INDIA & GLOBALISATION
FINANCIAL TIMES SPECIAL REPORT | Thursday January 27 2011
Strong growth
yet to improve
lives of the poor
World leaders are
keen to recognise the
success of a rising
power. For most
Indians, however, the
picture is not so rosy,
says James Lamont
I
ndia has never looked so
good, nor so bad. In the
eyes of global leaders and
investors, the country is
“coming of age” A procession of
statesmen has acclaimed India
as a responsible, rising power,
inviting it to take a seat at the
top table of world affairs.
An economic growth rate of
8.5 per cent this year puts India
firmly alongside China as one of
the world’s fastest growing
large economies.
Domestic consumption in an
awakening market of 1.2bn peo-
ple, strikes many as a sure bet
for the next 40 years, with
opportunities in infrastructure,
retail and education.
Its leading companies, particu-
larly in the IT outsourcing,
automotive and pharmaceutical
sectors, continue to expand
their global footprint. The Tata
Group alone is the largest man-
ufacturing employer in the UK.
Yet, seen from within, India is
confronted with a debilitating
crisis of governance and an
overwhelming challenge to
improve the lives of the largest
concentration of poor people in
the world.
Confidence in the state and
business is at low ebb after a
wave of high-profile corruption
scandals. The world’s largest
democracy is paralysed by dis-
sent, some of its business lead-
ers distrusted for oligarch-like
practices.
The country’s ability to trans-
form the lives of many of its
1.2bn people is uncertain.
Instead, the poor are faced with
rising food prices and undimin-
ished worries about food and
energy security.
Beyond India’s borders, the
futures of insurgency wracked
Pakistan and Afghanistan weigh
heavily as risks; while the
security establishment views
neighbouring China, with whom
trade has boomed to $60bn a
year, as far more of a menace
India is confronted
with a debilitating
crisis of governance
with confidence at a
low ebb after a tide of
corruption scandals
than a partner.
Instead, India is looking more
to the west, as it deepens its
embrace of a free-market econ-
omy, and international markets.
The high water mark over the
past year was undoubtedly the
visit of Barack Obama, the US
president. India’s top diplomats
give Mr Obama high praise for
“getting the political messaging
right” and taking forward a new
relationship forged by his prede-
cessor George W. Bush with the
transformative recognition of
India’s nuclear programme.
Mr Obama described the coun-
try as “emerged” rather than
emerging and identified the
relationship with New Delhi as
one of the defining partnerships
in the 21st century. The promise
of access to US technology and
an endorsement of a future per-
manent seat on a reformed
United Nations Security Council
gave substance to warm words.
Similar praise was doled out
by four other big powers that
seek a closer partnership.
Within six months, David Cam-
eron, the UK prime minister,
Nicolas Sarkozy, the French
president, Dmitry Medvedev,
the Russian prime minister and
Wen Jiabao, China’s president,
alighted in Delhi. Their visits
redefined the country’s global
standing, long due for a reap-
praisal after the end of the cold
war, and lent support for India
to take a greater role in the
world’s multilateral institutions.
The country’s economic man-
agement has also received high
praise. Its swift bounce back
from the global financial crisis
is the toast of economists.
Pranab Mukherjee, the fi-
nance minister, has laid out a
convincing path to fiscal consol-
idation after opening the taps of
public spending.
Duvurri Subbarao, the gover-
nor of the Reserve Bank, has
maintained an agile balance
between growth and inflation,
while sidestepping currency
intervention and capital con-
trols in the face of strong
inflows. The RBI has openly
expressed fears about its ability
to tame inflation and the need
to attract more foreign direct
investment.
Manmohan Singh, the prime
minister, calls it vital for social
Barack Obama with Manmohan Singh: a “defining partnership of the 21st century”
development and employment
opportunity. “In the past two
quarters, our growth rate has
been 8.9 per cent. From next
year onwards we will be able to
grow at a rate between 9 and 10
per cent,” he says.
His optimism is shared by
many business leaders. Mukesh
Ambani, the billionaire chair-
man of Reliance Industries,
describes some of New Delhi’s
governance travails as “bumps
in the road” rather than any-
thing calamitous.
Such confidence has spurred a
spree of overseas mergers and
acquisitions, including shale gas
assets in the US, UK football
clubs and business processing
operations in Latin America.
Last year, cross border M&A
saw a strong revival; deals in
and out of India were five times
www.ft.com/india­2011 | twitter.com/ftreports
the value of the previous year.
More outbound acquisitions
were made last year than
inbound, reflecting the increas-
ingly global nature of Indian
companies. Overall M&A activ-
ity was estimated at about
$45bn by Grant Thornton, the
auditing group, for the first 11
months of the year.
Continued on Page 2
Inside
IT outsourcing
India is watching for
signs of protectionism
among partners Page 2
The economy
Ascent to double­digit
growth is new territory
Page 2
Retail
Powerful middlemen
shut foreign groups out
of the shops Page 2
Guest column
Financing is key to
long­term potential.
Eswar Prasad Page 3
Nuclear power
Liability legislation sends
foreign suppliers into a
spin Page 3
Cars
A model state for
manufacturing Page 3
Textiles
Creative strategies
revive ragtrade riches in
new markets Page 4
Financing
Global exposure opens
better opportunities for
raising cash Page 4
Phamaceuticals
Drug companies change
their tune Page 4
2 ★ FINANCIAL TIMES THURSDAY JANUARY 27 2011

India & Globalisation

Thick skins shrug off protectionist rhetoric Growth

Outsourcing
James Lamont on
the industry’s role
in creating US jobs
One of the most striking blows
to India’s international business
image over the past year was
landed by “Chuck” Schumer,
the US senator.
Mr Schumer, a respected legis-
lator from New York and a sen-
ior Democratic party politician,
dared to call Infosys, one of the
darlings of India’s highly suc-
cessful IT outsourcing industry,
a “chop-shop”.
The unflattering side-swipe,
with its connotation of under-
world repackaging, caused wide-
spread indignation and pricked
one of India’s worst fears – pro-
tectionism to shut out some of
its best performing IT and phar-
maceuticals companies from
prized western markets.
A debate about the value of
India’s outsourcers to their
important clients in the US was
inevitable, as the US struggled
with high rates of unemploy-
ment in the downturn. In Mr
Schumer’s words, chop shops
“outsourced good, high-paying
American technology jobs to
lower wage, temporary immi-
grant workers”.
His remarks were a slur on
one of the most globalised parts
of the Indian economy. IT out-
sourcing, centred on the south-
ern city of Bangalore, has grown
rapidly over the past 30 years to
earn nearly $60bn in export rev-
enues a year. A sector that
miraculously escaped govern-
ment intervention, it symbolises
India’s global potential and the
technical ingenuity of its versa-
tile young people.
Its leaders have thick skins.
Narayana Murthy, the founder
of Infosys, brushed the senator’s
comments aside, saying he was
out of touch and misunderstood
the contribution and sophistica-
tion of India’s IT services.
With growth fragile in many
western economies, India has
been watchful for protectionism
among its trading partners. The
greatest fears have centred on
outsourcing and its largest mar-
ket, the US.
The rhetoric has hardened as
the outlook for the US economy
has worsened. US President
Barack Obama, in one address,
said the challenge for the US
was to make sure the creation of
new-economy jobs was not dom-
inated by India and China. Part
of that challenge is being met
with higher costs for foreign
companies.
A move by Washington to
raise the cost of visas for Indi-
ans working in the US drew a
formal protest by New Delhi.
Likewise, newly passed legisla-
tion to tap higher visa fees to
pay for health compensation has
raised hackles.
Anand Sharma, India’s com-
merce minister, calls new laws
increasing the fee for H1B and
L-1 visas, commonly used by
India’s IT outsourcing compa-
nies to bring talent into the US,
“highly discriminatory” and
damaging to his country’s com-
petitiveness.
Many senior Indian business
people have been surprised that
US politicians have not resorted
to greater protectionist threats.
Some, such as Pramod Bhasin,
the chief executive of Genpact,
the business-processing com-
pany, say fast growing Indian
companies need to show greater
sensitivity to the difficulties US
clients are facing and respond
by creating more jobs there.
The Indian government,
meanwhile, argues that this is
Between 2004
and 2009, Indian
companies made 372
acquisitions in the US
worth about $21bn
already happening. Ahead of Mr
Obama’s visit to Delhi in
November, it emphasised heav-
ily the investment of Indian
companies in the US, and the
jobs they create. A study by the
University of Maryland shows
that between 2004 and 2009
Indian companies made 372
acquisitions in the US worth
about $21bn.
“India is the fastest growing
source of foreign direct invest-
ment in the US. This investment
is creating, saving or supporting
tens of thousands of jobs in the
US,” says Nirupama Rao, the
foreign secretary.
In spite of the fears, the IT
outsourcing industry has
shrugged off dire predictions
that it might suffer badly from
the downturn in western mar-
kets in the wake of the 2008
financial crisis. Leading IT com-
panies are expanding, announc-
ing ambitious hiring plans,
strong earnings and entries into
new markets.
Nasscom, India’s bullish out-
sourcing industry association,
estimates that the sector’s
export revenues last year were
about $50bn. It forecasts that
these will rise 15 per cent this
year to $57bn and that, within a
decade, revenues could top
$225bn.
Part of the industry’s contin-
ued success is down to a highly
globalised business model and
new markets. The downturn
has made emerging markets
and the fast growing domestic
economy more attractive.
Companies increasingly iden-
tify opportunity in non-English-
speaking markets, from China
to Latin America.
N. Chandrasekhar, the chief
executive of TCS, expects reve-
nues from Latin America to be
worth as much as $1bn in the
next three to five years, up from
the current $300m.
“We entered Latin America in
late 2002. By now, we have a
good number of clients and criti-
cal mass. We have 8,000 people
and we have revenues of
$300m,” he says.
Others are following suit.
Tech Mahindra, the joint ven-
ture between the Mahindra
industrial group and BT, the UK
telecoms group, is planning a
big expansion in Latin America.
Aegis, the business-processing
arm of the Essar Group, has
acquired Actionline in Argen-
tina to develop its Spanish-
speaking capabilities.
Such a flurry of activity might
lead Mr Schumer to reflect that
Indian companies are doing
much more shopping than chop-
ping.
fails to
improve
lives
Continued from Page 1
Outward investment has
totalled as much as $80bn over
the past decade. The RBI esti-
mates that investments by
domestic companies in overseas
joint ventures and wholly
owned subsidiaries totalled
$10.3bn in 2009-10.
India, meanwhile, is one of
the most promising destinations
for foreign direct investment.
Ministers talk ambitiously of
attracting investment of
$1,000bn into infrastructure
within five years. In the first 10
months of 2010, India attracted
$78bn in FDI.
This is well below what many
analysts believe could be
achieved if it freed up restric-
tions on FDI and brought
greater speed and clarity to an
often-stifling bureaucracy. In
the words of one senior Mum-
bai-based businessman, India is
growing “by default”, not
design.

High plaudits
The Congress party-led gov-
ernment faces mounting criti-
cism: for not proceeding with
more purpose with structural
reforms since its re-election in

tempered by
2009; for putting up with non-
performing ministers in eco-
nomic portfolios; and for allow-
ing legislation hostile to foreign
capital and profitmaking.
The stock response is that

inf lation fears process is as important as solid

outcome in an era of coalition
politics.
But pressure is intensifying,
as it wrestles with the twin evils
of corruption and inflation. Mr
economists believe their country Singh and Sonia Gandhi, the
The economy deserves. Congress party president, are
“India has weathered the crisis accused of drift in the face of
Strong growth is welcome, remarkably well, thanks in large part rising popular expectations to
but rising food prices to sound macroeconomic and financial
policies. Now, India’s growth is among
make administrative reforms
and deliver education and better
are causing concern, the highest in the world – making it a quality jobs to one of the young-
writes James Lamont driving force of the global recovery,”
Mr Strauss-Kahn said.
est nations in the world, with 70
per cent of the population under
Similar sentiments have been echoed

T
he plaudits have flooded in.
India is basking in wide praise
from the world’s leading econo-
mists and policymakers for
its recovery from the global financial
crisis.
Asia’s third-largest economy has
swiftly righted itself, buoyed by strong
domestic consumption. This year,
growth is forecast at 8.5 per cent. Man-
mohan Singh, the prime minister, pre-
dicts that the economy can stretch
upwards of 9 per cent in the coming
fiscal year.
The country’s financial markets have
swelled with confidence. By the end of
last year, Sensex, the benchmark index
on the Bombay Stock Exchange, had
surged to new highs. All year, the
Reserve Bank of India mulled what it
might do to smooth the strong capital
flows flooding into the fastest growing
large economy after China.
Visitors from the US and Europe
have been quick to remark on the
exuberance of the Indian market, in
stark contrast to their own. India is
almost the land that the global reces-
sion forgot.
One of the most emphatic endorse-
ments has come from the International
Monetary Fund. Dominique Strauss-
Kahn, its managing director, said on a
visit to New Delhi that India had trav-
elled an enormous distance over the
past generation to become an “eco-
nomic superpower”.
He also praised the Reserve Bank of
India for resisting intervention in cur-
rency markets and its moves to
strengthen capital controls.
India’s performance recommends it
for a greater role in global economic
governance – a role that many Indian
by Robert Zoellick, president of the
World Bank, Barack Obama, US presi-
dent and David Cameron, the British
prime minister, along with India’s own
economic leadership.
Mr Strauss-Kahn, however, sounded
a cautionary note. He warned of the
dangers of some countries, including
India, pushing beyond their potential,
and overheating their economies in
what is still an uncertain recovery.
In a country of 1.2bn mostly poor
people, the balance is always a precari-
ous one, and the ascent to double-digit
growth is new territory for the policy
establishment.
Few disagree with the desirability of
higher growth in an economy long
mired in what was called the “Hindu
rate” of growth. But with higher growth
has come uncomfortably high inflation,
some of the highest among the Group of
20 nations. Last month, the wholesale
price index rose 8.4 per cent, some way
off a target below 6 per cent.
Some economists and bankers worry
that India has leant too heavily on
stimulus measures for too long. Earlier
this year, Stephen Roach, chairman of
Morgan Stanley Asia, said New Delhi
was overstimulating the economy with
public spending and monetary policy
that was too loose.
While Mr Singh, a respected develop-
ment economist, has won praise from
the international community, he has
faced derision at home. The Hindu
nationalist opposition Bharatiya Janata
party has zeroed in on inflation as a
campaign issue, calling the prime min-
ister “clueless” in the face of high
prices.
“Food inflation is hitting the highest
ever level in contemporary times while
Price perils: the government suffered a scare when the cost of onions trebled overnight, so it brought in relief supplies
overall inflation is crossing 9 per cent,”
complains Rajiv Pratap Rudy, a BJP
spokesman. “The prime minister and
his government seem to be ‘tom-tom-
ming’ the GDP growth, calling it good.
[But] what good is such a growth
which keeps away the common man
from his daily rations?”
Mr Singh is politician enough to
know the perils of high prices – partic-
ularly food prices – to electoral for-
tunes. Last month, the government suf-
fered a scare over the price of onions, a
staple of national cuisine, which tre-
bled overnight. So acute was the short-
age that relief supplies had to be
rushed from Pakistan and China, and
the government introduced anti-hoard-
ing measures. Onion prices are famed
for having toppled at least two govern-
ments, once in 1980 and again in 1998.
The onion scare was symptomatic of
the rough ride the Congress party gov-
ernment has in the months ahead if it
fails to tame prices against a backdrop
of rising commodity prices, unpredicta-
ble farm output and a reviving global
economy.
In spite of being one of the most
aggressive tighteners of monetary pol-
icy last year, higher interests have had
little impact on resurgent growth.
The RBI’s hawkishness is likely to
continue well into 2011. Already, some
economists believe the central bank
may raise the repo rate, at which the
central bank lends to commercial
banks and currently at 6.25 per cent, by
AFP
50 basis points as early as this month.
Rate increases over the coming year
are forecast within a range from 75
basis points to as much as 125 basis
points.
India is at a thin edge of a wedge
shared by many of its neighbours.
“Asian economies remain on mone-
tary steroids,” says Frederic Neumann,
co-head of Asian economic research at
HSBC, the banking group, “pumped up
by low rates and plenty of foreign
liquidity. Overstimulation, in econom-
ics as in life, usually has dire conse-
quences.”
“Central bankers need to worry
about rising inflation pressures, asset
bubbles and excessive investment.
Inflation is on everyone’s mind.”
Amartya Sen,
the Nobel
laureate, is
critical of
inadequate
attention to
malnourishment
the age of 35.
A spate of corruption scandals
surrounding the telecoms minis-
try, hosting the Commonwealth
Games, property lenders and the
military top brass, has rocked
confidence in the state. Several
usually discreet eminent figures
have warned of a widespread
governance deficit that the
country can ill afford if it wants
to bring greater development.
At the same time, the govern-
ment is struggling to tame stub-
bornly high inflation that spent
much of last year in double fig-
ures. The wholesale price index
rose 8.4 per cent in December,
despite an earlier pledge by Mr
Singh to cut inflation to 6 per
cent by the end of the year.
Crucial to India’s future, and
its global standing, is whether
higher growth is changing the
lives of the poor to reduce some
of the domestic risks, such as
insurgencies, surrounding ine-
quality.
Amartya Sen, the Nobel laure-
ate and Harvard professor, and
others are critical of an often
singular focus on headline
growth numbers, without giving
greater consideration of the
chronic undernourishment
stunting the growth of half the
country’s children. “Until the
number of malnourished chil-
dren and illiterate women has

Dramatic food price rises may

been reduced by 90 per cent,
there should be no horn blow-
ing,” says Jean-Pierre Lehmann,
founder of the Evian Group.
In coming years, wider distri-

help open doors to foreigners bution of India’s growing pros-

perity and shared benefits of
global integration are vital if
good is to outweigh the bad.

Retail
Amy Kazmin on the
politically sensitive
issue of obtaining
investment
For Indian policymakers, the
opening up of multi-brand food
retailing to foreign participation
has been one of the most diffi-
cult, politically sensitive issues
in 20 years of economic reforms.
With a complex, highly frag-
mented retail sector involving
tens of millions of mom-and-pop
shops, pushcart vendors, bazaar
stalls, and powerful middlemen
traders who link farmers to con-
sumers, Indian governments
have long spurned any talk of
opening the food retailing sector
to foreign companies, even as
minority shareholders.
International chains such as
Walmart, Tesco and Carrefour,
can only own and operate cash-
and-carry stores, limited to sell-
ing to other businesses and forg-
ing technical support alliances
with Indian retail companies.
But India’s Congress party led
government has begun thinking
differently about the retail sec-
tor, driven by its concern about
nearly two years of stubbornly
persistent, double-digit food
price inflation, which rose to an
all-time high of 18 per cent in
December.
Many members of the govern-
ment appear to have come
round to the idea that foreign
direct investment in food retail-
ing could help improve the effi-
ciency of the back end of the
food supply chain, reducing
spoilage and waste, thus easing
some pressure on prices.
Yet whether the government,
weakened by a series of corrup-
tion scandals, is ready to take a
stand on opening the retail busi-
ness to foreign direct invest-
ment – which would spark a
fierce outcry from the powerful
traders lobby – remains to be
seen.
“The government is clearly
convinced that they want to do
this, whereas earlier they were
not,” says Raghav Gupta, presi-
dent of Technopak Advisors, a
retail consultancy. “But in
terms of being able to predict,
‘will they change it,’ I don’t
think anybody can predict it.”
Indian conglomerates, such as
Reliance Industries, Bharti
Enterprises, the Tata Group,
RPG, the Aditya Birla Group,
Godrej, and the retail-focused
Future Group, have all gamely
plunged into the food and gro-
cery retailing business in the
past few years.
Yet even these companies are
not allowed to source fresh
fruit, vegetables or grains
directly from farmers, but must
get them from middlemen who
often double as moneylenders to
farmers, add their mark-ups to
farm gate prices, but offer little
by way of technical support to
help boost productivity.
Indian companies have also
found the going in retail busi-
ness tougher than expected, due
to sky-high rents for sites, and a
lack of experience in managing
the complex businesses.
During the global downturn,
many companies were forced to
close large numbers of their
stores and pare back their
expansion plans while several
small operators went bankrupt.
Today, organised retail still
accounts for just 5 per cent of
India’s estimated $435bn retail
industry, still mainly concen-
trated in big metropolises, and
increasingly in the next layer of
so-called “tier two cities”.
With their own domestic com-
panies eyeing the huge opportu-
nities in India’s still nascent
retail market, the US, and sev-
eral European governments,
have been pushing New Delhi to
open up the sector.
The first signs of a shifting
attitude came last February
when Pranab Mukherjee, the
finance minister, suggested in
his budget speech that opening
the retail trade could “help in
bringing down the considerable
difference between the farm
gate prices, wholesale prices
and retail prices”.
In July, the department of
industrial policy and promotion
issued a long, carefully
Market making: food price inflation is concentrating minds
researched “discussion paper”
arguing that the country would
reap many benefits, including
the development of appropriate
post-harvest, cold-chain infra-
structure, if foreign direct
investment in retail was
allowed. Several cabinet minis-
ters and big businesses have
also expressed their cautious
support.
With the price of onions hav-
ing more than doubled in
December – and other vegetable
prices skyrocketing – public sen-
timent seems to be gradually
shifting too. The Times of India
made an impassioned plea in
January for opening the door to
FDI in the retail trade and relax-
ing controls on agricultural
sales and marketing to allow
companies to buy directly from
farmers.
Contributors
James Lamont
South Asia Bureau Chief
Amy Kazmin
Bloomberg New Delhi Correspondent
James Fonantella­Khan
“Criminal waste of food
India Editor FT.com
occurs in India due to the lack
of integrated storage,” the news- Anjli Raval
paper argued. “As prices hugely New Delhi Correspondent
jump from farm gate to retail
outlet, consumers reel even as Stephanie Gray
farmers get just a third of the Commissioning Editor
final price of their produce.” It
concluded, “if deep-pocketed big Steven Bird
Designer
retail chains and corner shops
can coexist and prosper …. else- Andy Mears
where in the world, they'll do so Picture Editor
here as well”.
Given the mounting pressure For advertising details, contact:
on food prices, some Indian John McClure on:
media have speculated that Mr +65 6236 9508;
Mukherjee could announce an fax: +65 6236 9509;
opening of the retail sector as e­mail: john.mcclure@ft.com
soon as February’s budget or your usual representative
speech. But Mr Gupta says he
believes it will be “at least a few All FT Reports are available on
months before anything hap- FT.com.
pens”, given the still vehement Go to: ft.com/reports
opposition from traders.
FINANCIAL TIMES THURSDAY JANUARY 27 2011 ★ 3

India & Globalisation

A healthy financial system is essential for progress

Guest Column
ESWAR PRASAD
The Indian economy is at a
critical juncture in its growth
trajectory. It is benefiting from
market-oriented reforms that
started in earnest 20 years ago.
Now, after a decade of blazing
growth, the economy is at an
inflection point. Today’s policy
choices will determine whether
this growth surge remains
sustainable or fizzles out.
Finance holds the key to
achieving India’s long-term
growth potential. As the
economy becomes larger, more
complex and market-oriented,
the financial sector will play a
crucial role in underpinning
growth by channelling
domestic and foreign capital
into productive investments.
Increasing access to the
financial system is also a
priority for making growth
more balanced and sustainable,
from both economic and social
perspectives.
A system that provides
credit, savings instruments and
insurance to a broad swathe of
the population is essential for
distributing the fruits of
growth more evenly.
Progress on financial reform
has been uneven and slowed by
the global crisis. Like many
other emerging markets, India
weathered the crisis far better
than the advanced economies,
with only a modest dip in
growth. This has spawned two
dangerous notions. First, that it
is desirable to keep much of
the banking system under state
control as that makes the
economy resilient to crises.
Second, relatively insulated
financial markets will protect
the economy from outside
shocks.
It is true that state-owned
banks did better during the
crisis, with stronger deposit
growth and more credit
expansion. A different
interpretation is that, during a
period of turmoil and
uncertainty, deposits fled to
banks that had implicit
government backing and these
banks were in turn emboldened
and indeed encouraged to keep
lending.
What is missing from the
calculus are the long-term
economic and social costs of a
banking system that is
inefficient and narrow.
Despite all the strictures they
operate under, some
government-owned banks have
managed to compete effectively,
holding their own against
domestic and foreign private
banks. It is time to cut these
banks loose from government
control and reduce barriers to
the entry of new private banks.
As India continues to deepen
its integration into world trade
and finance, it will be more
exposed to external shocks.
Rather than going into a
defensive crouch, the right
approach is to manage the
process of globalisation to the
country’s benefit while
containing the risks.
Dependence on foreign
capital certainly leaves an
economy at the mercy of the
whims of foreign investors.
Despite India’s sizeable war
chest of foreign exchange
reserves, the current account
deficit of more than 3 per cent
of gross domestic product is a
serious concern.
At the same time, India has
enormous financing needs,
especially for rectifying its
woefully inadequate physical
infrastructure.
So, foreign capital is welcome
but the question is whether the
financial system can absorb
these funds effectively rather
than just fuelling asset bubbles
and adding to macroeconomic
volatility. Controls to limit
surges in capital inflows are a
seductive solution but they are
largely ineffective.
Besides, the last thing India
needs is policy uncertainty that
frightens away foreign
investors and causes financing
problems.
Here again, financial market
development is the answer. A
broader set of markets can help
absorb foreign funds and
channel them towards more
productive uses. For instance,
the development of corporate
bond markets would help
channel foreign capital (and
domestic savings) into long-
term financing for
infrastructure projects.
Opening up sectors such as
the retail trade to foreign
direct investment would also
bring in more stable funds,
along with technology transfers
Greater urgency and
the political will are
needed to implement
reforms when times
are good. Otherwise,
a golden opportunity
will be lost
and the ancillary benefits of
greater competition.
To the government’s credit,
financial reforms continued
even during the crisis period.
India has introduced currency
derivatives, interest rate
futures and even credit default
swaps in a cautious manner
with tight regulations.
The Reserve Bank of India
has wisely resisted the
introduction of capital controls
and made it a priority to
increase financial access. These
steps are welcome but the
broader financial reform
agenda remains vast.
Moreover, finance does not
operate in a vacuum.
Institutional reforms and good
macroeconomic policies are
essential for a financial system
to work well and deliver high
growth. In addition to its
corrosive effects, rampant
public corruption scares away
long-term foreign investors and
shifts the composition of
inflows towards more short
term and less stable forms of
capital.
Large budget deficits and the
high level of public debt
constitute another source of
vulnerability. Roping in banks
to help finance deficits by
forcing them to buy
government bonds makes a bad
problem worse by imposing a
huge cost on the banking
system and crowding out
lending to the private sector.
Unless the government can
tackle these problems, they will
erode India’s growth potential.
The country’s red-hot
economy and growing
importance on the world
economic stage are huge
achievements.
The danger is that
triumphalism leads to stalling
of reforms, or even some
backsliding. What is needed is
greater urgency and the
political will to implement
reforms when times are good.
Otherwise, it will be a golden
opportunity lost.
The writer is a professor of
economics at Cornell University
and a senior fellow at the
Brookings Institution. He is the
co-author (with M. Ayhan Kose)
of Emerging Markets: Resilience
and Growth Amid Global
Turmoil (Brookings Institution
Press, December 2010).

Government
bowls sector a
surprise googly
Nuclear industry
Amy Kazmin reports on
controversial legislation
that threatens to get in the
way of plans to address
a huge electricity deficit
When India ratified a ground-breaking
civilian nuclear energy deal with the
US in 2008, it was a seminal moment,
ending decades of New Delhi’s pariah
status, and opening the door to inter-
national co-operation for India to
develop its nuclear power industry.
International suppliers – including
GE, Westinghouse, Bechtel, Russia’s
Rosatom, France’s Areva, and Japan’s
Toshiba, Hitachi and Mitsubishi – are
all eyeing lucrative opportunities, as
India wants to undertake a huge
expansion of its nuclear energy indus-
try to help close its vast domestic
electricity deficit.
But the country recently bowled the
global nuclear power industry – and
possibly itself – an unexpected googly
dictate terms if we are going to buy
$30bn worth of stuff.”
The law’s real impact will only
become clear over time. The govern-
ment is drafting regulations that will
determine precisely how it is to be
implemented, which could soften the
blow. New Delhi is also considering
whether government-to-government
assurances, and provisions in con-
tracts, might be sufficient to assure
suppliers they will not face unlimited,
uninsurable liability.
The controversy surrounding the
legislation highlights the way the
Congress party-led coalition remains
constrained by combative domestic
politics, which results in policies that
often fall short of what international
businesses, or even the government
itself, would desire.
Similar tensions between the Con-
gress party’s aspirations and its lack
of progress in reforms are visible in
its hesitance over liberalising the
retail sector, its inability to pare back
expensive fuel subsidies and the snail-
like pace of other reforms.
But the nuclear liability law also
reflects policymakers’ assumption Dual fuel: Ford ‘s Chennai plant is the first one capable of putting together petrol and diesel engines on the same production line Bloombergt
that they can leverage their huge

Tamil Nadu on the road to

by adopting a civil nuclear liability
law that will hold suppliers liable for
any accident for up to 80 years after a
plant’s construction.
market to set their own unique rules
of engagement. “When they come,
they will have to come on terms that
Indian democracy is prescribing,”
says Mr Varadarajan. “Indian public

attracting more investment

Companies warn that the
rules will be a serious
deterrent to sales of
equipment and technology
to the country
Many countries with nuclear power
industries channel potential liability
in case of an accident to operators.
India’s very different law has sent
nuclear companies into a spin.
They and their Indian partners
warn that the rules will be a serious
deterrent to sales of equipment and
opinion cannot just be brushed aside.”
India, which relies on imported oil
for all its energy needs, has big ambi-
tions for the expansion of its nuclear
capacity, with its national energy
plan calling for 30,000MW of nuclear
power by 2020, 63,000MW by 2030 and
250,000MW by 2050, up from 4,000MW
of installed capacity today.
Its 2008 deal with the US ended dec-
ades of sanctions – dating back to
New Delhi’s first nuclear test in 1974 –
that barred foreign countries and
companies from sharing any civil
nuclear energy technology with India.
But the parliamentary debate over
the law – the last crucial step to lay
the foundation for access to foreign
The auto industry Tata Nano How the poor man’s car lost its way
Carmakers are encouraged The Tata Nano car was launched four
by the way the state years ago with much fanfare.
It was hoped that the low­cost
government delivers vehicle would help create a new
on its promises, writes segment of car owners in India, as
those on lower incomes shifted from
James Fontanella­Khan two wheels to four.
But, Tata was stopped in its tracks
throwing in a maintenance contract for
just Rs99 ($2) a month.
The five­seater Nano, which hit the
roads with a price tag of Rs100,000
($2,500), has battled troubles such as
fires in some of its models and
production delays.
Analysts say that there are
occupies 535 acres, has been in India
for nearly 15 years and is now the
country’s second-largest carmaker by
sales.
With current production capacity of
600,000 vehicles and expected expan-
sion to approach 700,000 units by 2012,
it is also India’s biggest car exporter,
with nearly 50 per cent of its output
sold to 110 countries.
“From the start, Hyundai’s idea was

C
technology to the state-owned Nuclear technology and equipment – was held hennai, the capital of Tamil after sales of the world’s cheapest car underlying problems that need to be to turn India into its small car hub,”
Power Corporation, the only entity amid a climate of renewed national Nadu, is proof that India – plunged to just 509 units in November dealt with. says a company representative. “Here
allowed to operate nuclear power outrage over the 1984 Bhopal gas trag- like China – has what it takes 2010, falling 85 per cent from a year The Nano is considered far too we have models such as the Santro
plants in the country. edy which killed thousands of people, to become a global centre for earlier to an all­time low. expensive for its intended market. and the i10, which are only produced
“It is important that the govern- and left tens of thousands of others manufacturing. Tata subsequently launched a series The price for the basic model in India and nowhere else.”
ment gets this right in order to meet with severe lifetime health problems. The coastal city’s foreign invest- of initiatives aiming at reviving the without air conditioning was The success of Ford and Hyundai
its ambitions to develop nuclear The memory that Union Carbide, ment-friendly environment has fortunes of the Nano. Rs100,000 when the car launched has drawn other carmakers to Tamil
power for India and to enable its now owned by Dow Chemicals, paid attracted some of the world’s largest A special finance scheme to but has risen to Rs137,000 as Nadu. Nissan recently launched the
industry to become a key part of the just $470m to settle its Bhopal obliga- carmakers, turning the state into a purchase the model was offered to a result of increased production costs. compact Micra and its partner
global supply chain,” says Ted Jones, tions – overshadowed the debate on manufacturing and export hub for Tata Motors employees who earn The Nano has found it difficult to Renault will roll out its first India-
director of international supplier the nuclear bill, as the Congress party small cars and a model for economic more than Rs12,500 ($280) a month. attract low­income earners in crowded specific car in mid-2011.
relations at the Washington-based tried to push it through ahead of Pres- development. The Nano Happiness Guarantee was Mumbai and New Delhi, who are also Local businesses in the state have
Nuclear Energy Institute. “The stakes ident Barack Obama’s recent visit. South Korea’s Hyundai, Ford of the also launched for customers, more unlikely to have space to park a car. also enjoyed a boost, as auto-part ven-
are high.” “India is perhaps the only democ- US, Japan’s Nissan and Renault of than doubling its warranty from 18 dors have mushroomed and employ-
Yet many Indian lawmakers and racy with a vibrant public opinion France are among the carmakers that months to four years, while also Anjli Raval ment has boomed. Analysts estimate
analysts remain sanguine, insisting going into large scale acquisition of have poured billions of dollars into that the state’s auto industry employs
the size of the country’s nuclear nuclear power,” vast plants in the southern state, about 250,000 people.
equipment market – estimated says Mr Vara- churning out compact and fuel- Tamil Nadu has also allowed auto- Tamil Nadu’s actions to draw for-
at about $30bn – darajan. efficient vehicles. makers to keep the mainstream eign direct investment are attracting
would prove an “It was In 2010 alone, more than 1m cars unions out of their plants, lessening the eye of manufacturers in other
irresistible lure inevitable will be produced in Chennai, with a the potential for labour disruption. industries as well. For example,
to foreign com- given the third of them exported to Asia, Africa Ford has invested about $1bn to Nokia, one of the world’s largest
panies, despite experience and Europe. In a country where set- build a plant with a production mobile phone makers, has sited its
their reserva- of Bhopal ting up a greenfield project is often capacity of 200,000 cars and 250,000 biggest production plant there.
tions about the that there difficult, Tamil Nadu offers some hope engines. Foreign investment is also helping
law. would be for a nation that is overdependent on At present, 85 per cent of the vehi- the southern state overcome some of
“I don’t think heightened con- the services industry. cles are sold in the domestic market, the chronic deficiencies plaguing
the liability law sciousness of the The state’s blend of financial incen- but the Detroit-based group recently other parts of India.
is going to risks with technol- tives, stable industrial policy, a con- shipped its first made-in-India Figos to Chennai’s roads, while better than
deter foreign ogy, and who is sistent stream of skilled labour and South Africa and by next year Ford the norm in India, are far from perfect
suppliers going to bear that proximity to a big and sophisticated plans to expand exports to include 48 by global standards and trucks trans-
from com- risk.” port make it an attractive location for countries in the Asia-Pacific region porting vehicles to the port are barred
ing to the To Sumit Ganguly, a a production hub, say foreign carmak- and Africa. from travelling through the city cen-
Indian South Asia expert at Indi- ers based there. The plant in Chennai is labour- tre between 6am and 10pm to reduce
market,” ana University, the entire epi- “Tamil Nadu is a place where we intensive, with about 4,000 people congestion.
says Sid- sode is “so typical of India” and its feel very comfortable to do business,” working two nine-hour shifts. But it is However, the local government has
dharth Vara- policymaking style. “It’s this whole says Michael Boneham, managing also one of Ford’s most innovative – The success of Ford and promised to build a ring road within
darajan, stra- notion that ‘we are so big, we can director of Ford India. “India wasn’t the first one capable of producing pet- Hyundai has drawn other the next three years, which will let
tegic affairs do anything we want’. on our radar for a while, but now we rol and diesel engines on the same trucks transport goods undisrupted.
editor for The “It’s going to significantly hob- recognise it as a hub for small and production line. carmakers to the state. The carmakers are also encouraged
Hindu,
respected
a ble the ability of companies to
come in.”
fuel-efficient cars.”
Incentives include tax exemptions,
“We have members of the group’s
global team coming here to analyse
Nissan has launched the by the state government’s record for
delivering on promises.
newspaper. aid in acquiring land on which to how our model can be applied else- Micra and parent Renault “Here [in Chennai] we have been
“The sup- build plants, and infrastructure sup- where in the world,” says R. Balasun- able to do what wasn’t possible else-
plier cannot
Big is beautiful: analysts are
port, along with a reduction in the red daram, vice-president of Ford India.
will roll out its first India­ where [in the world] produce a robust
confident size of Indian market
expect to
will be an irresistble lure
tape involved in securing permits and Hyundai, whose sprawling $1.6bn specific car in mid 2011 and modern car in a super competi-
licences. state-of-the-art manufacturing plant tive environment,” says Mr Boneham.
4 ★ FINANCIAL TIMES THURSDAY JANUARY 27 2011

India & Globalisation

New destinations save once ‘doomed’ sector

Towel toil: workers make final
Textiles adjustments to towels that have
been made without chemical
James Fontanella­ dyes. India has found new
Khan reports on a markets for such wares

revival in prospects months.

for an industry that One of the reasons India has
recovered faster than developed
employs 50m people economies from the global
financial crisis is partly thanks
to entrepreneurs such as Mr

I
ndia’s $20bn-plus textile
and garments industry was
on the verge of disappear-
ing in the aftermath of the
global financial crisis.
For a sector that counts more
than 15,000 companies employ-
ing 50m people – making it the
largest employer after agricul-
ture – its near-exclusive depend-
ence on the west made it vulner-
able to macroeconomic forces
that were beyond its control.
However, the global recession
forced textile and garments
executives to seek imaginative
new solutions.
As many of the companies’
trusted European and US clients
filed for bankruptcy, and compe-
tition from neighbouring coun-
tries such as Bangladesh and Sri
Lanka grew, they started look-
ing for business in other emerg-
ing markets.
Suddenly, the new destina-
tions for their products were the
United Arab Emirates, Saudi
Arabia and China, says Moham-
mad Idrees, a small manufac-
turer of leather belts based in
the heart of Mumbai’s Dharavi,
Asia’s biggest slum.
Mr Idrees says that the future
of his business was seriously at
risk after his customers of 20
years in Germany and Italy
stopped paying their bills.
“I waited six months for my
money to come from an Italian
client,” complains Mr Idrees,
sipping a steaming cup of chai
in a corner of his workshop,
which looks like an upmarket
version of a Dickensian sweat-
shop.
“I stopped waiting and I
looked for other solutions and I
ended up selling to the Chi-
nese,” he says. “They pay on
delivery,” he adds with a spar-
kle in his eyes, as if it was a
match made in heaven.
The shrewd businessman from
Dharavi is not the only entre-
preneur in India who has been
looking to Shanghai and
Guangzhou as the new destina-
tions that might revive what
seemed a doomed sector.
Although differences in lan-
guage and culture remain a big
problem in establishing trade
links between small- and medi-
um-sized companies in China
and India, many are forcing
themselves to overcome their
fears.
Ali Ahmed Khan, director of
the Council for Leather Exports
in the south Indian city of Chen-
nai, the country's hub for
leather products, says many
manufacturers have started
moving away from their tradi-
tional markets and are rethink-
ing the way they operate.
“Europe and the US are still
important but we can see a shift
to other emerging economies,”
says Mr Khan.
“As China becomes a global
power, we expect more trade to
go on between the two coun-
tries.”
A. Balakrishnan, director of
SDS Leather who regularly trav-
els to China in search of new
clients, says that “demand from
In spite of the border China is growing fast, really
tension between India fast”.
“I’ve recently come back from
and China, trade a visit to Guangzhou to meet
between the two clients and they made a huge
order,” says Mr Balakrishnan,
has grown rapidly who says he has lost count of
the number of times he has
in the past decade flown to China in the past six
Idrees and Mr Balakrishnan,
who were compelled to establish
new trade links when tradi-
tional ones were severed.
In spite of the tension
between India and China, which
are struggling to resolve a
decades-long border dispute
over the Indian state of Aru-
nachal Pradesh, trade between
the two has grown rapidly in
the past decade.
“India-China bilateral trade in
2010 is expected to pass $60bn,
making China India’s largest
trading partner,” says Kamal
Rungta, managing director of
EJ McKay, an India-China
focused corporate adviser.
Since the beginning of 2010,
about 20 per cent of India’s
export revenues have come from
China, which still enjoys a sub-
stantial trade surplus with
India.
Although there are no recent
trade data breaking down
exports revenue of the textile
and garments industry on a
country-by-country basis, sev-
eral sector executives say that
sales to China and the UAE
have picked up compared with
previous years.
India’s textile industry is far
from being out of the woods and
rising commodity prices have
put additional pressure on com-
panies’ balance sheets, but it is
finally seeing some light at the
end of the tunnel.
Back in the alleyways of
Dharavi, Mr Idrees goes around
patting children’s heads, with a
smile on his face, and seems not
to mind that the road ahead of
him is waterlogged following
the heavy monsoon rains that
have hit India’s financial capi-
tal. He says he has found his
new way.
“Europe and America are the
old world. The future is else-
where. The future is China and,
obviously, India,” he says.

Global reach Rich pickings at

provides new home and abroad
avenues for Pharmaceuticals
Global companies
company, says most Indian
pharmaceutical company
owners feel little urge to
sell, given the current
with foreign pharmaceuti-
cal groups’ growing interest
in local drugmakers.
Recent takeovers have

raising cash
Financing
James Fontanella­
Khan reports on
the savings to be
made by seeking
funds abroad
Indian companies like to
think big. Often bigger than
they can realistically
achieve given the financing
constraints that many face
when it comes to borrowing
money from a bank in
Asia’s third-largest econ-
omy.
However, this is slowly
changing. The global expo-
sure of Indian conglomer-
ates such as the Tata Group
and Reliance Industries has
opened new avenues for
other companies in the
country to raise cheap cash
overseas without having to
go through the complica-
tions that are common in
India when seeking credit.
The preferred destina-
tions to clinch more favour-
able conditions for financ-
ing have traditionally been
London, New York, Seoul
and Tokyo. More recently,
Beijing and Shanghai have
emerged as attractive
places in which seek even
cheaper funding.
Reliance ADAG, the tele-
coms-to-power conglomer-
ate controlled by Anil
Ambani, the billionaire
industrialist, signed a string
of loan agreements in 2010
worth almost $14bn with
Chinese banks.
The first deal saw Mr
Ambani’s Reliance Power
signing a $12bn financing
agreement with a consor-
tium of Chinese banks that
would help it buy $10bn
worth of power generation
equipment supplied by
Shanghai Electric.
In a separate deal, Reli-
ance Communications, Mr
Ambani’s debt-stricken
mobile phone operator,
received a $1.93bn loan
from China Development
Bank to fund the outstand-
ing debt it took out in early
2010 to acquire 3G spec-
trum.
In both cases, the Indian
company was offered credit
at less than half the price
offered by banks in Mumbai
or New Delhi.
“The Chinese do a great
job when it comes to financ-
ing deals,” says an execu-
tive at Reliance Communi-
cations. “We save about
$100m a year compared
with what we would [have
to pay in interest] in India.
That’s a lot of money.”
Reliance was one of the
first big Indian groups to
approach Chinese banks for
funding. However, many
will follow suit if the condi-
tions are superior to those
in India, say analysts.
“Indian companies are
becoming more global and
practical when it comes to
finding ways to raise funds
to scale up their business,”
says Rashesh Shah, chair-
man of Edelweiss Group,
the Mumbai-based financial
services house.
He adds: “The cost of
credit is much lower out-
side India for a number of
reasons, so if Indian compa-
nies can, they will go any-
where to find cheaper
credit, be it the UK, the US
or Korea they will go for it.
China is just the latest
opportunity for them.”
In spite of the growing
inflationary pressures
China is facing, the cost of
capital remains signifi-
cantly lower than in India.
Lending rates for Indian
banks are usually more
than 10 per cent, while a
Chinese banks can offer
rates as low as 4 or 5 per
cent.
The Shanghai interbank
rate for three-month loans
was just over 4 per cent in
mid January, compared
with more than 9 per cent
in India.
The Reserve Bank of
India raised lending rates
six times in 2010 and is
expected to do so again in
are not so sniffy rapid, profitable expansion raised concerns among
of their businesses at home some policymakers that for-
about cheap drugs and abroad. eign ownership may lead to
these days, writes “Almost all the big phar-
maceutical companies are
sharply higher domestic
drug prices, potentially a
Amy Kazmin trying to develop generic big problem in a country
divisions – that is part of where 80 per cent of total
their strategy,” says Mr healthcare costs are shoul-
International pharmaceuti- Bhartia. “You would have dered privately.
cal companies once looked
with frustration at Indian
seen more deals if there
were more sellers. But there
Foreign-owned companies
have about 15 per cent of
drug makers, which were are not many sellers. Their India’s domestic drugs mar-
notorious for churning out
low-cost, copycat versions
businesses are still growing
steadily, value is building
ket, up from 10 per cent in
2009.
Rate rise: central bank raised lending rates six times in 2010 and is set to do so again soon of patented drugs and sell- up and there is no hurry to Jyoti Mirdha, a Congress
ing them to developing sell.” party lawmaker who sits on
countries. But other types of part- parliament’s health and
Banks seek global presence in emerging markets More recently, they have nerships – including prod- family welfare committee,
been looking at India’s fast uct licensing deals, and has urged New Delhi to
Religare Capital Markets, the financial $100m to $400m,” says Tarun Kataria, growing pharmaceutical research and development make it tougher for foreign
services firm backed by the billionaire Singh chief executive. industry in a different light collaboration – are also companies to take control-
family, is set to become India’s first global He says that the firm has already formed – as an increasingly inte- growing. Pfizer has signed ling stakes in domestic
emerging markets investment bank. a joint venture in Turkey and acquired gral part of the global sup- three product licensing drugmakers.
The group, which plans to make a series bases in Sri Lanka, Singapore, Hong Kong, ply chain in an environ- agreements with Bangalore- “It took us 40 years to
of acquisitions in the next six months to London and New York. It plans to set up in ment of intensifying pres- based Biocon to develop a come to this status of self-
expand its presence internationally, is Brazil, the Philippines, Indonesia and South sure on prices. range of insulin for its sufficiency in pharmaceuti-
planning to become the point of reference Africa. The quest for low-cost international markets. cal drugs,” says Ms Mirdha.
for Indian companies considering deals in Religare is not the only Indian bank keen production and research GlaxoSmithKline has an “No matter what happens,
developing countries. to build an international network. Growing and development facilities – agreement with Dr Reddy’s we should be able to manu-
Its expansion reflects the growing hunger numbers of merchant banks are setting up coupled with an eye to Laboratories to collaborate facture our own drugs.”
of Indian companies to acquire assets joint ventures and alliances with their India’s own fast-growing in emerging markets. The ministries of health
abroad, particularly in emerging markets counterparts in emerging markets. domestic drugs market – Lupin, the Mumbai-based and commerce are consider-
similar to the home country. “It is much more convenient to set up a has led to a flurry of foreign ing proposals that would
The small size of most such transactions partnership with an investment bank in takeovers in the past few Jyoti Mirdha, require government
makes it difficult for a company to get big Africa and South America than opening an years. Japan’s Daiichi San- a Congress approval for any foreign
investment banks to back their deals. office there,” explains Rashesh Shah of kyo paid $3.6bn in 2008 for health expert, company to purchase more
Religare aims to fill this gap. Edelweiss, a financial services group. India’s biggest drugmaker, wants limits than 49 per cent of an exist-
“We hope to work on a variety of Ranbaxy Laboratories, and on foreign ing Indian drugmaker. “It
mid­size deals which can go from James Fontanella­Khan in 2009, Sanofi-Aventis ownership should be considered a sen-
bought a controlling stake sitive sector,” says Ms
in Shantha Biotech, a Mirdha.
January, as it struggles to finance ministry to relax to develop its shambolic Hyderabad-based vaccine drug maker, recently signed However, such restric-
tame soaring food prices overseas borrowing norms. infrastructure. The govern- maker for €550m. a five-year deal with Far- tions are likely to be
and rampant inflation. Initially, Indian execu- ment’s planning commis- Last year, US-based manguinhos, the Brazilian opposed by domestic drug
“For Indian banks to com- tives flew to London and sion says that at least Abbott Laboratories paid state healthcare company, companies, many of which
pete with US or Chinese New York to raise cash via $1,000bn is needed to $3.7bn for Piramal Health- to supply a four-in-one com- have been on their own
banks is difficult, as they the equity or debt market. develop public transport care’s generic drug formula- bination drug for tuberculo- overseas acquisition sprees.
don’t have to deal with the “It is easy to explain why and the power network. The tion unit, and Reckitt sis. “The prices of important,
high interest rates we have Indian companies will come deal between Reliance and Benckiser, the UK house- India is now the world’s lifesaving drugs are already
to London. Prestige is the Chinese banks reflects hold products group, agreed third-biggest manufacturer regulated, and they will be
important, as is access to the trend, with China to pay £454m for Paras of pharmaceutical products regulated, whoever owns
Growth ambitions the FTSE 100 and the possi- expecting Indian companies Pharmaceuticals, which – including active pharma- them,” says Mr Bhartia,
have led the central bility of lower debt funding to buy its products in combined over-the-counter ceutical ingredients, and who, along with his posi-
costs as a result of a Lon- return for cheap financing. drugs with branded per- finished dosage formula- tion at Jubilant Life Sci-
bank and finance don listing,” says a report “We are going to see more sonal care products. tions – by volume, and ences is president of the
ministry to relax by the City of London Cor-
poration.
and more of this kind of
funding coming from
Other big drug companies
have also been looking to
numerous plants have
received the approval from
Confederation of Indian
Industry.
borrowing norms However, the government China,” says Sanjay India as a means to expand the US Federal Drug “The pharmaceutical
and business people have Sakhuja, chief executive of their own generic drug pro- Administration that is industry in India has hun-
been looking at the emerg- Ambit Corporate Finance. duction capacity, as they required for exporting to dreds of companies, and if
in our country,” says Mr ing markets such as China “This doesn’t mean that gear up for the expiry of the US. somebody wants to acquire
Shah. to diversify their funding Indian companies will stop some of their most valuable Exports have soared from one, it’s fine,” he says. “We
In the past, the Indian opportunities. In January, approaching US and Euro- patents in the coming Rs128bn in 2002-2003, to also have the right to go to
government made it diffi- for example, India’s consu- pean banks for M&A-related years, as well as to gain Rs384bn in 2008-2009, and the US, and Europe and
cult for domestic banks to late general in Shanghai deals, but certainly China access to the country’s vast have continued to grow in acquire.
raise cash outside the sub- invited Chinese banks to will be the preferred option domestic market. the past two years. About “Acquisition by compa-
continent. However, the work closely with Indian for those seeking credit for However, Hari Bhartia, 20 per cent of pharmaceuti- nies to take market share in
country’s double-digit groups to invest in the expansion plans that will co-chairman and managing cal exports are bound for a particular country is nor-
growth ambitions have led country’s infrastructure. include cheap Chinese director of Jubilant Life the US. Yet not all Indian mal. There is nothing to
the central bank and India urgently needs cash equipment.” Sciences, a New Delhi-based policymakers are pleased fear.”
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