and independence. Though he helped TDP catapult to power, Ramoji’s paper was unflinching in its criticism of NTR throughout. Later, he was accused of siding with Chandrababu Naidu during the infamous episode of 1995, when the latter dethroned his father-in-law. But Ramoji was not exactly the mouthpiece of the TDP during its nine-year stint.

Yet, YSR took the critical reports against his government personally and launched a blistering attack against Ramoji that has few parallels in the media history of the state. When YSR became Chief Minister in 2004, Ramoji gave him barely a year before starting a campaign against the Congress government. Unlike the chief ministers in the past, whether they belonged to the Congress or the TDP, YSR, known for his feudal attitude, refused to take it lying down when Ramoji launched a scathing attack against his government.

Instead of attacking Ramoji’s paper directly, YSR chose a method that would bring the media baron to his knees – by targeting his financial muscle. Ramoji runs one newspaper, 12 TV channels in different Indian languages, besides various magazines in Telugu, but he makes his money from Margadarsi Chitfunds and Margadarsi Financiers. Ramoji’s credibility in money matters is so high that his finance company mobilised deposits worth Rs 2,600 over a decade without a single advertisement. Many middle-class families, who saved money through Ramoji’s chit fund company, would re-deposit the money after maturity.

YSR’s hatchet man is one Undavalli Arun Kumar, a close confidant of the Chief Minister and a first time MP from Rajahmundry. Kumar held a press conference in November 2006, alleging that Ramoji violated Reserve Bank of India (RBI) regulations by collecting deposits from the public. He specifically mentioned that 45(S) prohibited Hindu Undivided Family (HUF) companies from accepting deposits. The campaign slowly picked up and new allegations were thrown at Ramoji – that he diverted the money to Ramoji Film City, which was incurring losses. Also that Ramoji would not be able to pay back the depositors and hence the government should intervene.

Since the Congress was in power at both the State and the Centre, YSR was able to mount pressure on various central agencies to tighten the noose around Ramoji. RBI was initially unwilling to initiate any action against the Ramoji Group, as it had an impeccable record in payments. Margadarsi Financiers was “advised” to give an undertaking to the RBI that it would not accept fresh deposits from the public, which it did.

Since a large chunk of the deposits was invested in Ramoji Film City, which was not making any money, it was thought that Ramoji would be in a soup once the flow of funds was stopped to pay back matured deposits. Simultaneously, the state government moved swiftly to appoint a one-man committee to look into the alleged violations and also to authorise IG, CID, to file applications in courts of jurisdiction and to take action against Margadarsi Financiers.

The committee, headed by former Chairman of IRDA, N Rangachari, had, in its report on February 15, 2007, concluded that Margadarsi had violated RBI provisions by collecting deposits from the public. Following the report, a local court issued a search warrant, paving the way for the CID team to conduct searches at Margadarsi office located at Saifabad.

Even as the court battle continued, the state government opened another front and initiated proceedings to retrieve 1,363 acres of excess land from the Ramoji Group.  The holdings of the Group declared as excess belonged to Ramoji Film City on the city outskirts and other firms of the group.

Acting on another complaint, Income Tax officials called the media baron to their office and questioned him for three hours on the financial transactions of his companies, specifically the alleged violation of 269 SS of the Income Tax Act. This pertains to Rs 1,000 crore deposits raised as cash by Margadarsi Financiers. Local media reports said that Ramoji got angry at one point and said he had never visited the Income Tax office in the last 35 years. Later, the Income Tax Department slapped a show cause notice to Ramoji to pay Rs 1,400 crore as penalty for raising deposits over Rs 20,000 in cash.

Several cases were filed against various Ramoji companies by the state government for alleged evasion of sales tax and for irregularities in purchase of land for Ramoji Film City. The hunt for Ramoji’s head continued remorselessly and anyone who was remotely seen to be helping out the self-made industrialist was targeted mercilessly.

It is however to Ramoji’s credit that not a single depositor out of some 2.5 lakh came forward to complain against the company. And despite the insinuations that Ramoji would not be able to pay matured deposits, there was no panic among depositors.

When Ramoji Rao tried to wriggle out of the cash crunch created by the political establishment, his Ushodaya Enterprises in January 2007 entered into PE deal with Blackstone, the world’s largest leveraged buyout firm. Blackstone was to pick up 26 per cent stake in Ushodaya for $ 275 millions (about Rs 1,080 crore), but the FII had to backtrack in the face of stiff resistance from the government agencies.

Realising that any high profile deal with any investor would not be allowed to go through by the YSR government, which has considerable clout within the Congress high command, Ramoji quietly entered into a deal with Equator Trading Enterprises Pvt Ltd for Rs 1,200 crore. Following this, Ramoji paid off all deposits with his Margadarsi Financiers even before they matured.

Have you ever wondered why Nimesh Kampani, the man who heads India’s best known investment bank, JM Financial, and who was ranked last year by Forbes as the 42nd richest man in India with a net worth of $1.3 billion (Rs 6,500 crore ), has been in hiding in Dubai, evading arrest in India?

That is because Kampani is the man behind Equator Trading Enterprises, which bailed out Ramoji and attracted the ire of the YSR government. The Andhra Pradesh police issued an “international lookout notice” against Kampani and 17 others in a case involving Nagarjuna Finance, the non-banking finance company of the Nagarjuna group.

Many believe the action against Kampani did not make any sense as Nagarjuna Finance’s annual reports in 1999 and 2000 quoted the auditors as saying that the company’s fixed deposits were fully serviced and this default happened post his resignation.

However, Ramoji continued his aggression against YSR, even while claiming that he had been a victim of political vendetta. There are many who believe that Ramoji goes overboard in his activist style of journalism.

Even as several cases are pending with the courts and with various state and central government agencies against the Ramoji Group, the battle of wits continued through the Lok Sabha and Assembly elections just concluded in the state.

With the government’s efforts to damage the financial base of the media group not paying many dividends, the YSR government spared no effort to dilute the credibility of Ramoji and his media ventures by dubbing the paper repeatedly as the mouthpiece of Chandrababu Naidu and anti-Congress.

After YSR’s son Jagan Mohan Reddy launched the ambitious daily Sakshi and Sakshi TV, not a single opportunity was lost to run stories against Ramoji. When the media baron’s younger son fell out with him, Sakshi carried his interview in which he called his father as a person with “no feelings” even for his son.

May 16 will be the day of reckoning for Ramoji. With no single party likely to get a majority, political observers believe that Ramoji will play a key role in ensuring that YSR is kept out of power in the ensuing permutations and combinations. He may even get Chiranjeevi to support Naidu, in case of a hung Assembly. But if YSR were to come back to power, it is for certain that the media baron will be in for some big trouble.