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Home--News
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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