(Courtesy: The New York Times) Excerpts from an article by John F Burns

NEW DELHI: Until recently, anybody planning to invest $100 million in an industrial complex in the Indian state of West Bengal would have been considered a gambler or worse. West Bengal, with its capital, Calcutta, has been ruled for nearly two decades by a Communist government, with an economic record many Indians compare to the one compiled by the Calcutta government’s old mentors in Moscow.

In many ways, the Soros deal symbolizes the sweeping changes occurring as India emerges from 40 years of socialist economic policies. Since Prime Minister P. V. Narasimha Rao’s Government in New Delhi embraced market forces and foreign investment in 1991, American companies have been leading investors in many crucial sectors, from new power plants and telephone systems to ventures that will provide fresh choices in breakfast cereals, computers and soft drinks.

Many American executives acknowledge that what drew them to India was the size of the country’s population, above 890 million people. The Indian Government estimates that about 200 million people belong to the middle class, with surplus incomes that make them potential customers for foreign products. Other attractions include the fact that India is a democracy, with independent courts to settle. legal disputes, and the fact that English is used widely in business.

But foreign businesses also encounter bureaucratic interference and huge logistical problems in a country where large areas have seen little or no progress in decades. Roads are narrow and overcrowded, telephones unreliable where they exist at all, and living conditions are as backward as any in the world.

American companies have accounted for nearly 40 percent of all investment proposals approved by the Indian Government’s watchdog agency since the economic overhaul effort Started, which is more than the combined total of all

Yet because the lag between signing deals and getting businesses running is longer in India than in many countries, the total actually invested by American companies so far – 5700 million in 1994, compared with just S32,6 million a decade ago is still small compared with American investments elsewhere in Asia. American executives are finding that the Indian bureaucracy, though gradually releasing its tight grip on the economy wields wide powers, compounding inefficiencies from decades of socialism.

General Electric has invested $200 million in India, the largest stake so far of any United States corporation. G.E. expects to increase this to S600 million this year, which is relatively Small exposure for a company with $65 billion in assets. But John F. Welch, G.E’s chairman, who visited last month to review its operations said his company viewed India as a once of the best investment prospects

Mr. Welch’s remarks made front page news in India, which has been going through a period of agonizing over its economic changes. Although the changes brought record levels of exports, foreign exchange reserves and industrial expansion, India’s overall growth rate since the changes began his averaged only 3.5 percent, half of what it needs to begin catching up with neighbors like Malaysia, Singaporean Thailand, which have per capita incomes several times India’s $330 a year

Many Indian executives and economists worry that India will fall oven more behind unless the Rao Government moves fast to dismantle the parts of the old socialist economy left untouched. But Mr. Rao, whose Congress Party has slumped in recent state elections across India, has apparently concluded that the party’s problems stem partly from the unpopularity of the economic changes with the 350 million Indians who live in poverty, many of whom have seen little or no benefit.

With a general election coming in 1996, Mr. Rao has said the overhaul effort will continue, but with row of the major changes economists believe necessary to throw the economy into high gear. This appears to mean that the Government will do nothing to dismantle the vast network of loss ridden state-owned industries that employ millions and nothing to change labor laws that mean, in elect, that no Indian worker can be laid off. SAYS tours will also have to wait for an eng to the ban that India maintains on foreign made consumer goods and to punitive tariffs imposes on imports of equipment needed for new projects here. Another casually may be the effort to overhaul the investment approvals process, which hinges on an agency controlled by Rao, the Foreign Investment Promotion Board

Still, investing in India can be a daunting experience. Several American companies that have now investments here-LB.M., Coca-Cola and Mobil, among others have painful memories of the 1970’s, when India nationalized foreign companies on terms that were tantamount to confiscation Memories are kept alive by the Indian nationalists, many still prominent in Parliament and the Indian news media, which gives daily prominence to articles depicting foreign investment as a betrayal.

Such sensitivities are one reason many largo American companies have kept their investments modest. The caution is particularly marked among the oil companies, including Mobil, who were major victims of the 1970’s nationalizations. They have limited their new investments to production of lubricants, holding off on major investments of the kind required to build refineries or to engage in oil exploration,

If you got 10 or 20 cents on the dollar in the 1970’s, you have 10 be sure it’s not going to happen again,” an American oil executive said.

Other American companies have made major investment commitments only after securing special guarantors. The AES Corporation, a power generating company based in Arlington, Va., was one of six American companies that concluded deals to build power stations in India during the Brown mission in January, but only after the Rao Government agreed 10 give “counter guarantees. These obligate the Government to pay for power delivered to Indian electricity boards by the new power plants is the bulimics default.

AES will be investing S80 million in a power plant at a remote statement  hours drive from Bhubaneshwar,  the capital of Orissa state of “It’s a long way from Delhi to the of heartland of Orissa,” said Tony

Colman, director of AES Trans power o the subsidiary that will oversee the at AES interest in the project But Mr. 0 Colman noted that India plans to add 30,000 mega walls of generating at power to its badly overloaded electricity grid by the end of the decade, one of the most ambitious power development programs in the world.

It’s a vast market, and we wanted to be part of it” he said.

Article extracted from this publication >> February 10, 1995