Business To India's New Rulers: It's Payback Time
On Mar. 19, India's new government, a coalition led by the Hindu nationalist Bharatiya Janata Party, was finally sworn into office. Prime Minister Atal Behari Vajpayee, 72, a popular veteran statesman, promised the country "able and stable leadership."
What's not clear is how much Vajpayee promised the magnates who for the first time backed the BJP in large numbers. Some of the biggest names in business supported the BJP in the elections, and proponents of reform fear the party will reward them with laws and tariffs that prop up uncompetitive industries and hamper efforts to modernize. Don't worry, says BJP Treasurer Ved Prakash Goel: "We have not come to power to cripple the economy." He even says the BJP will make India more competitive. Whatever happens, the new government will have to help its allies.
Indian businesses probably contributed about $400 million of the $600 million spent by all parties on this year's campaign. E. Sridharan, academic director of the University of Pennsylvania's Institute for the Advanced Study of India in New Delhi, figures a good chunk of that sum went to BJP candidates. Says Sridharan, "This is a big change in Corporate India, which always supported the Congress," the ruling party for most of the last 50 years.
Only one or two companies actually report campaign contributions. But political analysts say blue-chip backers of the BJP include scooter maker Bajaj Auto, the chairman of which is a champion of protectionism; the Birla conglomerate, a big maker of cement, chemicals, and textiles; the Tata empire of steel, truck, hotel, and power companies; Mahindra & Mahindra, India's largest tractor maker; and Reliance Industries Ltd., a petrochemical producer. Companies with Hindu roots, like the Jhindal and Ruia groups back the BJP. And small traders and shopkeepers, who fear a fully deregulated economy, are a source of party strength.
These business titans and their small-fry counterparts feel drawn to the BJP creed of swadeshi, or economic nationalism. This doctrine calls for building up Indian industry's strength before dropping all trade barriers and unleashing global competition on the subcontinent. "That's attractive in the current climate," says Sridharan, who notes that many companies have struggled against foreign rivals since the first market-opening reforms in 1991. Support for the BJP is especially strong among once powerful houses like the Thapar paper, coal, and engineering conglomerate and the Modi group of steel and consumer-goods companies. Both thrived in the days of full-fledged government protection but are now seeing their fortunes wane.
The payback has already begun. The day after the coalition took office, the new Commerce Minister imposed antidumping duties on Thai, Indonesian, and Korean companies, which have flooded the Indian market with cut-rate shipments of chemicals used in making polyester fiber. The direct beneficiaries of the tariff hikes: Bombay Dyeing & Manufacturing, a struggling textile maker owned by well-connected tycoon Nusli Wadia, and Dhirubhai Ambani's giant Reliance Industries, a top polyester fiber producer. Both back the BJP.
UNSHACKLED. To be fair, other factors have drawn executives to the BJP. One is the feeling that Congress policies shackled business. "In 50 years, the Congress made us the beggars of the world," says Dilip Piramal, chairman of Blow Plast Ltd., a leading plastics and luggage maker. The pro-reform Confederation of Indian Industry likes the BJP's pledge to eliminate red tape and build better roads, harbors, and airports. "Indian industry needs freedom from rules and regulations," says Confederation President N. Kumar. "Foreign companies in India struggle with that, too."
The BJP may well remove the restrictions that suffocate business. But steel and chemical companies are still clamoring for higher tariffs. That's bad, says business consultant Jay Desai, who helps midsize companies become more competitive. Desai feels that prolonging the tariffs just saps industry's ability to compete. Meanwhile, John Levak, manager of a $30 million private India fund for Jardine Fleming Securities, warns the BJP not to block foreign competition in consumer goods: If that happens, he says, "there will be a widespread reduction of interest in India by the long-term investors the government wants to encourage."
The BJP may yet retreat from its protectionist agenda. But for reform proponents, the early signs are unsettling.