India's Pols May Be Turning Against Foreign Business

The recent cancellation of a $2.9 billion Indian power project was a huge blow to Enron Corp.'s global ambitions. It also could mark the beginning of a big shift in Indian politics. Many Indians were delighted to see a big U.S. corporation cut down to size. And by giving the ax to the project, the right-wing Bharatiya Janata Party (BJP) has put itself in a position to wrest power from the ruling Congress Party, which has led India for most of the 48 years since independence.

The Maharashtra state government--a coalition of the BJP and the local Shiv Sena party--justified the move by saying that Enron was going to make too much money on the deal. There were also charges of kickbacks, which Enron emphatically denies. Long in search of a way to counter the Congress Party, the BJP seems finally to have honed in on a nationalistic message: Make reforms, yes, but without selling out. Or, as BJP President L.K. Advani recently said: The party "has no objection to foreign investment" as long as it doesn't compromise "the nation's economic sovereignty."

HOPELESSLY TAINTED? This theme plays nicely on the visceral distrust of foreign companies that Indian voters have felt since the colonial era. It also satisfies Indian businesses by assuring them the reforms will continue--and that they may be protected. The BJP now can present itself as the best choice for reforming the economy. Congress is simply too corrupt to do the job, too cozy with business interests, BJP politicians say. That tallies with many voters' view of Congress as having held power for so long that it is hopelessly tainted. Even the macabre front-page story of a murdered woman found in a tandoor oven in a New Delhi restaurant last month turned into a tale of Congress' criminal excesses. Her husband, the accused in the murder, was a Congress Party youth leader.

Foreign investors are finding out that Congress isn't as all-powerful as they thought. Top Congress officials have conspicuously not come to Enron's defense, though they championed the project in the first place. Prime Minister P.V. Narasimha Rao did little else than affirm Maharashtra state's legal right to scrap the project and offer mild hope that "there will be some way out."

In the months leading up to the election--which will be held sometime between October and March--other foreign companies might become unwilling participants in India's electioneering. Fast-food chain KFC, which just opened its first restaurant in Bangalore in June, has already had to increase security following threats from local political groups who say India doesn't need America's greasy fast food. Local protests are exactly the spark that started the Enron debacle.

But, as analysts point out, the BJP has to be careful not to go overboard with its economic nationalism. "The Enron issue gives an advantage to the BJP, provided they don't become too dogmatic," says Anand Kumar, a political scientist at New Delhi's Nehru University.

If the BJP should come to power, it will likely bring with it a muddled policy of economic reform. The party says it wants foreign investment in "critical" areas such as roads, telecommunications, and, yes, power, but is firmly opposed to the presence of consumer companies, such as Coca-Cola Co. and PepsiCo Inc., which have been in India for several years. Jay Dubashi, the BJP's economic adviser, says that if the party makes it to national office, it will review all foreign investments already in India. Says Dubashi: "If it turns out that we have to ask them to go, then we'll ask them to go."

Of course, the BJP isn't going to throw all foreign companies out of India or block all new deals. Voters don't want that. But multinationals are going to have to do what Enron didn't--obtain the blessing of the BJP and other strong local groups. Otherwise they may suffer the same fate.

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