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Foreign companies eye India with cautious optimism

Foreign companies eye India with cautious optimism
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First Published: Mon, Jun 15 2009. 09 38 PM IST
Updated: Mon, Jun 15 2009. 09 38 PM IST
Mumbai: At first, last month’s clear victory of India’s ruling Congress party raised hopes that the doors to Asia’s third largest economy would be thrown open to foreign investment. The stock market surged on euphoria that with reform-minded leadership firmly in place, Bank of America branches and Wal-Mart stores would quickly take root across the land.
Now, reality is setting in.
Foreign firms are waiting to see how much the new government will open India—where key sectors such as retail and finance are protected—to the tough embrace of globalization. Even those bullish on the country’s future say if further liberalization comes, it will come Indian style—which is to say, slowly.
Last week, Swedish retailer Ikea said it broke off talks with the government about setting up shop in India. Ikea wants to retain full ownership of its stores, which isn’t possible under current law. If the Indian government decides to raise the cap on foreign investment in insurance companies, MetLife International would definitely invest more in India, says Rajesh Relan, the company’s managing director for India. “MetLife is keen to increase its stake,” he said.
India’s new government has voiced its support, in principle, for opening banks, insurance companies and pension funds to greater foreign investment. Many also hope controversial legislation to give foreign firms greater access to the nation’s $430 billion (Rs20.6 trillion) retail market will pass now that the Communist parties have been sidelined.
US businesses have been encouraged by the return to office of Prime Minister Manmohan Singh, who pushed through a nuclear deal with the US, opening the way for greater economic co-operation in sensitive areas such as defense and nuclear energy. But the forces behind India’s decades-old philosophy of swadeshi (economic self-sufficiency) didn’t all vanish with the election.
Eighteen years after India began to shift towards greater economic openness, important swaths of the economy remain dominated by the state. The nation’s bureaucracy is as entrenched as ever, and many remain sceptical of globalization—especially after witnessing the havoc of the US-spawned credit crisis.
“We think we can be partners with India in its growth going forward, but that depends on India’s policies and its continued reform process,” said Karan Bhatia, General Electric Co.’s vice-president for international law and policy and former deputy US trade representative for Asia.
India’s new administration wants to spur growth, but it’s unclear what role foreign firms will play. The Congress party’s victory was rooted in a delicate balance of populism and free marketeering, and its two largest coalition partners—the Trinamool Congress and the Dravida Munnetra Kazhagam—have voiced their opposition to some aspects of liberalization.
A thicket of details have to be worked out, but the US-India nuclear deal signed last year, which overturned a three-decade ban on atomic trade, could make it easier for the two nations—once on opposite sides of the Cold War divide—to share sensitive technologies. Most executives now say they’re hoping for a slow shift to a more efficient business environment, rather than big-bang reforms.
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First Published: Mon, Jun 15 2009. 09 38 PM IST
More Topics: Investments | FDI | FIIs | Markets | Manmohan Singh |