March 30 (Bloomberg) -- Honda Motor Co.'s factory outside New Delhi boasts $3 million of robots that assemble Accord sedans. It also has its own power plant. The government supplies just a quarter of the electricity Honda needs.

``Anywhere else in the world, we probably wouldn't have had to build a backup generator,'' says Rajive Saharia, general manager of the Indian unit of Tokyo-based Honda, Japan's third- biggest carmaker.

Companies are relying on ingenuity and cheap labor to overcome crude power grids, roads and ports in India, a market of 1.1 billion people that's too important to ignore. The nation's antiquated transportation and communications links are cutting profits and slowing growth as the government attempts to challenge China as the world's fastest-growing major economy.

H.J. Heinz Co., the world's No. 1 ketchup maker, pays villagers to collect tomatoes from farms that vehicles can't reach. Pantaloon Retail India Ltd., India's biggest retailer by market value, gets 40 percent of its deliveries on hand-drawn carts, motorized rickshaws and bicycles to avoid traffic jams and navigate poor roads.

``Companies can work the system for a while, but not forever,'' says Saumitra Chaudhuri, an economic adviser to Prime Minister Manmohan Singh. Inadequate power and transportation networks shave 1 percentage point from annual growth, he says. India's economy grew 8.1 percent in the year ending March 31, the government estimates, trailing only China among the world's biggest economies.

India produces about 8 percent less electricity than it needs, cutting gross domestic product by a 10th, the Finance Ministry estimates.

Highways, which move almost 80 percent of the goods transported in India, account for only about 2 percent of the country's 3.32 million kilometers (2.1 million miles) of roads. It takes an average 85 hours to unload and reload a ship at India's major ports, 10 times longer than in Hong Kong or Singapore, according to government figures.

`Biggest Impediment'

``The biggest impediment to doing business in India is the lack of basic infrastructure,'' says William Harrison, chairman of New York-based JPMorgan Chase & Co., the third-biggest U.S. bank. ``India must accelerate the work to be done, as there is a direct payback to the economy.''

Without improving roads and ports, India can't sustain its economic boom or compete with China to attract international investment, says Song Seng Wun, a regional economist at CIMB-GK Securities in Singapore. India's GDP probably grew 8.1 percent in the year ending March 31, according to government estimates.

``Mobility of people, goods and services is critical to sustain this growth,'' Song says. ``That's what we're seeing in China now. India must replicate that for the kind of development it wants to see.''

Trailing China

China received about $60 billion of investment from international companies last year as manufacturers built factories to take advantage of low wages and falling tariffs. India drew about $5 billion. Manufacturing accounts for 16 percent of India's economy, compared with 39 percent in China.

For now, companies such as Ford Motor Co., Honda and Heinz are finding ways around India's inefficiencies so they can profit from a consumer market where personal incomes doubled in the past decade.

Dearborn, Michigan-based Ford, the world's No. 3 automaker, sold 20,370 vehicles in India last year, 36 percent more than in 2002. Chief Executive Officer William Clay Ford Jr., 48, said during an October visit to India that the nation's growth and rising incomes make it a ``top priority'' for the automaker.

Ford, whose factory near the south Indian city of Chennai makes Ikon and Fiesta sedans, requires its engine supplier in central India to fit delivery trucks with global positioning system devices so it can locate vehicles stuck in traffic and adjust production schedules, says Arvind Mathew, managing director of Ford's Indian unit.

Higher Costs

To hedge against the risk of delays, the Chennai plant stocks more parts than needed, increasing storage costs, says Mathew, 45.

``Inefficiencies add at least 5 percent to 10 percent to costs,'' Mathew says. ``But you've got to learn to get around the problems as India's potential stares you right in the face.''

Honda takes seven days to truck cars from its plant near New Delhi to dealerships in southern Chennai and Bangalore, about 2,500 kilometers away, says Saharia.

``Transit times in India are among the highest, and obviously there's a cost to it,'' says Saharia, 46, who declined to provide details on the expense. ``But I can't wait for all the infrastructure issues to be sorted out and then move in. I better be part of the market now.''

Motorized Rickshaws

Retailer Pantaloon has a computerized inventory management system, yet it relies on hand-drawn carts and bicycles to get goods into its stores, says Managing Director Kishore Biyani.

Those limitations aren't preventing the Mumbai-based company from moving forward with plans to increase its retail space to 10 million square feet (929,030 square meters) from 3 million within two years and build 51 shopping malls, Biyani says. New stores and rising sales helped Pantaloon's second- quarter profit rise 83 percent to 185.65 million rupees ($4.2 million).

``We don't have the best of roads, trucks or systems, but we still manage to make our goods reach a lot of places in time,'' says Biyani, 44.

Finance Minister Palaniappan Chidambaram said in his Feb. 28 budget speech that the government would spend 992 billion rupees on roads, ports, telecommunications networks and power grids in the year starting April 1, a 24 percent increase from the previous year. India aims to boost economic growth to 10 percent annually, challenging China, Chidambaram said.

``The government, after some slow years, has begun to seriously invest in infrastructure,'' says Peter Bakker, chief executive of TNT NV, Europe's second-largest express package delivery company.

`India Can't Be Ignored'

Hoofddorp, Netherlands-based TNT has been in India for 12 years, focusing mainly on international shipments. The company plans to invest 100 million euros ($120 million) to expand its domestic delivery network as roads improve, Bakker says.

The proposed public works spending is still just 3.4 percent of GDP. China probably spent about $150 billion on infrastructure last year, equal to about 11 percent of economic production, estimates Chetan Ahya, an economist at Morgan Stanley in Mumbai.

Nilesh Patel, the head of Heinz's Indian unit, isn't waiting for roads to be built.

Heinz pays village youths -- some of them barefoot -- to carry tomatoes from farms that aren't accessible by road to collection points where they are loaded onto trucks, says Patel, 46. India's incomplete road network boosts freight costs by a fifth, he says.

``Infrastructure can never be comparable to China or Europe, but India can't be ignored,'' Patel says.

To contact the reporters on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net Anand Krishnamoorthy in New Delhi at anandk@bloomberg.net

Last Updated: March 29, 2006 17:23 EST