The reasons for the family businesses to feel vulnerable in India today include I. the removal of the barriers to foreign investment by the government II. the shortage of cash in the economy III. the widespread allegations of corruption IV. the financial institutions moves to prune non-performing assets

Directions: Read the following passages and answer the question that follows:

PASSAGE – II

The new takeover code, looks at first glance like a typically complicated bit of Indian rulemaking. But two incendiary charges are buried within its many pages. First, SEBI wants to make takeovers, including hostile bids, much easier. Second, it wants to protect the rights of minority shareholders. For instance, any investor who takes a stake of 10% in a company must then make an offer for a further 20%, after that, any substantial increase has to be by an open offer to all the shareholders.

Just possibly, the new takeover code may cause the very large house of cards that is corporate India to collapse. It provides a way for the families that control Indian businesses to be replaced by more widely held companies or even by corporate raiders. Their immediate problem is cash. With profits harder to make, credit hard to come by, and a relatively small equity market, many family firms are being forced to weed their portfolios, retiring from investments they rushed into, in easier times.

If the government relaxes rules requiring an Indian majority holding in any company holding a telecoms licence, the foreigners may use these loans as a springboard for a full takeover. Many foreign companies now favour full control, seeing it as a chance to impose their own standards. In the early stages, a foreign firm needs a local partner’s government contacts and distribution; but once established, foreign firms complain that local partners contribute little in the way of technology or capital. One of the advisors, McKinsey & Co., a management consultancy, points out in a forthcoming report that the government now allows foreign firms to set up wholly owned investment companies that can subsequently buy Indian firms.

In the past, the big families could count on the support of India's financial institutions, which own around 40% of most big companies. However, institutions such as the Industrial Credit and Investment Corporation of India are now trying hard to prune non-performing assets. They have told families such as the Modis that they must sort out their run-down businesses or close them (which is difficult under India's restrictive labour laws) or sell. Before, we used to be benign investors. Now families will increasingly be asked to go when they don't perform, says one senior manager. Still, no family has yet been thrown to the wolves.