India Reverses a Self-Defeating Decision
The decision of a Indian state government to allow an American company to proceed with the largest foreign investment ever made in that country was welcome, overdue and a lesson in the fragility of India’s vaunted economic liberalization.
The coalition government in the state of Maharashtra last week reversed its decision of five months ago and said it would allow the Enron Corp. of Houston to build the badly needed power plant south of Bombay. The government appears to have won concessions from Enron, but it is doubtful that they were worth the harm caused by halting construction on a project on which Enron had already spent $300 million. Other foreign investors said Enron’s problems were making them think twice about putting money into India.
The Maharashtra government features one political party that is right-wing; the other is far right-wing. One partner, the Bharatiya Janata party, has national ambitions in this year’s elections, hoping to oust the Congress party as it did in some state elections last year.
Demonizing foreign companies has long been common in India. Because it was a longtime British colony, suspicion of outsiders’ motives and methods is understandable. But after nearly 50 years of independence, it is time for the country that delights in billing itself as “the world’s largest democracy” to realize that foreigners sometimes have lessons to teach and assistance to provide.
India has made strides in the right direction since Prime Minister P.V. Narasimha Rao began an economic liberalization program more than four years ago. Foreign companies have found it easier to set up shop, bid on projects and win permits. The project that Enron originally won, for instance, was one of seven “fast track” power plant projects allowed to forgo the customary competitive bidding. But that streamlining boomeranged; the coalition charged that the contract was approved so quickly because of bribes. It offered no evidence; Enron and the previous government denied the accusations.
With their technology and overseas experience, U.S. companies could be major beneficiaries of a more open Indian trade policy. The firms are also better off doing business with a democracy, despite its sometimes messy changes of government, than with authoritarian regimes likely to fragment when the people in charge leave the scene.
The Rao government and, especially, the rulers of Maharashtra, would be well-advised to reassure foreign investors that the Enron problem was an exception. India needs all the help it can get. Tough negotiations are fine, but using foreign investment to whip up nativist fervor and win votes is self-destructive.
