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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

YANKEE, DON'T GO HOME

Despite Rightist Tirades, Foreign Investors in India Stay Put
By Ajay Singh Delhi


THE HINDU FESTIVAL OF Dussehra marks the victory of the mythological god-king Ram over the evil ten-headed monarch Ravan. It is not surprising, perhaps, that Bal Thackeray, head of the rightist Hindu party Shiv Sena that governs Maharashtra, India's richest state, chose to let fly a political arrow on Dussehra day. At an Oct. 3 rally in Bombay, he charged America's Kentucky Fried Chicken (KFC) and McDonald's with selling "cancer-causing" products. "All these multinational chains that produce junk food with no nutritive value whatsoever are not welcome in Maharashtra," he thundered.

Coming on the heels of the state government's revocation of a $2.9-billion contract with U.S. power developer Enron, Thackeray's outburst fueled worries about India's foreign investment policies. They have been getting more open under the reforms of P.V. Narasimha Rao, who became prime minister in 1991. Though Thackeray holds sway only in Maharashtra, his Shiv Sena and its conservative coalition partner BJP comprise the country's major opposition grouping. The coalition is given even chances of ousting Rao's Congress party in general elections due by July 1996.

If that happens, what then for Rao's reforms? "We're not that much concerned," says Christopher Reeves, chairman of Merrill Lynch International. "We're confident that the reform process is irreversible." The BJP has said it supports deregulation, but it wants to make sure that local industries are not disadvantaged. Still, some foreign companies are said to be taking a wait-and-see attitude, though approvals for direct foreign investment this year are likely to equal last year's in value.

Manohar Joshi is chief minister of Maharashtra, but Thackeray, who holds no official post, boasts that he runs the state government by remote control. Joshi has not contradicted his party chief. Thackeray has said he welcomes foreigners in high-tech fields. What he objects to is the entry of multinationals in the consumer market, which he sees as a threat not only to indigenous business but also to the country's culture. U.S. soft drink giant PepsiCo is keenly watching the political twists and turns. It plans to spend $80 million on at least 60 KFC and Pizza Hut restaurants over the next seven years. A KFC diner has just opened in New Delhi. An earlier one in Bangalore was ordered closed by the Bangalore City Corp., saying it used excessive amounts of monosodium glutamate seasoning But it remains in business after Pepsi obtained a court injunction. McDonald's has yet to set up shop in India, though British fast-food chain Wimpy's has a few outlets in Delhi.

Coca-Cola has also been at the receiving end of a Thackeray tongue-lashing. The Shiv Sena leader has warned Coke and Pepsi that they would be "bundled out of India" if they were to sponsor any sporting event in which Pakistan participates. "Not a single bottle of these companies will be allowed to remain in Maharashtra," he vowed. "They will all be smashed." Coke had pulled out of the country in 1977 after refusing to divulge its soft-drink formula to a company it did not own. It returned in 1993 and now controls local company Parle Exports, India's biggest soft-drink maker.

For every foreigner quaking at the prospect of a change in government, however, there is another determined to crack a vast market. The U.S. calls India, with its 928-million population, one of the world's top ten BEMs - Big Emerging Markets. Heavyweights such as General Motors, GE, Sony, NEC and Samsung are eager to sell to a middle-class that is bigger than Japan's entire 125.4-million population. If Thackeray is against fast-food, these companies will make and market computers, TV sets and cars. Tough doing business in Maharashtra? India has 31 other states and territories. Enron, for one, is backing a feasibility study for transferring its Maharashtra power plant to Congress-ruled Orissa.

Many in India argue that the momentum of Rao's reforms cannot be stopped. "The policy reforms over the last four years have had an invigorating effect on various sectors of the economy," says Narayan Vaghul, chairman of the Industrial Credit and Investment Corp. of India. "A broad consensus has emerged on the economic reforms." Conservatives may complain that the majority of Indians are not benefiting from development. But even they admit that Rao's government has put the country on a more solid financial footing.

"It's a sad commentary on our times that due credit is not being given to the present government for pulling the country from the brink of disaster in 1991," says Vaghul. When Rao took over that year, foreign reserves stood at just $1 billion, barely enough to pay for a 20-day supply of petroleum. India has a comfortable $19 billion in reserves today. GNP growth surged from 0.9% in 1991-1992 to 5.6% in fiscal 1994. At 8.4%, the current inflation rate is far below the 17% price rise in 1991.

Not that India has got everything right. The country is still weighed down by corruption, anachronistic laws and an inefficient and unprofitable public sector. The Reserve Bank of India recently urged the central government to boost tax collection and rein in spending. About half of federal revenue is currently used to service the national debt. But as the elections draw near, Rao is wooing voters with costly state-funded programs, including higher food and fertilizer subsidies.

Structural problems? Consider India's ten stock exchanges. "Shares could take anything from two months to a year to get registered," says Mark Bullough of Jardine Fleming Securities in Bombay. For all the complaints, though, foreign money is staying put. "If a multinational has taken a decision to come to India, it will have done so after allowing for these problems," says Richard Hartland, CEO of Hindustan Ciba-Geigy. "Such decisions are usually persisted with unless there is a radical problem with the country." Thackeray notwithstanding, most foreigners clearly believe that India is still a good bet.

-Reported by Shirish Nadkarni and Eapen Thomas/Bombay


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