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India: rising Asian economic superpower.

BESET BY ETHNIC CONFLICT again in 1992, India entered American attention by its usual back-door route, through media reports on the extensive poverty and homelessness in cities such as Calcutta and Bombay or religious turmoil among Hindus, Muslims, Sikhs, and others. Such conflict, like all of India, is of epic proportions. Americans in particular seem to know most about that country through romantic films such as "Jewel in the Crown" or, for those who remember the Cold War, memories that register the long-standing relationship between India and the Soviet Union. For all, the sluggishness of the Indian bureaucracy is renowned.

Through the 1950s, the nation continued with policies of centralization and government control of at least the major industries. Still in the anti-colonialist mode into the 1960s, import-substitution, rather than a globally oriented export strategy, was the key to business policy. American support for Pakistan in the 1970s and 1980s left even the Indian critics of centralized and inward-directed business policy without sympathy when they argued for a more market-directed and Western approach.

Prime Minister Rajiv Gandhi began changes in the last half of the 1980s when he sought to bring India into the technology oriented era, proposing reforms in licensing and foreign exchange regulations. Despite some successes, many of these were superficial and made little headway in bringing this clumsy giant into the modern industrial world.

Only once it had become clear that the Soviet Union was no beacon for centralization and after the multiple failures of socialist and bureaucratic structuring worldwide has India been able to free itself from self-imposed constraints. Its exporters, as well as the international business community, hailed the beginning of trade liberalization on the part of newly elected Prime Minister P.V. Narasimha Rao in July, 1991. His efforts continue with considerable enthusiastic support, although doubts remain whether they can be sustained permanently, given India's long economic history and entrenched bureaucracy.

In the meantime, there are some significant attributes of this long-ignored nation that Americans need to consider. Most importantly, India is the world's largest democracy and continues to function as such despite its huge population and numerous ethnic, religious, and class divisions. From a business perspective, this openness is critical to the prospects for access and growth.

Second, its over-all economy is the third largest in Asia. There are 200,000,000 people in the middle-class market that beckons investors and exporters. While India has the potential to be five Japans, its domestic market currently rivals that of the US.

Third, English remains widely used as a language of government, education, and business. The entrepreneurial class primarily is Western-oriented, with significant numbers of Indian businessmen, teachers and professors, engineers, and scientists having been educated in the West and the US. in particular.

While the industrial base still is in the process of being converted to private ownership, it is clear that there is a skilled and well-educated human resource base. Beyond the heavy industries that remain in the hands of the central institutions, India has a market economy with those mechanisms that are needed for growth and prosperity, including that of foreign investors. Its marketing and advertising services are well-developed. It has sophisticated financial institutions, as well as a growing capital market, long-established multinational corporations, and excellent technological services.

In its efforts over the last two years to make itself more attractive to investors, India has reduced restrictions on equity, revised investment licensing controls, and raised limits on repatriation. Local content requirements have been changed; import procedures and tariffs have been altered in favor of the foreign investor; and labor laws are being modified to make the business environment more appealing. Under the old policy, for people, foreign direct investment was approved on a case-by-case basis and only up to a maximum of 40% foreign equity participation. Now, 51% (or controlling) equity participation in 34 categories of industries is allowed.

The response of the investment community has been immediate. In 1990, prior to the beginning of P.M. Rao's policy renovation, $60,000,000 in new foreign investment was added to the Indian economy, rising to $210,000,000 in 1991. For 1992, foreign investment surpassed $1,000,000,000. Clearly, India's relationship with the world economy has evolved dramatically.

While the changes in industrial and business policy have brightened prospects for India's future, the implications for the U.S. and the Clinton Administration are important as well. The American economy has suffered in part over the last decade from its inability to compete effectively with Asian business powers such as Japan, Taiwan, and South Korea. Particularly under Pres. George Bush, China came to hold a central role in America's Asian and global policy. For Clinton, India presents an opportunity to balance that out with links to a kindred political spirit much in need of business ties that could enhance the still tenuous economic futures of both countries.
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Author:Howell, Llewellyn D.
Publication:USA Today (Magazine)
Article Type:Column
Date:Mar 1, 1993
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