The boom in India now heard overseas
Gordon Brown’s plane will have barely departed New Delhi’s Indira Gandhi International Airport this month before Nicolas Sarkozy arrives with another contingent of executives seeking opportunities in India’s rapidly opening markets.
The British prime minister and the French president, separately visiting next week, are bringing along commercial delegations, including retailers Tesco and Carrefour, attracted by a burgeoning middle class and loosening curbs on foreign ownership in the nation of 1.1 billion people.
Foreign investment in India may double in 2008 for the second straight year to reach $30 billion, the government forecasts, as the world’s second-fastest-growing major economy arrives at what Lehman Bros. calls its takeoff point. That’s when consumer demand and business spending start feeding off each other and drive even more investment.
“India’s growth acceleration is not a flash in the pan,” said Robert Subbaraman, chief economist at Lehman Asia in Hong Kong. “A middle class is fast emerging, which is spurring demand as consumption and investment interact.”
Like China and South Korea previously, India is benefiting from an increasingly open economy that has already stimulated enough growth to double per-capita income since 2000, according to Lehman.
The resulting surge in demand for consumer goods has tripled mobile-phone use in two years and fueled a 29% jump in sales of microwave ovens last year.
With the explosion of purchasing power, India’s economy is poised to expand at a 9% pace for the third straight year, while the U.S., Europe and Japan slow to less than 3%.
McKinsey & Co., the consulting firm, estimates that India’s middle class -- comprising those with annual disposable incomes of $4,380 to $21,890 in current dollars -- will increase more than tenfold to 583 million by 2025.
India’s appeal is more than a matter of demographics. Prime Minister Manmohan Singh, who as finance minister in 1991 started dismantling barriers to foreign investment and other controls on industry, is preparing to permit overseas companies to build retail chains in the country.
That’s prompting interest from companies including Tesco, Britain’s largest retailer, and Paris-based Carrefour, which operates supermarkets on four continents.
Singh’s government is also moving to raise the limit on foreign equity stakes in local insurers to 49% from 26% and has a road map to let foreign banks increase their holdings in India’s private banks.
Brown’s party will include representatives of Prudential, Britain’s second-biggest insurer, and Barclays, the No. 3 bank, both based in London.
“India has long been noted for its superb ‘micro’ -- good companies, rule of law, democracy,” said Stephen Roach, chairman of Morgan Stanley in Asia. “What has been missing is the ‘macro’ -- foreign direct investments, infrastructure. What’s encouraging to me about India now is that the macro is starting to improve and is reinforcing the already positive micro.”
Foreign ownership in telecommunications has helped India become the world’s third-largest user of telecom services after China and the U.S. It’s the world’s fastest-growing wireless market.
“India is a country of enormous opportunity. It’s the heart of globalization, in a way,” said Ben Verwaayen, chief executive of London-based BT Group, Britain’s largest phone company. “You see a growing base for companies from around the globe, being here not just for this region itself, but being here as a kind of base for what they can do in other parts of the world as well.”
San Jose-based Cisco Systems Inc., the world’s largest maker of computer-networking equipment, plans to triple its Indian workforce to 10,000 by 2010, CEO John Chambers said in October.
Automakers including General Motors Corp. and Suzuki Motor Corp. are spending more than $6.6 billion to build factories in the country. PricewaterhouseCoopers said India’s vehicle output will grow about 17% annually until 2011, the fastest among the 20 largest car-making nations.
India’s higher profile in the global economy makes it a magnet for foreign investment and gives its companies a bigger role on the world stage.
Indian companies led by Tata Steel and Hindalco Industries, both based in Mumbai, completed a record $39.2 billion of overseas acquisitions in 2007.
Tata’s $12.9-billion purchase of Britain’s Corus Group, the biggest overseas takeover by an Indian company, made it the world’s fifth-biggest steelmaker. Buying Novelis Inc. of Atlanta provided Hindalco, India’s biggest aluminum producer, access to customers such as GM and Coca-Cola Co.
The trend is continuing. Tata Motors of Mumbai, India’s largest truck maker, was recently selected as the preferred bidder for Ford Motor Co.’s Jaguar and Land Rover units, the U.S. automaker announced.
Brown and Sarkozy are joining a parade of world leaders coming to India with agendas that include closer commercial ties. U.S. Treasury Secretary Henry M. Paulson Jr., visiting in October, said U.S. companies would participate in India’s $500-billion program to modernize roads, ports and other infrastructure by 2012. The U.S. will help India transform its financial capital, Mumbai, the former Bombay, into an international financial center, he said.
During an August visit, then-Prime Minister Shinzo Abe of Japan said his nation would help plan a $90-billion infrastructure corridor between New Delhi and Mumbai, including freight lines and power stations.
Such projects may reduce one of the biggest remaining impediments to doing business in India -- poor infrastructure. For all the expansion in the Indian market, its foreign direct investment still pales in comparison to what China has received.
It takes 24 days for Indian exports to reach the U.S., compared with only 15 days from China and 12 from Hong Kong, according to Lehman Bros.
“If India doesn’t get its act together on infrastructure urgently, then it can never realize its aim of accelerating growth,” said Vineet Agarwal, executive director of Gurgaon-based Transport Corp. of India, the nation’s biggest cargo transportation and logistics company.
Even as India’s economy reaches takeoff speed, almost 300 million people continue to live on less than $1 a day, according to the World Bank.
The number of poor people in India fell from 1999 to 2004 for the first time, after the government’s policies to boost foreign investment and reduce regulation on industry spurred growth, according to the Organization for Economic Cooperation and Development.
“The Chinese takeoff began in the 1980s and didn’t show through in terms of increased living standards for the majority for quite some time,” said Howard Davies, director of the London School of Economics and a former chairman of Britain’s Financial Services Authority. “Just the same way, India has got the economic takeoff, but it needs to be sustained for a decade before you really see the place looking different.”
