You can almost feel the excitement among India's business elite. Execs from Bombay to Bangalore hope that President Clinton's arrival on Mar. 20 for a five-day visit will be a ribbon-cutting of sorts: They want the U.S. leader to stir a new enthusiasm for India among foreign investors. And government officials and business folk alike think Clinton's timing is perfect. Says Ajay Sondhi, who heads India operations for Warburg Dillon Read: "For the first time, India is providing opportunities in line with global expectations."
Well, yes and no. Any foreign exec traveling to India today is likely to find a decidedly mixed picture. Inconsistent policies, bureaucratic bottlenecks--the tune is familiar, and it's too soon to write new lyrics. Indeed, some companies are leaving, fed up with a status quo they've stopped counting on to change. Direct foreign investment fell by 30% last year, to $2.1 billion. In an annual index compiled by consultants A.T. Kearney to measure confidence among foreign investors, India dropped from No. 6 to No. 11 last year--well behind No. 3 China.
The recent departures include some surprises, too. Bell Canada International Inc. and Swisscom PTT both left, despite the huge promise of India's telecom market. "The reality is that most foreign companies are skeptical about India," says C. Srinivasan, country chief at A.T. Kearney. "The on-the-ground experience is about delays and lack of transparency--the same old thing."
NEW LIFE. O.K., but there's a new thing happening in India alongside the old. Consider the telecom sector, until recently a fragmented industry where barely a creature seemed to stir. Then, in February, the government of Prime Minister Atal Bihari Vajpayee announced a batch of sweeping reforms. It has already set up a more powerful regulator, restructured tariffs, and dropped onerous licensing fees; it may also permit 100% foreign investment.
Consolidation began almost immediately. On Mar. 1, Birla AT&T Communications, the U.S. giant's four-year-old joint venture with Birla Group, merged with Tata Cellular. The new company is expected to claim a quarter of the Indian market in two years. Late last year, Hong Kong's Hutchison Telecommunications International Ltd., which runs the Asian franchise of Orange PLC cellular service, paid $175 million for a controlling stake in Delhi-based Essar Teleholdings. Hutch is now No. 1 in cell-phone subscribers. And both AT&T and Hutch are trawling for more.
HOMEWORK. After nine years, India's liberalization is finally taking hold. The information-technology sector is famously hot. In the newly privatized insurance sector, nearly two dozen foreign players, from American International Group Inc. to Germany's Allianz, are braced to enter when the market opens by yearend. Estimated investment in the next five years: over $1 billion, which will create 200,000 jobs.
Investors are changing, too. They do their homework more carefully, says Nawshir Mirza, a partner at Ernst & Young in Bombay. This helps them overcome the hurdles more easily and understand the Indian consumer better. Hyundai Group, by offering new but localized models at affordable prices, has become No. 2 after the local Maruti.
Many foreigners also are dropping the trouble-prone joint venture strategy for the acquisition route, now that 100% buyouts are permitted. French cement maker Lafarge bought out Tata Steel Cement for $130 million last year and now plans to build its brand through more acquisitions. Foreigners are also concentrating on sectors--IT and services, for instance--in which the playing field is level. General Electric Co. dropped consumer appliances in India last year and now focuses on services such as remote transaction-processing centers and consumer finance, where it will probably become the largest player in India in five years. U.S. chipmaker Intel will double its $250 million investment this year.
The opportunities are there, as Clinton will be shown. But India has a ways to go. It's still the bravest foreigners who may yet reap the benefits.