Indian businesses face troubles overseas, prompting soul-searching
By Rama Lakshmi,
New Delhi — When an Indian businessman bought the British carmaker Jaguar four years ago, the deal was heralded as the beginning of the era of the Indian multinational company.
Many Indians cheered as domestic business barons acquired companies, set up factories and bought mines across the world. For India, once colonized by the British East India Co., these were milestones in the nation’s journey since independence.
But as Indian businesses abroad have suffered recent setbacks, the swagger of many here has been diminished.
The island nation of Maldives recently canceled a $500 million contract signed with an Indian company, GMR, to build an international airport. That triggered a debate here about the success of Indian businesses globally and whether they are being unfairly targeted.
More importantly, the cancellation has become a test case for the new economic challenges faced by Indian diplomacy, which regarded Maldives as a strategic friend in the Indian Ocean. The New Delhi government warned Maldives that the termination of the contract might strain ties and is even considering withdrawing annual aid to the archipelago.
“India Inc faces global bullies,” proclaimed a headline in the Mail Today newspaper.
Several Indian businesses in resource-rich Latin American and African nations have struggled to kick-start projects or have been forced by governments there to leave.
“Indian companies expanding abroad have faced problems of political upheaval, local resistance and compliance, but all this is part of our learning curve of investing in emerging economies,” said Pranjal Sharma, a business columnist who also advises Indian companies in eastern Africa. “It is more or less similar to the problems global companies sometimes face when they come to India.”
In the past year, Indian companies invested almost $11 billion overseas, about a third of the amount that foreign firms pumped into India. As red tape and corruption paralyzed the nation in the past two years, Indian businesses looked more aggressively for opportunities overseas.
Although the Indian takeover of Jaguar has become a success story, there have been some big-ticket disappointments this year.
Jindal Steel & Power terminated its $2.1 billion investment in iron ore mining and steel production in Bolivia in June after the company and the Bolivian government accused each other of not fulfilling their promises.
The government in Paris recently threatened to take over two steel plants of Indian-born tycoon Lakshmi Mittal in France if he shut them down and laid off workers.
The problems have led some to ask whether something was wrong with Indian business practices.
The Business Standard newspaper, in an essay titled “The ‘Ugly Indian,’ ” said: “Companies get into all manner of scrapes in the crony-capitalist business environment at home, but continue doing business; the consequences in another country are quite different, and also on a wider plane.”
In 2010, GMR won an international bid to build the airport in Maldives in a process supervised by the Washington-based International Finance Corp.
It was the single-largest foreign investment project in Maldives’s history. But President Mohammed Waheed Hassan’s government, which came to power in February, said the deal signed by the previous administration was skewed to favor the Indian company.
At the heart of the dispute was the company’s imposition of a fee on every person who traveled through the airport, which is set for completion in 2014.
“The agreement was signed under dubious conditions and sidestepped the law of the land,” said Masood Imad, a spokesman for Waheed’s office in Male, the Maldivian capital. “To levy an additional $25 per airport passenger is excessive in an economy purely dependent on tourism.”
GMR’s offer to exempt Maldivian citizens from the fee did not break the impasse.
“If a government is bent on undoing what the previous regime did, calling the business agreement corrupt and non-transparent, and whipping up public anger against the project ahead of an election next year, then what do you do?” said Arun Bhagat, a spokesman for GMR, which built the international airport in New Delhi and is building an airport in Turkey. “Over the next 25 years, we would have paid the Maldivian government more than $1 billion and built a modern airport. Instead, they now have to pay us a hefty compensation.”
Analysts say that Indian businessmen are unable to grapple with the political and market complexities in other countries. Some called for the government to be more supportive.
“Indian diplomacy does have a role to play, especially when foreign governments get involved in throwing out our businesses,” said R.V. Kanoria, president of the Federation of Indian Chambers of Commerce and Industry. “But if the company has not involved the government in the initial stages of signing the agreement, can it ask officials to intervene only when a crisis erupts? These are tricky issues.”