Defining India

Sixteen years after India opened its economy Indian companies are taking over giant multinationals proving wrong cynics, who had warned that uncompetitive Indian companies would be gobbled up by multinationals.

In 2006, Indian companies raised $19 billion from global markets to finance foreign takeovers and internal expansion. That was nearly double the inflow of foreign direct investment (around $10 billion). Last month, Bahrain’s Crown Prince Sheikh Salman bin Hamad Al-Khalifa paid a visit to India and called for investments in education, leisure and tourism and technology. This was followed soon by the visit of the UAE Vice President Sheikh Mohammed Bin Rashid al Maktoum who invited Indian industry to invest in the UAE.
Indian investment in the UAE has tripled over the past four years and conversely property majors like Emaar and Nakheel have made multi-million dollar investments in India.
Why is India successful despite not following any of the proven economic paths? Compared with the classic Asian strategy  — exporting labour-intensive, low-priced manufactured goods to the West — India’s economy is driven more by consumption rather than investment, its domestic market rather than exports, services more than industry, and high-tech rather than low-skilled manufacturing.
Countries usually succeed in manufacturing exports before succeeding in services, but India bypassed that and achieved astounding success in services first.
Countries normally attract large amounts of foreign investment before venturing abroad themselves.
But here too India has leapfrogged into massive investment abroad without waiting for foreign investment in India.
This does not mean that India is all too happy with its current creaky infrastructure and relatively low foreign direct investment.
India needs $150 billion investment in the next few years for development of its infrastructure.
It is perhaps too easy to become pessimistic about India’s deficient infrastructure. Everything from potholed roads and jam-packed airports to power blackouts and shaking urban transportation would appear to be insurmountable shortcomings – the so-called structural deficiencies that would put off any foreign investor.
With the current level of infrastructure spending, how does India get around it?
It is here that India’s richest, the captains of the strong private enterprise, are playing an increasingly vital role.
Reliance Industries chairman Mukesh Ambani is building a new port city near Mumbai and setting up a badly needed farm-to-store supply chain in agricultural commodities. His brother Anil Ambani is erecting a 7,480 megawatt electricity plant in the northern state of Uttar Pradesh while partnering Mumbai on the first phase of a $4 billion suburban railway system.
Tulsi Tanti has made all his money in wind energy. As much as 45 per cent of the 100,000 megawatts of power that India is expected to need in the next five years may be supplied by windmills.
Grandhi Rao’s GMR Infrastructure Ltd. is modernising the New Delhi airport and constructing a new one in the southern city of Hyderabad.
In the latest budget, the finance minister promised to act on a policy group’s recommendations to borrow funds from the Reserve Bank of India and lend them to Indian companies for infrastructure projects.
Another suggestion is to provide ‘credit wrap’ insurance to help mobilise capital from international markets for infrastructure projects. Mutual funds, too, will now be allowed to operate dedicated infrastructure funds.
Last year India came out with a strategy to attract investment. With the Special Economic Zones Act, India considered it was politically preferable to create a number of geographically defined capitalist enclaves than to undertake the painful process of structural reform.
India feels the SEZs would serve as a short-term work-around to the problems hobbling the country’s business environment. By providing pockets of decent infrastructure, the SEZs would stimulate economic activity and attract foreign investment and know-how. They would especially help medium-sized companies that could not justify setting up major infrastructure facilities on their own.
Returning expatriate Indian scientists and technologists are also playing their part, taking India into the forefronts of technological innovations in electronics, physics, genetic engineering, microbiology, medicine, information technology, physical chemistry, aerospace and aeronautics.
Foreign investors to India see opportunity in even the infrastructure challenges, which explains why so many multinationals are flocking to India to invest in sectors like hotel construction. In a country with only 25,000 tourist-class hotel rooms (compared with more than 140,000 in Las Vegas alone), companies including Hilton, Wyndham and Ramada have plans for 75,000 rooms.
US private equity outfits are also joining the action. Blackstone Group and Citigroup announced they are teaming up with the Indian government and the Infrastructure Development Finance Corp. to set up a $5 billion fund for infrastructure investments in India.
China, India and other developing countries are set to give the world economy its biggest boost in the whole of history, says a survey by the Economist. Emerging economies, which account for more than half of the total world GDP, are driving global growth and having a big impact on developed countries’ inflation, interest rates, wages and profits.
As these newcomers become more integrated into the global economy and their incomes catch up with the rich countries, they will provide the biggest boost to the world economy since the industrial revolution. It is likely to be the biggest stimulus in history, the survey adds, because the industrial revolution fully involved only one-third of the world’s population. By contrast, this new revolution covers most of the globe.