Years of suspicion over Western investment yield to a new welcome

An old Indian once said: ''A business would be crazy to invest in India. But it would be crazier not to.''

As Western businessmen try to figure out how to do business with the world's most populous nation - China - the world's second most populous nation, India, is throwing some interesting challenges their way. At last, the doors to foreign investments are being opened.

Historically, Western businessmen have accorded India a fairly low investment priority. They were irritated when, soon after its independence, India adopted a quasi-socialist economic development strategy.

Indians were equally suspicious of Western companies which they perceived were out to replace political colonialism with economic colonialism and which were unmindful of the newly independent country's national objectives, priorities, and sensitivities.

Much water has flowed down the Ganges in the last 35 years. Indians have gained in self-confidence, if not much in economic growth. Previous suspicions seem to be a distant memory. Now they are looking for foreign investments. As Prime Minister Indira Gandhi put it, ''After 35 years of economic development, a whole range of new entrepreneurs has arisen . . . . We have grown stronger and we are liberalizing. We want foreign capital because we want to accelerate our growth.''

To be sure, Western companies, especially British and American, never really cut India off completely, and foreign aid, from East and West, has continued to flow in. But collectively, such infusion of capital has been small - a total of about $20 billion in 35 years for an economy with annual GNP of more than $120 billion.

The experience of foreign companies which have had operations in India for years is indicative of what one can expect. A recent study of its 34 foreign member companies conducted by the Indian-US chamber of commerce found that, over the past five years, their combined sales grew by 17.9 percent per year, earnings 20.3 percent, dividends 14.8 percent, and capital stock 21.5 percent - a satisfactory performance by any yardstick. Other, similar studies from independent sources have confirmed these findings.

Despite a low economic growth rate, India has come a long way in 35 years. It now has the third-largest pool of scientists, engineers, and managers, next only to the United States and USSR. The range of sophistication of industrial output has grown enormously. It compares well with more advanced developing countries. A new middle class with growing purchasing power is emerging rapidly. The decline in the population growth rate has begun. Overall, the vast potential of the country has barely begun to be tapped.

It is a fledgling but working democracy. The judiciary is fiercely independent. In fact, India is one of the very few developing countries where anyone can sue the government and hope to win. The bureaucracy, despite its propensity to hang on to the levers of power - not an exclusively Indian phenomenon - is considered to be one of the most competent in the world. Quasi-socialist pretensions are more apparent than real, and are mostly used as a vote-getting device. It is an open and vibrant society; the debates on issues are pervasive and of high quality. The English language is commonly used in business and professional circles.

In recent months, several deals exceeding a total of $3 billion have been signed with British, French, Japanese, German, and other companies in industries such as automobiles, aluminum, power generation, railways, and communications. The number of joint-venture agreements between the Indian and foreign private companies in the last two years is 915. American companies with interests in 210 of these joint ventures have been the leading entrants, with the British at 189, a close second. At $500 million, the total US investment in India is still small , but 20 percent of this amount has been pumped in the last two years.

The 1974 Foreign Exchange Regulations Act, which restricted foreign holdings to 40 percent of equity as a general rule, and helped cause the IBM exodus from India, has been more liberally interpreted and has recently come under serious review. In the meantime, Indian companies are seeking foreign collaboration for technology licensing, by far the most common foreign arrangement. Xerox is reported to be entering the Indian market, and other high-technology and export-oriented arrangements are getting a very long red carpet in India today.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.