US Government, Indian Big Business Warn India on Impacts
By Jo Johnson
Financial Times
August 10, 2006

A quarter of India's 28 states have announced partial or total bans on Coca-Cola and PepsiCo in the wake of fresh concerns over pesticide levels in soft drinks.

More bans are expected in the coming days in a political backlash against the US companies that has the potential to disrupt flows of US and other foreign investment to India.

The US has urged Manmohan Singh, India's prime minister, to take the lead in resolving the crisis, according to one person close to the situation. "There's been government contact and there's going to be more government contact because the potential impact this could have on the investment climate is very serious," he said. "These are world class and symbolic US companies getting kicked".

Andhra Pradesh and Karnataka, two southern states, on Thursday joined Rajasthan, Gujarat, Madhya Pradesh and Chattisgarh in banning the sale of Coca-Cola and Pepsi products in and around publicly funded schools and government offices.

Kerala, a southern stronghold of the Communist Party of India (Marxist), on Wednesday became the first state to impose a total ban on the making and selling of the cola majors' products.

"We have decided to ban the production and distribution of Coca-Cola and Pepsi with immediate effect," said Kerala's newly-elected chief minister V.S. Achuthanandan, an 83-year-old Communist Party of India (Marxist) stalwart.

Kerala is also expected to withdraw operating licences from Coca-Cola's Plachimada plant, closed by village council order since 2004, and Pepsi's plant at Kanjikode, where the companies have been producing the Kinley and Aquafina water brands.

Kerala currently accounts for about 5 per cent of the 500m cases of soft drinks sold annually in India. The state once represented nearly 10 per cent of the $1.6bn market before a controversial 2004 campaign in 2004 against water depletion in the village of Plachimada brought down sales.

The states acted after a Delhi-based NGO, the Centre for Science and the Environment, last week released a report showing Indian colas contain on average 24 times permitted pesticide levels.

But the two companies say they are victims of a campaign by opposition and leftwing parties to embarrass a Congress government for cultivating close ties with the US.

Industry analysts said most Coke and Pepsi products are consumed in India's biggest cities Delhi, Mumbai, Calcutta and Chennai which have yet to be directly affected by the bans.

Coca-Cola and PepsiCo have run advertisements in newspapers insisting their products are safe and conform to global as well as Indian standards, but have otherwise refused to comment on what they say is an industry-wide matter.

Coke, which returned to India in 1993 after being forced out in the late 1970s, has 60 per cent of the domestic market, compared to 38 per cent for Pepsi and 2 per cent for local producers.

Both companies argue their colas contain insignificant levels of pesticides present in the groundwater used in soft drinks compared to those found in milk, eggs and most meats.

B. Prabhakar, president of the Indo-US Chamber of Commerce, said the bans will "send the wrong signal to companies thinking about investing in India".

The Confederation of Indian Industry warned on Thursday night that the bans would do great damage to India's image and credibility with international investors.

"We are a law-abiding country and government actions have to be driven by the rule of law and in the overall public interest," said R. Seshasayee, the confederation's CII president.

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