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-Nishank Agrawal

Broken commitments: The case of Pepsi in India By Kavaljit Singh, in PIRG Update,
Issue no. 1, May, 1997
Dear friends,

Public Interest Research Group (PIRG) has launched PIRG UPDATE - an occasional publication dealing with issues related to TNCs,structural adjustment,debt, world bank-IMF policies and development in India. Here is the first issue of the UPDATE.

Kavaljit Singh, Editor

No single foreign investment project has been the centre of much attention and controversy in the late 1980s and early 1990s as the PepsiCo project in India. The project, Pepsi Foods Limited, was cleared by the Indian government in September 1988 as a joint venture of PepsiCo, Punjab government-owned Punjab Agro Industrial Corporation (PAIC) and Voltas India Limited. Before this project was cleared, PepsiCo made an attempt to enter into India as early as in May 1985, when it teamed up with Agro Product Export Ltd., a company owned by R. P. Goenka group, and sought permission from the central government to import cola concentrate and to sell a PepsiCo brand soft drink in the Indian market, in return for the export of juice concentrate from Punjab. Under this proposal, the main objectives put forward by PepsiCo was 'to promote the development and export of Indian made and agro-based products and to foster the introduction and development of PepsiCo products in India'. This proposal which was submitted to the Secretary at Ministry of Industrial Development received rejections on the grounds that the import of concentrate could not be agreed to and the use of foreign brand names as domestic tariff area (DTA) was not allowed.

Nevertheless, taking advantage of the ongoing political problem in Punjab at that time, PepsiCo successfully played the 'Punjab Card' and again put forward a proposal in 1986 with stress more on diversification of Punjab agriculture and employment generation rather than on soft drinks. The proponents of project called it as a second 'Green Revolution' in Punjab and projected it as harbinger of a horticultural revolution which would end stagnation in Punjab's rural sector and would help in promoting small and middle farmers. A strong argument was put forward that this project will create ample employment opportunities for the unemployed youth who has taken the path of terrorism and thereby will help in restoration of peace in Punjab. This argument was well received in the political circles in Delhi and Punjab which finally led to PepsiCo's entry into India in the form of a joint venture with PAIC and Voltas as its partners. The equity of Pepsi Foods Limited was divided among the partners with PAIC holding 36.11 percent, Voltas 24 and PepsiCo 36.89 percent. Coupled with the 'Punjab Card', PepsiCo also made certain commitments to Indian government which also formed the basis of its entry. Some important commitments made by PepsiCo included :

The project will create employment for 50000 people nationally, including 25000 jobs in Punjab alone;
74 percent of the total investment will be in food and agro- processing. Manufacturing of soft drinks will be limited to only 25 percent;
PepsiCo will bring advanced technology in food processing and provide thrust by marketing Indian products abroad;
State of the art technology would be provided in the fields of food processing and soft drink manufacturing at no foreign exchange outflow;
50 percent of the total value of production will be exported;
An agro-research centre will be established by PepsiCo in consultation with ICAR and PAU;
No foreign brand name will be used for domestic sales;
The export-import ratio will be 5:1 over 10 years, which means that for every dollar spends in foreign exchange on this project, the company will ensure an export earning of 5 dollars for 10 years;
25 percent of the total fruits and vegetable crops in Punjab will be processed in the project;
A substantial increase in government revenue due to consumer market expansion and tax collection.

The proposal concluded by stating how well the project fitted with broad objectives of the economy and how it 'specifically supported national priorities in area such as exports, agriculture, employment and technology.'

Pepsi's Commitments: 'Nothing Official About It'?
The growing evidence shows that right from the beginning, Pepsi had no intention of implementing these commitments. Various studies have also pointed out the fact that Pepsi had no intention of encouraging the diversification of Punjab agriculture as the real motive was to sell soft drinks in our domestic market.

Creation of Employment : Tall Claims
The major commitment, that the project would create 50,000 jobs nationally including 25,000 extra jobs in Punjab, stands nowhere close to reality. In 1992, Pepsi claimed in its official reports that it has created direct employment to 909 people. In 1996, the total employment figures increased to 2400 which is just 3 percent of its commitment of generating 75000 jobs. Although Pepsi has claimed that it has generated an employment for over 26000 people in India through indirect employment, its definition of indirect employment is incorrect as it includes vendors such as paanwalas and juicewalas who sell its softdrinks. By this definition, all those companies can claim to have created employment for a vendor (e.g. paanwalla) as he sells products of these companies. Does it mean that this vendor is an employee of all such companies? By adding to their items of sale and putting a large signboard on their shops, it is totally illogical for Pepsi to claim that these vendors are its employees.

Employment Generated by Pepsi Foods Limited Source of Employment
1990-91 1991-92
Direct Indirect Direct Indirect
Food Processing 169 9903 170 9082
Administration 117 432 179 432
Concentrate & Bottling 497 15115 560 16900
Total 783 25450 909 26314
Source: Data taken from Balance-sheets of Pepsi Foods Ltd.

In the case of Futura Polymers Limited, a company located in Tamil Nadu with majority holding owned by PepsiCo, the emphasis is on how to reduce the workforce rather than creating new jobs. Dr. L.R. Subbaraman, senior manager of the company says that he would like to replace as many workers as possible with machines. He explained that workers cause problems, such as being lethargic. He also said "Later they will ask for more money, form organisations, may be union. We are always trying to be more machine oriented..." (Multinational Monitor, September 1994). If the strategy of the Pepsi is to have a small workforce, then why did it commit to Indian government and people of creating 75000 jobs?

Processing plant in Zahura : Uncertain Future
For processing of fruits and vegetables, Pepsi put up a plant at Zahura village in Hoshiarpur district of Punjab. The company was not satisfied with the local varieties of tomato. Therefore, germplasms of tomatoes were imported and tomatoes were grown on 1600 hectares of land, by entering into contract farming with big farmers. In 1989, Pepsi signed an agreement with the farmers under which the farmers were to supply hybrid tomatoes to the paste plant located at Zahura. However, when the crop was harvested at the end of 1990 winter, Pepsi's Zahura paste plant failed to start operations. As a result, these farmers suffered combined losses of nearly Rs 25 lakhs. The farmers are still waiting for the compensation to be paid by Pepsi. According to one estimate, only big farmers have benefitted from this plant so far while it has not contributing anything to small and medium farmers of Punjab. Already, there have been press reports indicating that the company is no longer interested in the continuation of this plant and is making attempts to sell it off. Our attempts to know the exact position from the company on this matter have not yielded any information.

Change of Brand Name
When Pepsi was allowed to begin its operation, one of the commitments made was that the company would not use its brand name, Pepsi, in India. But this commitment was also broken by the company. During the first year of operation, Pepsi used an Indian brand name, Lehar Pepsi. But, with the introduction of the new economic policy in 1991 under which the use of foreign brands was allowed, Pepsi immediately changed its soft drink brand name from Lehar Pepsi to Pepsi.

Agro-Research Centre in Punjab : Yet to Start
Pepsi agreed to set up an agro-research centre in consultation with ICAR and Punjab Agriculture University, Ludhiana in Punjab. But no such centre has been set up by the company so far.

The Reality of Export Commitments
Another major commitment made by the Pepsi was that 50 percent of the total value of the produce will be exported. A quick glance at the items exported by Pepsi reveals that export value of fruits or vegetable based products are negligible. In order to fulfill its commitment, the company resorted to exporting a variety of Indian products like 'Basmati' rice, Darjeeling tea, shrimps, glass bottles, champagne and even leather products. These traditional export products have already been exported by many companies in India. What has been Pepsi's own contribution and expertise in exporting these goods from India?

Pepsi's Exports (Rs. crore)
Products 1992-93 93-94 94-95 95-96
Rice 7.9 10.4 7.4 18.0
Paste* 3.2 2.5 4.1 3.0
PSS 8.6 9.1 21.6 40.0
PET 0.4 0.4 36.2 133.5
Guar