Overview

The year was 1986. Encouraged by the Rajiv Gandhi government's liberal economic policies, the American soft drinks giant, Pepsi, sought to enter India. Pepsi was not the first multinational ever to do business in India. Indeed, long before its advent, major multinational companies including Unilever, Colgate-Palmolive, ICI and various others established lucrative operations in India. However, Pepsi was the first significant American company to seek entry after 1978 when a xenophobic Indian government effectively forced Coca-Cola and IBM to wind up their businesses in India. It is important to understand the 1978 events because the underlying issues are still very much in evidence some twenty years later. The appropriate starting point is June 1975 when the Congress government under Indira Gandhi suspended the Indian Constitution and declared what has come to be known as 'the Emergency'.

At that time, India faced economic dislocation wrought by the steep oil price increases commandeered by the Organization of Petroleum Exporting Countries (OPEC) two years previously. Inevitably, there was widespread political dissent. Mrs Gandhi's government saw in the rising unrest a threat to national security. The government announced 'an internal emergency' that empowered it to imprison political opponents and curb the freedom of the press. The Emergency, however, created a national and international backlash. Over the next two years, the pressure of public opinion began to mount. Eventually, in 1977, Mrs Gandhi felt obliged to call a national parliamentary election, hoping to vindicate her political position.