Market Focus : India’s New Economics May Be First Shot in a Revolution : * New Delhi’s move to open up to foreign investment and slash government interference marks a dramatic change in the country’s 44-year socialist history.

On the day India announced a revolutionary new economic policy last week, opening up to foreign investment and slashing bureaucratic interference as never before in the country’s 44 years of socialist history, there were three long power blackouts in Chanakyapuri, the fashionable diplomatic enclave in New Delhi where many of those prospective foreign investors would live.

On the monsoon-drenched streets of the capital that day, you couldn’t find a taxi to save your soul. They had all gone on strike to protest a government order that they install electronic meters that would make more difficult the common practice here of cab drivers cheating their passengers.

It took 50 tries before one resident was able to get an international telephone call through that day--a fairly typical performance. Computers crashed at the city’s main banks. Indian Airlines, the nation’s monopolistic domestic carrier, reported hours-long delays.

And, just hours before the Indian government presented its new policy to Parliament, the lawmakers were informed by another ministry that burglaries, auto theft, kidnaping and murder for money in the wealthy southern suburbs of the capital are running at rates more than double those of last year--all because of India’s deeply troubled economy and the expanding gap between rich and poor.

“I’ve already gotten the reaction of most of the world’s largest companies,” said one of India’s biggest and most powerful industrialists the morning after the new policy was announced. “They all said the same thing: ‘Are you mad? Why should we invest there, even now?’ ”

Most of those multinational magnates were referring to factors that went far beyond India’s maddening infrastructure--crucial omissions from the unprecedented economic policy shift that included failures to reform the country’s archaic, cradle-to-grave labor policies and continuing foreign-exchange restrictions.

Still, the powerful Indian industrialist, who requested anonymity, was not all pessimistic. He said that he appreciates the enormity of India’s policy shift, and that he, like many others in this economically troubled Third World land, remains confident that it is only the opening salvo of a true economic revolution in a nation whose nearly 900-million population marks it, along with China, as one of the two largest and potentially most lucrative consumer markets on the globe.

“In the Indian context, this is a very revolutionary step,” said B.N. Uniyal, editor in chief of India’s prestigious daily, The Business & Political Observer. “It may not be as radical or revolutionary as you would expect for a foreign businessman or an overseas company. And, in the context of the global changes, it is possible it is not radical enough. But these steps have to be seen in the Indian context.

“It’s basically a balancing act between the desperate need for economic change and the political realities of the day,” Uniyal explained. “The most important thing is to see this as a beginning step. The message is clear. India is moving toward an open economy, welcoming foreign investment with greater vigor and dismantling the roadblocks. It is a statement of intent. And there’s just no going back now.”

Indeed, Western economic experts in New Delhi say that, despite its shortcomings, they expect the new policy to have a powerful psychological impact, particularly on American corporations that already are doing business in India or that are negotiating new contracts with Indian partners.

As far as potential foreign investors are concerned, the key elements of the new industrial policy are these:

* Permission to own up to 51% equity in corporations manufacturing a wide array of products in India, up from the previous maximum of 40% foreign equity.

* Abolition of most bureaucratic licensing procedures, which had created a web of red tape so nightmarish that it delayed projects for years and encouraged massive corruption.

* Reduction for the first time in the list of industrial sectors operated as public monopolies, leaving only eight categories of largely defense and mining-related enterprises solely in government hands.

“When you see it in context, this is all really amazing,” said one senior Western economist in New Delhi, asking not to be identified by name. “This isn’t just optics to fool the foreigners and the International Monetary Fund. This is very fundamental stuff. In announcing this policy, India really is turning its back on 44 years of archaic socialism. It’s saying to the world, ‘It’s a whole new ballgame here.’

“And despite its shortcomings,” the economist added, “this is going to have an almost immediate impact.”

What types of investment appear the most likely to draw foreign corporations at this point? “Big firms,” one Western diplomat predicted. “Large corporations that can withstand the wait. Also, technology-transfer arrangements have been made more equitable and attractive. I think Silicon Valley should start taking more notice of what’s happening here. And I think they (the Indian government) are going to start spinning off a lot of these state-run hotels and planned resorts to foreign ownership.”

“Those companies which have had experiences of operating in India will certainly find it very attractive,” editor Uniyal added. “Those that haven’t may not find it sufficient. But it will certainly attract some new foreign investment as well, which will have its own cascading effect.”

For one Western businessman, the most dramatic measures announced last week are the so-called delicensing provisions, which, for the first time, exempt from the government’s mind-boggling bureaucratic approval system all but a short list of largely consumer-oriented products, such as audiovisual equipment, automobiles and heavy appliances--all of which are produced domestically at admittedly noncompetitive levels of price and quality.

“This is terribly significant, particularly from the standpoint of corruption overheads,” said the Westerner, an expert on doing business here.

“You’re not going to have millions of measly bureaucrats with their hands out for approval holding things up for years and years anymore. Here, you’ve had a system where corruption is absolutely pervasive, and it strangles everything. If you have fewer doors you have to go through, there are going to be fewer hands sticking out of those doors.”

Among those U.S. companies looking to do business here are long-frustrated global concerns like E.I. du Pont de Nemours & Co., which has been negotiating for years to make nylon automobile tire cord in partnership with an Indian firm. Kellogg Co., which was trying to open a cornflakes factory along with an Indian partner, may now change its strategy, opting instead to create a new, 51%-owned subsidiary and turn to the Indian stock markets to sell the remaining ownership shares. And one of the U.S. Big Three auto makers is currently locked in talks with an Indian corporation to make American automobiles under license.

Indeed, most analysts here expect the new policy to have its biggest effect in America, whose firms have already sunk $500 million in India to make the United States this nation’s largest foreign investor.

Perhaps more significant in understanding India’s economic about-face, however, is the fact that U.S. firms pumped just $19 million into the country last year, down from $70 million the year before. And still, the 1990 figure represented the largest single contribution to the paltry $75 million in new investment from all foreign corporations combined last year.

In short, India had little choice but to open up its economy last week. It was that or national bankruptcy.

India faces a balance-of-payments crisis so severe that two months ago it had only about one week’s worth of foreign exchange left in its coffers. It had to pledge nearly 50 tons of its gold reserves to the Bank of England for loans to pay its monthly import bill. And many of the reforms announced last week reflected preconditions set by the International Monetary Fund, which is weighing a $2-billion standby loan request without which India’s economy would screech to a halt.

“We have been on the edge of a precipice every day,” Finance Minister Manmohan Singhtold reporters. India’s political left charged after last week’s announced policy change that the government had sold out to the IMF and U.S. pressure. “But really, the IMF demands were no different than the demands being made by Indian businessmen for years now,” editor Uniyal said.

A Western economist who has lived many years in New Delhi added: “The IMF conditions, quite simply, were needed if India was to stay afloat. The debt here was getting up to Latin American levels.

“Ten years ago, India’s foreign debt was less than $20 billion--a very manageable figure for an economy of its size. Now, they’re the No. 3 debtor nation in the world with $76 billion in obligations, ranking India behind only Brazil and Mexico, which are on their way out of the debt trap while India has been on its way in. Only by boosting exports through foreign investment can they survive.”

In undoing the socialist pillars that have long supported the Indian economy, Prime Minister P.V. Narasimha Rao and his advisers had to take extreme care not to offend the still-committed leftists even within their own ruling Congress-I party, and to prevent an angry backlash on the streets by India’s powerful labor lobby.

Nearly a third of Finance Minister Singh’s speech announcing the new policy was spent praising the “father of the Indian nation,” Jawaharlal Nehru, India’s first prime minister and chief architect of the five-year-plan economics that have ruled the country since independence in 1947.

“You see,” Uniyal explained, “economic reform in India is very different than economic reform in the Soviet Union. Nobody is willing to give up the Nehruvian path totally. There is a big difference between Nehru and Stalin. Stalin was an autocrat. Nehru was a popular, elected leader, and his name has associations with the past that are part and parcel of the foundations of our country.

“Even today,” Uniyal added, “if you have to reform socialism, you have to do it in the name of Nehru. It’s very emotional and deeply linked to the politics of the country. When the reforms go faster than the people can absorb, then you have social turmoil like in Iran or the Soviet Union, and this is what India wants to avoid.”

It is largely for those reasons that top economists--Indians and Westerners alike--say the government, in the 11th hour, abandoned their original plan to also overhaul national labor laws, which still make it virtually impossible for corporations to fire employees or close failing plants, and to initiate other reforms that most agree are still needed before the West will invest aggressively in India.

“If (the Congress-I party) took on the labor unions now, it would have been more than the traffic could bear,” one Western diplomat concluded sympathetically. “Down the road? Yes. These reforms, too, are coming. At least we hope and we believe they are coming. Certainly, at this point, the little guy in the States would be totally out of his mind to come into this place. And if he wasn’t crazy in the first place, he would be in no time.”

Where does it all leave India now?

“Before, I would say India was really at a fork in the road,” concluded one of the veteran Western economists here. “If they didn’t do this, their economy would have been an absolute shambles in a very short time.

“Now, I think they have a chance of avoiding that. They’ve started down the right fork. How rocky that’s going to be, and how long they can stay on it, that all remains to be seen.”