India Opens Up

Welcoming foreign investors

For more than a generation after it won independence from Britain in 1947, India steadfastly tried to become self-sufficient in virtually everything from steel to grain. Now, however, the government of Prime Minister Indira Gandhi has departed from that policy and begun the careful wooing of foreign investment. Says a highly placed New Delhi official: "The old approach of doing everything ourselves has clearly failed to work."

The policy change was prompted largely by India's need for money for its ambitious $166 billion sixth five-year plan. India is also looking for outside capital to help restore its foreign exchange reserves, which have fallen to critically low levels. Last year the high cost of energy imports was mainly responsible for nearly a one-third drop in India's hard-currency holdings. As a result, New Delhi was forced to borrow $5.7 billion from the International Monetary Fund.

In addition to sending out signals that foreign investment is welcome, New Delhi officials are trying to trim the thicket of regulation and bureaucracy that has often thwarted outside businessmen in the past. Firms, for example, can now automatically get government approval to increase their production capacity by up to 33%. Previously, they often had to wait several years for such permission.

Doors are now swinging open for a wide variety of foreign projects in India. The Gandhi government recently obtained $680 million in loans on the Eurocurrency market to build an alumina plant southwest of Calcutta. France's Aluminium Pechiney will be constructing the factory. New Delhi also plans to build eight 1,000-MW electric-generating stations at a cost of nearly $1 billion each. The first of these will be built by a British consortium headed by Northern Engineering Industries of London.

India is also encouraging foreign companies to make direct investments in the country. Japan's Suzuki Motor Co. is expected to pay $70 million for a 25% share in Maruti Udyog, a nationalized automobile company. Chevron International Oil Co. has agreed to invest at least $27 million in three exploration wells on India's continental shelf, an area that was formerly off limits to foreign companies. India currently meets about 55% of its oil needs from domestic production, and it hopes to boost that figure to 70% by 1985.

British, French and West German companies have been eager to cash in on India's new open-door policy. European governments have supported the Indian ventures and often subsidized much of their financing. American firms, on the other hand, have been a little more hesitant. Memories of past hostile policies by the Indian government still linger in American corporations. IBM, for example, pulled out of India in 1977 rather than comply with an official edict requiring the company to relinquish 60% of the ownership of its Indian operations.

Moreover, unlike European governments, the U.S. has been unwilling to grant its companies favorable credit arrangements on their Indian projects. Complains one American diplomat: "European commercial attaches go around like salesmen from company to company booking orders. We just can't do that." U.S. investment in India will undoubtedly be one of the items on Gandhi's agenda during a visit this week to Washington.

While these new official attitudes toward foreign investment are helpful, American, European and Japanese firms are also being attracted to India by its improving economy. The country that limped from one disaster to another for so many years is now showing some surprising strength. Growth in the past two years has averaged 6% annually, while inflation is currently 4%. Since business is declining in most of Western Europe and the U.S., many companies are suddenly finding India a very Interesting place in which to invest.

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