ON THE RIGHT SIDE ALWAYS

Companies would be better off being on the right side of the government when it comes to following newly introduced policies

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Argentina lifted the Football World Cup and Messi got a standing ovation he deserved. But there may be lessons beyond the football arena, which may be discussed by large corporations and investors from the world of business and finance. The talking point being: sudden change in the decision of the Qatari government to not allow alcoholic drinks in stadiums. A large beer brand and one of the key sponsors of the event took it to the social media but then quickly retracted and decided to toe the line.

Government actions can thus make or break businesses with an abrupt change in policy stance. Let us understand the theme of abrupt changes in policies in the Indian context. More so, it is important to understand whether abrupt changes in policies stand in good stead for investors and the economy at large. This will give an idea about how one should act when a sudden announcement in change in policies is made.

THE HISTORY

Many a time what seems like a sudden shift in policy, especially in the Indian context, may not be an abrupt change in the real sense of the expression. There are clear circumstances which lead to changes in policy. This is because India is a democratic country and not an autocratic one. But there are instances when policy changes have been abrupt in India. In this context, it is important to gauge how Indians have dealt with these sudden policy changes.

The oldest memory of abrupt changes in a policy for Indian investors came in the form of the diktat under Foreign Exchange Regulation Act (FERA), 1973. Multinational companies had to cap their foreign equity interest at 40% of the issued capital within two years from the date of announcement.