Coca-Cola duly left in a huff, only to return last Christmas, ready to fight Pepsi for the conquest of India's potentially colossal beverages market.
After Coca-Cola pulled out, Indians had nothing to gulp down but sickly imitations of the real thing such as Campa-Cola, whose trademark is a copy of Coca-Cola's but which tastes like sweet, effervescent mud.
Profiting from the Congress government's recent economic reforms, Pepsi thought it safe to enter the country through partnership with Lehar, a big local drinks firm.
Now the cola wars are bubbling in India. Fist fights have broken out in several cities between gangs of Pepsi and Coca-Cola sign-painters vying for choice street corner hoardings.
And when Coca-Cola had its mooted launch at a bottling plant in Agra, not far from the Taj Mahal, Pepsi had the cheek to plaster huge advertisements all around its adversary's factory. In Bombay, Pepsi lorries were hijacked several times.
Yesterday saw PepsiCo turn up the heat another notch, announcing plans to set up a dollars 95m holding company and diversify its business activities into areas such as financial services and information technology. The proposal is under consideration by India's Foreign Investment Promotion Board.
The fact that Pepsi, besides making soft drinks and marketing and distributing them, is keen to promote projects in food processing, exports and tie-ups with farmers will probably count in its favour.
Even without Pepsi's rivalry, Coca-Cola is beset by worries. The Communists see Coke's reappearance as a symbol of India selling out to imperialism.
They claim they can rally 200,000 students for a protest demonstration next month in Delhi to demand that Coca-Cola and Pepsi quit India. The Communists also threaten to picket Coca-Cola's bottling outlets.
Even without the agitation, few Indians so far have tasted Coke. Distribution is sluggish and only a few hotels and fast food restaurants in the big cities stock it.
Coca-Cola's re-entry into India was masterminded by Ramesh Chauhan, an irrepressible US-educated Indian who was widely held responsible for persuading the leftist Janata government to have Coca- Cola kicked out.
With Coca-Cola gone, Mr Chauhan's four soft drink brands, Thums-Up, Limca, Maaz and Sprint, became best-sellers.
Coca-Cola executives swallowed their doubts about Mr Chauhan and are using him to handle the drink's bottling and marketing throughout the country.
In exchange, the multinational bought out Mr Chauhan's soft drinks for dollars 60m. It is expected that Coca-Cola will gradually pull the brands off the market.
Mr Chauhan insists that Thums- Up, spicier and more syrupy than Coke, will not be closed down. 'Coca-Cola is an additional product. It is not to replace Thums-Up,' he said recently.
For Coca-Cola's launch, Mr Chauhan stood beside the multinational's senior vice-president, Neville Isdell, and discreetly flashed a thumbs-up sign. Thums-Up is India's most popular soft drink, with a 60 per cent market share.
Competitive though Coca-Cola may be, it will probably continue selling Thums-Up until it has won over tricky Indian taste buds. Pepsi jumped on this paradox and ran adverts saying Coke ought to call itself 'Thoke' instead.
Mr Chauhan is thought to have called a truce with Coca-Cola when he realised that the multinational's comeback to India was inevitable and that his company alone could not tackle the two drinks giants.
India has more than 870 million thirsty people, but have Pepsi and Coca-Cola overestimated the size of the soft drinks market in a country where 40 per cent are poor and many consider themselves lucky to have clean water?
Indians imbibe only three or four soft drinks a year compared with the 750 bottles guzzled yearly by Americans. Pepsi's snack food and drinks operation in India has shown losses of pounds 15m so far, but both multinationals are eyeing the large urban middle class of 94 million. They can easily afford colas which, at five rupees (11p) a bottle, are far cheaper than in the UK.
Coca-Cola originally ran into trouble with George Fernandes, then the Janata government's industries minister, when he tried to reduce the group's 100 per cent equity in Indian operations to 40 per cent.
Mr Fernandes recalled the episode: 'Coke argued that since they were a high-tech company they could keep full ownership. I said: 'What's so high-tech about your formula that's beyond the reach of us Indians? Either tell us the formula, or pack up and go.' So they went.'
Mr Fernandes, an MP who is one of India's last diehard socialists, has left the government now, but he is still trying to stir up trouble for Coca-Cola.
He is organising resistance to its return among bottlers and the trade unions. 'Coke and Pepsi have come here and, using our water, our sugar and a pinch of American colour, they're hoping to take millions of dollars out of the country,' he declares.
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