The Hindu Business Line : Foreign forays

THE ANNOUNCEMENT BY the Tata group of plans to invest in a steel and mining project in Iran is but part of a broader trend of Indian enterprises aggressively acquiring old assets or creating new ones abroad. The amounts involved, for now, may not be very large. But they are growing (it more than doubled to $1.5 billion in 2003-04 from $750 million three years ago) and, what is more, are catching up with investments flowing into the country from abroad if the numbers of the third quarter of the last fiscal, the latest period for which official data is available, are anything to go by. Clearly India Inc. is looking at opportunities abroad with as much fervour as foreigners are in India.

This is just as well. Indian businesses have for long had an inward orientation that may have had its roots in the insular outlook of Indian society itself but was also largely shaped by the industrial policy that the nation had adopted as its development model, post-Independence. The seeds of this shift lay in opening up its market to external competition, after 1991. The removal of licensing and other constraints in domestic fresh capacity creation, too, was a logical offshoot of this policy of liberalisation on the external front. Once Indian enterprises realised that with vastly scaled up operations, they could handle external competition in the domestic market, it was only a matter of time before they took the battle to other markets. As it happened they found in the backyard of their Western competitors victims of similar bruising wars, units ripe for the picking. But not all of this hunt overseas can be attributed to the inter-play of global market forces. Some of it can also be attributed to woeful shortages of critical raw materials such as crude oil, coal, electricity and, non-ferrous metal ores, forcing local enterprises to look to overseas investments as a means of securing reliable supplies. That India, despite its image as a nation richly endowed with industrial raw material, should be looking to source supplies from elsewhere is an ironic twist to the phenomenon of India Inc.'s outward orientation. The crisis is of India's own making. A regressive domestic policy environment and an indifferent political authority have combined to raise hurdles to creating new capacities within the country, as in the case of the failure to augment production of coal for power generation.

The logic of globalisation and the domestic backlash that must inevitably follow dictate that production capacities be created in the markets that are meant to be served. While barriers to trade (both real and potential) in most economies are formidable, capital flows are still largely free. Viewed thus, Indian enterprises setting up production capacities to cater to the local markets that they hope to serve, is only to be expected. But India is still to acquire a positive image or a position of authority in international affairs commensurate with its potential if not current achievements. Till then Indian investments will always be vulnerable to hostile action by host nations.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Foreign forays

Mergers and machismo — Are takeover chiefs acting rationally?

Openness for efficiency

A future without oil

New system makes the grade — Assessing IAS officers

OTC drugs

Cash transaction tax