IT MAKES a wry joke. India they say has finally decided to stop fighting the East India Company. There is some truth in it. Dogged by memories of the foreign investors that brought in the British raj India has turned away many foreign investors since independence in 1947. It is no longer doing so. India is bust in hock to the IMF and has seen the collapse of the Soviet economy from which it once drew inspiration.
The Prime Minister Narasimha Rao has abandoned socialism for a market-friendly out ward looking economic policy. This week he tried to market the new India to the elite of world business at the meeting to the World Economic Forum at Davos.
The response was friendly but not enthusiastic. Everybody knows that Mr. Rao has faced a lot of opposition from trade unions and his own Congress Party in pushing through his reforms. If he has difficulty convincing his countrymen that his reforms are irreversible naturally he has trouble convincing foreigners too. He will present his second austerity budget in a row at the end of the month and if the country can stand that pain it will probably be poised for some gain. Foreigners are interested in getting a toehold in the Indian market but will not step in with billions of dollars until they are certain that the new policy will last. However what is marginal for global investors can be substantial for India.
Of the foreign investors that have come to India in the past six months General Motors has done the biggest deal$300m with Indian firms. General Electric and IBM have also done deals with local groups. Coca-Cola along with a non-resident Indian company is going to make soft drinks and snack foods for export ($100m-worth in five years). Kelloggs BMW and Ford are also in some of the 200-odd proposals have been cleared within 24 hours by a bureaucracy that used to take years.
The equity stake in many of these projects is modest sometimes less than $1m. However the flow could accelerate soon. India is selling a controlling stake in two public-sector companies 10 foreigners and that is truly revolutionary. First Suzuki which had a minority stakes in Maruti Udyog car maker has been allowed to stake to 52%. The extra equity will be used to expand production by 70000 dollars a year mostly for export. The deal should signal to skeptical Japanese companies that India has really changed. Second the India Tourism Development Corporation has decided to cut its stake in several tourist hotels and give foreignchains.a40% stake in them plus management control.
Bigger stuff is in the offing. Shells have offered to develop oil fields set up a refinery and expand a petrochemical complex in which it already has a 30% stake. This could bring in $2 billion. An undisclosed American multinational is reported to have offered to set up a 1 billion power station. All the big telecom companies are lining up for a slice of India’s market and a condition for entry is that they must set up manufacturing facilities in India. Fujitsu has already done so and tried to steal a march on the others by offering 200,000 lines and taking payment in rupees. Motorola interested in making cellular telephones.
Success tends to feed on itself Provided India shows that it is serious about foreign investment it seems investors will be too.
(The Economist)
Article extracted from this publication >> February 21, 1992
