Negotiating pitfalls: Are there basic lacunae in India’s practices?

News: India’s tactics of negotiations has not worked the way China’s tactics have worked. Hence, India needs to prepare ground by negotiating better deals.

 What is China’s tactic in negotiations?

 First, it accepts some principle but do nothing in practice or make a commitment with no intention of honoring.

Second, it tries to provoke a conflict or create new facts on the ground for fresh negotiations to extract some more concessions. Negotiation is thus a continuous process, there is no end point.

Third, similarly, on the trade front, China plays with rules set by the World Trade Organization (WTO) and forces global companies into abiding by its order.

How India has used negotiation tactics?

One, India has tried unsuccessfully similar tactics, in the international arbitration forum. For example, Vodafone, Cairn, Devas, Amazon.

Two, the WTO has repeatedly ruled against India in trade disputes, which has sometimes led to the seizure of Indian assets overseas. India has also used Indian courts to try and nullify arbitration awards and offered deals to close disputes.

Three, the Coercive regulatory action has not worked. That’s why the government had canceled some 58 IGAs that it had signed since the 1990s.

What are the basic lacunae in India’s business/legal/political practice?

First, the government has used arbitrary change in the terms of engagement which results in careless drafting, or non-application of mind.

Second, most of the defence contract leads to charges of pay-offs which results in the blacklisting of suppliers, and thus India is running short of suppliers.

Hence, competitive defence tendering has become impossible and pre-selection becomes the default choice. For example, no bids had been invited in Devas case.

Third, there is an inadequate perception of costs. For example, the revenue from the Devas contract was Rs 1,000 crore, and the damages awarded were Rs 15,000 crore. In the Devas case, the government’s reason for canceling the contract was different from the Supreme Court’s. The court has declared it as fraud.

In the case of Enron, the negotiators had not internalized that gas-based power stations could easily achieve much higher capacity utilisation levels than coal-based ones. Hence, the contract was too generous.

What is the way forward?

First, these experiences teach us that unfocussed approaches are costing us more. That is why a lot of background work has to be done before signing and not after that.

Second, Indian negotiators have to be prepared as some may view a contract as the beginning of a relationship, while some see it as a defining word and others may view it as a temporary tool of convenience.

Source: This post is based on the article “Negotiating pitfalls: Are there basic lacunae in India’s practices?” published in Business Standard on 22nd Jan 2022.

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