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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

INDIA

Conflict of Interest
Local industrialists issue a broadside
against multinationals

By Ajay Singh and Arjuna Ranawana / Delhi


HARDLY A DAY GOES by without an assurance from the government that its nearly five-year-old economic reform drive is firmly on track. Whether in interviews to the press, public speeches or private conversations, Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh never tire of reiterating their commitment to trade and industrial liberalization.

For the past six months, however, Rao's Congress party-led government has put a virtual freeze on reforms for fear of alienating voters, who go to the polls beginning April 27 to elect a new government. The main opposition party, the Hindu rightist Bharatiya Janata Party (BJP), has long called for curbs on foreign operations in India, and has accused the ruling party of favoring multinationals. A sign that India's once-pampered industrial giants are putting their weight behind the anti-multinational movement came last week.

In a position paper released at the start of the election campaign, the Confederation of Indian Industry (CII), an independent coordinating body for the nation's major private industries, attacked the economic activities of multinationals in India. Tarun Das, CII's director-general, castigated foreign firms for adopting what he called a "cowboyish" attitude. He said they were trying to dominate local industry on the one hand, while flooding the country with "outdated or obsolete technology and products" on the other.

Das said that collaborations with multinationals were fraught with difficulties. As an example, he pointed out that many of the joint-venture partnerships formed to bid on government telecommunications contracts last year had already split up, some after their tenders were unsuccessful. "Such arrangements are not marriages," Das concluded, but "one-night stands."

It was local industry's most public diatribe yet against multinationals, and it raised fears that Rao's government may be pressured by big business -- a major source of campaign funds -- to cut back on concessions to foreign investors.

When the Congress came to power in 1991, Finance Minister Singh delicensed most industries and trimmed import and exchange controls. The deregulations benefited local business enormously. However, because India's collapsed credit rating could not be revived without substantial capital inflows, the government was forced to further open doors to multinationals.

By 1992, foreigners were allowed to control 51% of joint ventures and to buy and sell shares on India's stock exchanges. Overseas investments, which were a trickle until then, began to pour in. Total foreign investment in 1995 stood at $5.3 billion, compared to $132 million in 1991.

Local industrialists are now complaining that foreigners are trying to take over joint ventures, or are setting up wholly-owned enterprises that would compete directly with the joint ventures. A recent example: Hindustan Lever, a union between the Birla group and Anglo-Dutch Unilever, is angry because Unilever wants to set up a subsidiary to market the same range of consumer products that Hindustan Lever is already selling.

Scott Bayman, the regional boss of the U.S. General Electric Co., dismisses such complaints. "If the consumer is winning because of better products and services," he counters, "there can't be anything wrong." Bayman says it is normal practice worldwide for a multinational to use the expertise of a local partner and also to "increase its control if it brings more to the party in the shape of technology and new products."

The CII says it is not against international investment: it would like to see the government approve as much as $10 billion a year in foreign investments over the next five years. But at the same time, it wants multinationals to do business only in areas where local industry is weak. The Federation of Indian Chambers of Commerce and Industry has a similar view: foreign firms should stick to wholly-owned high-tech projects, 50-50 joint ventures or technical collaborations with minority stakes.

Indian industrialists have seldom aired their grievances publicly, because economic reforms are beneficial to both sides. But they have been quick to join any chorus of discontent against foreign investors. Thus when environmentalists in Maharashtra state spearheaded a movement last year against a $2.9-billion power project by the Enron Corp. of the U.S., several Indian companies supported their cause.

The night before the project was canceled last August, Bal Thackeray, leader of the Hindu radical Shiv Sena party that rules Maharashtra in alliance with the BJP, invited top industrialists to dinner at his home in Bombay. The tycoons included Keshub Mahindra (automobiles), Rahul Bajaj (motorscooters, steel), Aditya Birla (cars, consumer goods), and Harsh Goenka (power, electronics).

"What will happen if we cancel Enron?" Thackeray asked his guests. Some of them replied that the effect on foreign investment would not be as bad as Enron had warned. The satraps were evidently wrong: virtually every major foreign investment proposal was put on hold nationwide and some international investors turned to other countries. When the state government renegotiated the Enron project in January, many of these same Bombay industrialists were outraged.

India's corporate giants are the major suppliers of election campaign funds -- about 70% of their donations usually goes to the ruling party. Many now suspect that big business is holding back political contributions in order to extract promises to place caps on multinationals. For its part, New Delhi has repeatedly stressed that its reforms are "irreversible." Foreign investors may have to wait until after the elections, however, to know exactly what that means.


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