Chapter 4
From Trader to Manufacturer: The Vimal Revolution
Within a year of splitting with Damani, Dhirubhai took Reliance into textile manufacturing. He chose Gujarat over Bombay for cheaper land, securing a plot in Naroda industrial estate near Ahmedabad, and built a simple factory with four knitting machines.
Dhirubhai benefited from perfect timing as Britain's withdrawal from Aden in 1967 drove many Indians working for Besse & Co back home. This provided him with European-trained managers, accountants and salesmen who became the backbone of his operation. Though none knew textile production, they learned through trial and error, working extraordinarily long hours.
Dhirubhai drove everyone hard, calling managers at 6 a.m. but forgiving honest mistakes. When spare parts were urgently needed from Germany, he bought two trucks to transport them when none were available for hire. His management style combined demanding standards with personal loyalty.
By 1977, after a decade of manufacturing, Reliance had grown from Rs 9 million in sales (1967) to Rs 680 million, with profits increasing from Rs 1.3 million to Rs 105 million. The Naroda factory expanded to 230,000 square meters with 5,000 employees.
Most importantly, Dhirubhai established his own brand name "Vimal" (named after Ramnik's son), promoted through lavish advertising with the slogan "Only Vimal." He bypassed reluctant wholesalers by creating a network of 400 franchised shops across India. A 1979 Indian Textile Journal profile noted how staff attributed Vimal's success to Dhirubhai's leadership, observing that "everything he touches becomes gold."
Chapter 5
The Political Operator: Cultivating Power
Dhirubhai remained in Bombay because manufacturing was just one facet of his business. For a decade, the Naroda textile plant supported his yarn trading while he developed skills in financial manipulation and political influence. He was never simply an industrialist, trader, financial juggler or political manipulator, but all four combined.
From his earliest days in Junagadh, Dhirubhai understood that relationships unlocked opportunities and laws could be negotiated. "One thing I have noted with Dhirubhai is that if he starts an acquaintance with someone he will continue it," observed Manubhai Kothary, a textile association president. With his photographic memory for faces and names, Dhirubhai could transform even fleeting contacts into useful relationships.
"I am willing to salaam anyone," Dhirubhai bluntly told an interviewer in 1985. In India's controlled economy, businessmen needed countless bureaucratic approvals, and signatures often came with price tags. The Congress Party had transformed from freedom fighters into dispensers of patronage, with ministers allocating resources while bureaucrats maintained appearances of objectivity.
Dhirubhai cultivated Yashpal Kapur, Indira Gandhi's private secretary described by publisher Raj Thapar as "smooth and unintelligent, outwardly vacuous and inwardly scheming" whose "corruption was becoming legend." According to one acquaintance, Dhirubhai "practically purchased him." The relationship later passed to Kapur's nephew R.K. Dhawan.
Over the years, Dhirubhai developed connections across political parties, including BJP leader Atal Bihari Vajpayee and leftists like Chandrashekhar. His strongest ties remained with Congress, particularly P.V. Narasimha Rao who became prime minister in 1991.
These relationships weren't always money-based. Dhirubhai captivated politicians, officials and bankers with his business vision and flattery. For those showing signs of self-interest or financial difficulty, a post-retirement job, business opportunity for a child, indirect funding or publicity might follow.
Dhirubhai's creative approach to regulation yielded immediate benefits with favorable changes to import-export rules. "He would not go into anything unlawful," noted Sasmira Kothary, "but his reading of the system! He would take advantage in a way others could not see."
His masterstroke came in 1971 when he persuaded Commerce Minister T.A. Pai to authorize imports of polyester filament yarn against exports of nylon fabric. The resulting Higher Unit Value Scheme made Dhirubhai a fortune. With domestic PFY prices seven times higher than international prices, even if exports fetched only a third of cost, the 600 percent profit on PFY imports more than compensated.
As Dhirubhai often remarked to his associate Suresh Kothary: "Everything that I have done has been kept in the ground, and a first-class fountain has been built over it. Nobody will ever know what I have done."
Chapter 6
The Equity Cult: Revolutionizing Indian Capital Markets
Indira Gandhi's return to power in 1980 opened a golden period for Dhirubhai. Within just four years, Reliance leapt from barely making India's top 50 companies to becoming one of the five largest. Dhirubhai himself achieved celebrity status more akin to a sports or entertainment star than a businessman.
In October 1980, Reliance received one of three licenses to manufacture polyester filament yarn, with location stipulated as the "backward" area of Patalganga in Maharashtra's hills. Competing against 43 applicants including the established Birla group, Reliance secured by far the largest capacity-10,000 tonnes annually, nearly matching India's entire existing polyester output.
Dhirubhai and his eldest son Mukesh had already visited Du Pont headquarters in Delaware and persuaded the American chemicals giant to sell its technology, including a polymerization process never before transferred outside the United States.
Under a series of capable secretaries including Manmohan Singh (later finance minister in the 1990s), the Finance Ministry began revitalizing India's capital markets. A key administrator in this effort was Nitish Sen Gupta, who became Controller of Capital Issues and Joint Secretary (Investment) in December 1979.
Sen Gupta had previously helped build the "License Raj," but by 1979 was transitioning toward market liberalization, later writing that the "possession of vast unregulated power in the hands of ministers and bureaucrats inevitably led to complaints of extortion" and created "a nexus between a section of industrialists, politicians and bureaucrats."
By 1983, the capital markets were raising Rs 10 billion annually, with Reliance playing a prominent role. Sen Gupta had championed convertible debentures-instruments that initially functioned as interest-bearing bonds before converting to equity shares.
Dhirubhai was perfectly positioned for this policy shift. After merging Reliance with a tiny Karnataka-based shell company called Mynylon Ltd in 1975 (a tax minimization maneuver), he had taken the company public in October 1977, offering 2.8 million shares and listing on the Bombay and Ahmedabad exchanges in January 1978.
Reliance pioneered the use of convertible debentures, anticipating Sen Gupta's policy with its Series I issue in October 1979, raising Rs 70 million. This was followed by Series II (Rs 108 million), Series III (Rs 240 million), and Series IV (Rs 500 million) in quick succession. Dhirubhai then pulled off what should have been legally impossible-converting the non-convertible portions of all four debenture issues into equity, allowing Reliance to eliminate Rs 735 million in debt in 1983.
By 1986, Dhirubhai had raised an unprecedented Rs 9.4 billion from the public over eight years, including Rs 5 billion from a single debenture issue. This achievement coincided with the rise of India's "equity cult," as shareholding expanded from less than one million Indians in 1980 to four million by 1985. Reliance alone had over one million shareholders by 1985-the widest shareholder base of any Indian company and possibly the world.
Dhirubhai masterfully exploited this environment, using mass marketing techniques to build his investor base. "The people of Reliance," began one typical promotion, emphasizing family-like bonds between the company and its shareholders.
The success story Reliance told was compelling. The Patalganga polyester plant was completed in just 18 months under the supervision of 24-year-old Mukesh Ambani, fresh from his Stanford MBA.
Dhirubhai's government connections continued paying dividends. Three weeks after Patalganga began production in November 1982, the government imposed an additional Rs 15,000 per tonne duty on polyester yarn imports, allowing Reliance to raise prices while forcing India's small yarn processors to buy its products.
For investors, these advantages translated to impressive profits, which grew from Rs 82.1 million in 1979 to Rs 713.4 million in 1985 on sales that rose to Rs 7.11 billion. Reliance was unusually generous with dividends, providing at least 25% return on face value since listing.
But the real rewards came through share appreciation. Reliance shares reached Rs 50 in 1978 (five times par value), Rs 104 in 1980, and Rs 186 in 1982. That year, Dhirubhai cemented his reputation as a market master when he outmaneuvered a bear cartel from Calcutta that had been driving down Reliance shares.
Chapter 7
The Great Polyester War: Dhirubhai vs. The Establishment
In November 1985, Bombay's tabloid Blitz announced "IT'S MAHAPOLYESTER WAR"-a corporate battle over the lucrative polyester filament yarn market with "serious political repercussions." The real battle was between Dhirubhai and Nusli Wadia of Bombay Dyeing, a conflict that would stretch for years, reaching the highest levels of politics, making and breaking careers, and even causing governments to fall.
The social contrast between the combatants couldn't have been starker. Dhirubhai was a paan-chewing trader from small-town Gujarat. Nusli Wadia represented Bombay's establishment-his Parsi family had built ships for the East India Company in the 18th century before founding Bombay Dyeing in 1879.
The industrial rivalry intensified when Wadia moved to enter polyester production directly, receiving approval in 1978 for a 60,000-tonne DMT plant at Patalganga-a move that would position Bombay Dyeing ahead of Reliance in the petrochemical chain. Despite his letter of intent, Wadia faced mysterious delays with his license.
In late 1979, Wadia was summoned to meet Indira Gandhi and Sanjay, who bluntly demanded political donations. Wadia refused, saying respectable companies like his didn't make such payments. After Congress returned to power, Sanjay confronted him again. Following Sanjay's death in a plane crash, Wadia appealed to Rajiv Gandhi, who eventually helped him secure his license in June 1981-two and a half years after the initial approval.
Even then, obstacles continued. When Bombay Dyeing's second-hand DMT plant equipment arrived from America, customs officials ordered rare 100% inspections, delaying clearance for weeks. Meanwhile, Dhirubhai enjoyed beneficial policy changes throughout Indira's second term, receiving prompt approvals for massive expansion into PTA production-a direct competitive threat to Wadia's DMT plant.
The conflict escalated when the polyester war entered a new phase with the involvement of Seth Ramnath Goenka, the 81-year-old legendary newspaper tycoon who controlled the Indian Express chain-India's largest newspaper with 670,000 circulation across 12 regional editions.
Dhirubhai had cultivated Goenka since the mid-1960s. The Ambani children called him "appuji" (Grandfather), and Goenka had generally placated Dhirubhai when the Express reported controversies about Reliance, explaining his target was the Congress government.
Nusli Wadia had also become close to the childless Goenka, almost like a son. During a dinner in October 1985, when Wadia's wife Maureen mentioned the smear campaign against Bombay Dyeing in the press-including in Express publications-Goenka took notice.
The relationship between Goenka and Dhirubhai deteriorated rapidly after Goenka discovered Reliance had bypassed his orders by directly approaching a PTI desk editor to run a press release attacking Bombay Dyeing. When confronted, Dhirubhai fatally misjudged the situation, reportedly saying: "I have one gold chappal [slipper], and one silver chappal. Depending who it is, I strike him with the gold chappal, or with the silver chappal."
This remark outraged Goenka, who interpreted it as Dhirubhai believing everyone had their price. The press baron resolved to use all his resources to expose Dhirubhai's operations.
Chapter 8
The Investigation and Political Fallout
To investigate Reliance, Goenka turned to Swaminathan Gurumurthy, a 36-year-old South Indian accountant from Madras. From a Brahmin family in rural Tamil Nadu, Gurumurthy brought unique qualifications to the investigation: a background in the Hindu nationalist RSS movement that made him skeptical of both communism and unfettered capitalism, detailed knowledge of corporate accounting, personal incorruptibility, and a traditional lifestyle that left few vulnerabilities.
Gurumurthy began his investigation by focusing on two areas where Reliance's secrets had nearly surfaced: the High Court petition to enforce PTA import contracts and the 1983 controversy over Isle of Man companies purchasing Reliance shares.
As the investigation intensified, Dhirubhai suffered a stroke in February 1986 that left him partly paralyzed, temporarily leaving company operations to his sons Mukesh (29) and Anil (27).
The Indian Express launched its expose with Gurumurthy's first article examining the conversion of non-convertible debentures-a Reliance financial innovation that he argued subverted market principles. Gurumurthy highlighted how Reliance's F series debentures from June 1985 included 40% (Rs 1.08 billion) from overseas Indians, who would have been limited to just Rs 4 million had the issue been convertible from the start.
Gurumurthy's investigation uncovered what he called the "Reliance Loan Mela"-an elaborate scheme where numerous small, unknown companies borrowed massive sums from Indian banks using Reliance shares and debentures as security. These companies, often registered at Reliance offices or employee addresses, collectively borrowed over Rs 1 billion to invest in Reliance's debenture issues.
The pattern was brazen: companies would pledge Reliance shares as collateral, sometimes using the very debentures they sought to purchase with the loans. Many loans were facilitated by personal guarantees from Nathubhai Ambani. Bank managers who approved these loans, often ignoring Reserve Bank of India guidelines, were sometimes rewarded with promotions.
This scheme allowed the Ambani management to consolidate control over Reliance by effectively borrowing to buy their own company's shares-a practice expressly forbidden by the Reserve Bank.
Gurumurthy's overseas inquiries proved more challenging. Private investigators engaged in London searched company records in tax havens to trace ownership of non-resident investors in Reliance, but results were slow and inconclusive.
The investigation revealed that the Bank of Baroda had advanced US$33.5 million to NRI companies from its London office to help them subscribe to the F series debentures-about 40% of the Rs 1.08 billion NRI investment.
The Indian Express campaign against Reliance moved from words to action when, on June 10, 1986, Rajiv Gandhi's cabinet banned the conversion of non-convertible debentures into shares. The timing was devastating-just one day before Reliance's board was scheduled to meet specifically to recommend conversion of the E and F series debentures.
Dhirubhai found himself embattled on multiple fronts simultaneously. Finance Minister V.P. Singh abolished the Rs 15,000 per tonne antidumping duty on polyester yarn that had protected Reliance since 1982. The CBI was investigating the alleged leak of the May 1985 PTA import policy change. The Reserve Bank of India was probing the "Reliance loan mela" at Finance Minister Singh's order.
Chapter 9
Liberalization and Reliance's Transformation
After Rajiv Gandhi's assassination in 1991, the Congress Party chose P.V. Narasimha Rao as its leader. Expected to be a stopgap, Rao instead demonstrated remarkable political skill, steadily building a majority by attracting defectors and serving his full five-year term. For at least two years, he provided the political protection needed to implement long-delayed economic reforms, appointing career economist Manmohan Singh as finance minister.
Within days of taking office in June 1991, Singh devalued the rupee by 20% to encourage export earnings repatriation. His delayed July budget abolished licensing in most industries, raised fertilizer prices to cut subsidies, warned loss-making state enterprises would not be indefinitely supported, and relaxed foreign investment controls. The February 1992 budget continued these reforms, making the rupee largely convertible on current accounts, reducing import tariffs from over 300% to no more than 110%, welcoming foreign companies into the petroleum sector, abolishing the Controller of Capital Issues, and allowing foreign portfolio investments in Indian markets.
The L&T failure taught Reliance that times were changing. The government could no longer play favorites while trying to attract foreign investment. The "level playing field" was becoming the new reality-licenses were losing value, tariffs trending downward, and financial markets facing greater scrutiny.
Dhirubhai and his sons astutely repositioned themselves as champions of the new India, capitalists eager to be freed from "failed Nehruvian socialism." Foreign investors, already intrigued by Reliance since 1986, were willing to overlook Dhirubhai's "colorful past"-as one Kleinwort Benson researcher remarked, "Someone who can smuggle in a whole factory clearly has something going for him."
Despite the 1992 securities scam, Reliance pioneered international fundraising for Indian companies, becoming the first to float Global Depository Receipts. Though initially challenging-requiring heroic share price support and institutional assistance-by 1993 Reliance had recovered with a $140 million Euro-convertible bond issue managed by Morgan Stanley. Foreign investors increasingly saw Reliance as "the quintessential India story," with Anil Ambani becoming the company's public face in global road shows.
As India's government retreated from infrastructure monopolies, Dhirubhai's sons pushed Reliance beyond his traditional "stick to your knitting" philosophy. By mid-1990s, they had secured approvals for three mid-size power plants and won telephone service licenses covering nearly one-third of India's population.
Chapter 10
Legacy and Moral Dilemma
Dhirubhai built Reliance through outstanding abilities as an innovative financier, inspiring manager, astute marketer, and forward-looking industrialist. His boldness and risk tolerance surpassed other Indian corporate chiefs. Yet his talents had a dark side-an eye for human weakness and willingness to exploit it, gaining preferential treatment from Indian institutions. He made a mockery of government control systems, with regulatory agencies proving timid or complicit in questionable episodes.
While Reliance routinely dismissed criticism as jealousy, the record shows Dhirubhai often made the first aggressive moves against rivals like Kapal Mehra, Nusli Wadia, or the Essar group's Ruias. Coincidentally, these rivals faced government inspections, tax problems, negative press, physical attacks, and in Wadia's case, forgery, deportation orders, and possibly murder conspiracies.
Despite its success, Reliance faced significant risks. Adverse business conditions like falling petrochemical prices combined with rupee devaluation could squeeze its foreign debt servicing. Political hostility represented another wild card, with the Hindu nationalist BJP particularly distrustful despite positioning itself as champion of domestic capitalism.
The Reliance story offers cautionary lessons about India's "British-style institutions" and their effectiveness in protecting investors against well-connected rivals. While controversies prompted improved financial regulations, Dhirubhai inspired hundreds of imitators determined to win at all costs. Rather than returning to tighter controls, which proved unenforceable, India might create a fairer environment by reducing barriers to capital movement and trade.
The conflicts surrounding Dhirubhai reveal India's agonizing over the morality of change and success. Like the epic Mahabharata where King Yudisthira struggles between righteousness and the pragmatic duties of rulership, many Indians were torn between condemning questionable practices and admiring business success. While opponents saw a clear struggle between probity and deceit, millions of investors wondered if certain deceptions were simply part of a businessman's dharma (duty).
Unlike the Mahabharata's apocalyptic conclusion, Reliance avoided a corporate Kurukshetra. Modern capitalism allows for redemption-if Dhirubhai's enterprise can move decisively beyond the shadows of its middle years, that will be his greatest achievement.
