[A-List] US imperialism: India

["Michael Keaney" <michael.keaney@xxxxxx>]

US highlights perils of investing in India
By Edna Fernandes
Financial Times; Dec 04, 2002

US companies have voiced a chorus of criticism about doing business in
India, citing problems from red tape and poor infrastructure to regional
security and concerns about the sanctity of contract law.

Multinational groups from the US, the country's biggest foreign investor,
have warned that India could lose new investment if the difficulties are not
resolved.

India insists there is no problem. In spite of a global slowdown, it points
out, it is still attracting foreign direct investment - in 2001-02 projects
worth $4.06bn were approved.

But critics argue that this is a trickle compared with the flood of cash
into China and indicative of India's shortcomings compared with its dynamic
regional rival.

India's inflow of foreign direct investment (FDI) in the 11 years since
liberalisation began in 1991 is $31.63bn, according to government figures.

The total value of FDI projects that have been approved is $76.1bn - but not
all that money has come in yet. The US share is almost 25 per cent, making
it the largest investor, followed by the UK, Japan, South Korea and Germany.

As well as voicing their concerns and lobbying their government to raise the
issue with Indian leaders, US companies say the American Chamber of Commerce
in India has been working behind the scenes.

Prakash Daryani, managing director of El Paso Energy India, the Indian arm
of a US power company with $40bn in assets, said his company recently
cancelled $150m of new investment in India because of non-payment of power
bills by the Tamil Nadu government. He added that the non-payment of monies
owed undermined confidence in the sanctity of contracts with customers.

"In 1998 we invested $40m for a 26 per cent stake in a 340-megawatt power
generating station in Tamil Nadu. We thought India had a strong legal
framework. But we now find our payment contracts with the Tamil government
are not being honoured," Mr Daryani said.

"There's no sanctity of contracts in India. It is a shocking concept for a
foreign investor."

His company was one of four Indo-American power sector partnerships facing
this problem in the South Indian state, Mr Daryani said. PSEG, CMS Energy,
Covanta and El Paso were all trying to resolve the deadlock through
negotiations to avoid litigation. The four were owed $100m.

The country head of a major US telecommunications company in India said:
"The US investment community is telling [Robert] Blackwill [US ambassador]:
'We've had it up to here.' The government talks about issues like raising
FDI caps. But that's only of interest if I trust India with my money."

The US telecoms chief added that foreign companies in this booming sector
were angry about perceived government and regulatory interference to assist
homegrown competitors.

A cabinet split on the pace of economic reform and privatisation has also
increased investors' unease, in spite of assurances from Atal Behari
Vajpayee, prime minister, that reforms remain on track.

Manoj Kumar, IBM's India research director, said stability was everything
for a major investor in an emerging market. "Consistency of policy is an
issue in India. With or without a change of government, when we make a major
investment we want to know there will be policy stability in the long term."

The American Chamber of Commerce in India recently made that point to the
Indian Planning Commission, which draws up five-year plans and targets.

Pankaj Shah, chairman of the chamber, said "the start-stop nature of the
divestment process is sending out wrong signals to foreign investors".

Poor infrastructure must also be tackled. Mr Kumar said that in spite of
India's successes in upgrading the telecoms sector, he was still
experiencing problems with phone lines when making calls to the US. "It is a
hindrance that India's infrastructure is not as good as many other
countries."