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Wall Street Journal and Dow Jones Newswires in Chinese 
	

	
	
	
	
	

	
	

	
	November 27, 2000 
	
	
	
	
	Reforms in India Are Tantalizing,
But Debates Cool Investor Ardor
	By DANNY PEARL 
Staff Reporter of THE WALL STREET JOURNAL
	NEW DELHI, India -- The tumblers of economic reform have slowly but surely 
been turning in India over the past decade, each click resonating through 
this nation of a billion people. Lately the prospect of unlocking its markets 
has seemed a bit brighter -- but not bright enough to impress foreign 
investors.
	Every day, India's financial pages are filled with news of a new opening: a 
plan to sell the government's stake in a big car company, the lifting of 
controls on the textile industry. But the fine print tells another story: 
stubborn hurdles to foreign investment, insistence on public control and open 
battles among ministers that could force Prime Minister Atal Bihari Vajpayee 
to protect his diverse coalition government rather than take fresh economic 
gambles.
	"The debate over reforms will be endless unless there is a crisis, and there 
is no crisis around the corner," says Mahesh Vyas, executive director of the 
Centre for Monitoring the Indian Economy, a private organization. India is 
still coasting along with economic growth above 6% a year.
	
	Still, there are some worrisome signs. Last month, Standard & Poor's lowered 
its outlook on the Indian rupee because of the darker prospects for economic 
reform. Foreign investment, already a pittance compared with the rest of 
Asia, has slackened recently, and a few big companies, including Enron Corp. 
of Houston and British Telecommunications PLC, are freezing some India 
investments as their focus shifts to more-developed markets. Just 14% of the 
multinational-company executives recently surveyed by AT Kearney said they 
were more likely to invest in India than in China; 56% said the reverse.
	Even critics think Mr. Vajpayee's nationalist Bharatiya Janata Party, which 
one year ago won a mandate to lead its second coalition government, is 
sincere about pushing for further opening of India's statist economy. But 
what government officials call the second generation of reforms -- India's 
Congress Party launched the first in the early 1990s to allow more private 
enterprise -- is meeting stiff domestic resistance. Workers and traditional 
Indian businesses are as scared of competition as ever, and the Congress 
Party, now in the opposition, is playing on those fears. So the government is 
moving in small, often contradictory steps.
	"Their hearts are in the right place," says John Band, executive director of 
ASK Raymond James, an affiliate of the American investment bank.
	Here is how the reforms are shaping up in five critical areas.
	Privatization
	India's program of selling off government companies is still mostly talk, but 
much of it could come to fruition in the next few months. While the 
government probably won't meet its target of raising 100 billion rupees 
($2.14 billion) this fiscal year, it is likely India will shed some perennial 
money losers. The first could be Air India and its domestic counterpart, 
Indian Airlines, both of which have attracted expressions of interest from 
foreign airlines including Air France and Singapore Airlines. Divestment 
Minister Arun Shourie, who isn't revealing the full list, said on the first 
day of the World Economic Forum's "India Economic Summit" in New Delhi Sunday 
that before proceeding to formal bids, India will reject suitors who could 
pose national-security concerns. India, he said, wants to avoid buyers who 
might shut down the beleaguered airlines and keep the lucrative landing 
rights.
	Job padding is legendary in India, so fear of job losses is real. Bank 
workers fired a warning shot across privatization's bow this month with a 
one-day, midweek strike against government banks. The next day, the 
government announced it was moving forward anyhow, seeking a law that would 
allow it to reduce its stake in public banks below 50%. The move wasn't as 
bold as it seemed, though: The law wouldn't actually contemplate a sale of 
shares and wouldn't allow any single investor to buy more than 1%. Government 
officials pledged to keep the "public character" of the banks.
	Supporters of divestment within Mr. Vajpayee's cabinet are few but 
influential. They are concentrating their efforts on a plan to sell the 
government's 50% stake in car maker Maruti Udyog Ltd., a joint venture of 
Japan's Suzuki Motor Corp. and India's government. But the cabinet is divided 
over the sale, and Mr. Vajpayee has to keep all the members of his coalition 
happy, including hardline nationalists. This weekend, Mr. Shourie flew to 
Bombay to placate leaders of the radical Shiv Sena party who were upset about 
the prime minister's recent olive branch to separatists in the embattled 
region of Kashmir. One of their demands, he says, was that "Foreigners should 
not come to acquire control of the Indian economy."
	Budget pressure may force India to follow through with privatization. The 
World Bank has cited concern that India's budget deficit is a whopping 9.6% 
of its gross domestic product, though much of the red ink can be traced to 
state budgets. Mr. Vyas of the Centre for Monitoring the Indian Economy 
believes the real benefits of privatization will come only when the states 
start to sell off their bus companies and electric utilities -- but "that's 
not even being talked about."
	Media
	India has an unrestrained local press but remains suspicious of foreign 
media, especially when they show naked flesh or give their own spin on the 
Kashmir dispute. Technology has brought paradoxes: Indians now get scores of 
channels by cable TV, but only government-controlled TV over regular antenna. 
Foreign magazines and newspapers enter the country freely by the Internet but 
cannot print in India. (The Wall Street Journal is among the papers that have 
made informal efforts to lift the barrier.)
	
	The newly appointed information minister, Sushma Swaraj, a BJP hard-liner, 
this month seemed to be resolving the issues in favor of openness. At her 
prodding, the government suddenly allowed programmers to serve homes directly 
by satellite -- but with some tight restrictions on foreign ownership. 
Equally worrisome was Ms. Swaraj's explanation for the government's decision 
to move forward. Before, she explained, the government had no satellite 
facility in India; now it did, and could cut off broadcasts that offend 
India's programming code. Ms. Swaraj is looking for ways to regulate Web 
sites, too. "They are bound by this code," she said. "As yet there is no 
complaint. If there is, we can take care of it."
	Ms. Swaraj started a "national debate" over whether to lift the restrictions 
on foreign media; 10 days later ended it with a firm 'no.' But as one door 
closes in India, another often cracks open. Private FM radio is expected to 
make its debut in the spring. The government has also taken steps to help 
film studios get expansion financing, just as Hollywood starts to prowl the 
Hindi film industry for investments.
	Telecommunications
	The Vajpayee government has earned broad kudos for its liberalization of 
telecommunications, and the results may even help build domestic support for 
other reforms. Sales of new telephones have exploded recently as service 
improves. In Bombay, which once had five-year waiting lists for new telephone 
lines, the government's local-phone company, MTNL, now promises, even if it 
doesn't always deliver, hookups in two days. The reason is new competition 
from a private group that includes a unit of Hughes Electronics Corp.
	Telecom investment is vital for India because so much of the country's 
booming software and call-center business relies on fast communications with 
the U.S. The government only recently loosened its control over international 
data gateways, a move that Indians hope will alleviate heavy daytime data 
traffic jams. Idika Solutions, a software company based in Hyderabad, got in 
the habit of downloading files at 6 a.m. to avoid the rush.
	Further reforms should speed up improvements. Next year, Parliament is 
expected to pass a "convergence" law, allowing telephone, wireless and data 
services to come under the same license. And the following year government 
phone company VSNL is scheduled to lose its monopoly on long-distance phone 
service.
	Trade
	In theory, India, a member of the World Trade Organization, has no choice but 
to open its borders to foreign products, and so far it is sticking to 
schedule, passing a new patents law and so forth. But rather than investing 
to get ready for free competition, many business families are simply getting 
out of manufacturing. Their worry isn't so much luxury goods from the West, 
which will still face steep duties even after quotas are lifted in the 
spring, but goods like batteries from China and palm oil from Malaysia. The 
government is starting to heed the call for more protection: Last week, it 
raised duties on cooking oil and listed 131 imported products that would have 
to list prices in rupees and register with the Indian bureaucracy.
	The government is also trying to prepare traditional businesses such as 
textiles for a world without quotas. Still, the industry is so thoroughly 
regulated that it is hard to see India's mild reforms having much effect. For 
example, the government just decided to allow big domestic producers to move 
into certain products that were reserved for small companies, but it still 
requires yarn-spinners to produce 10% of their yarn in a form that can be 
used by obsolete hand looms. With certain fabrics, "if I produce it on a 
power loom, I'm breaking the law," says Ramesh Chander Kesar, president of 
the Textile Association India in New Delhi. "Why should there should be a 
restriction?"
	The main reason is that textiles employs an estimated one of every six Indian 
workers, and the government is loath to throw them out on the street. 
Actually, even when mills close, as many have in central Bombay, mill owners 
often have to keep paying the workers and are restricted in their reuse of 
the land.
	"If we can fire a worker for not working, that will send a powerful signal. 
But there are no votes in it," says Gurchuran Das, former Procter & Gamble 
chief in India and occasional adviser to the Congress Party. "Nobody has the 
courage to explain to the people the way Clinton had the courage to explain 
NAFTA: that jobs will be lost but, in the end, jobs will be created."
	Some less courageous moves are possible: one idea under discussion in New 
Delhi is to give labor flexibility to companies that are exporting heavily.
	Finance
	India made some big financial reforms in the early '90s, with liberalization 
of interest rates, loosening of currency restrictions and encouragement of 
private banking. The country just needs some more money to prime the system.
	The government is approving new financial products, such as derivatives. The 
big prize, investment bankers say, would be opening of the 
government-controlled mutual fund and pension plans. Right now, they offer 
fixed returns. Private investment companies want the government to let them 
offer Indians more-aggressive private pensions.
	"They are listening," says Raju Panjwani, managing director of Morgan Stanley 
Dean Witter India. "Maybe equities are considered risky, but we can't even 
invest in corporate bonds." The government has a plan under study, called 
"Project Oasis," that would allow private pension fund management, with some 
restrictions.
	Another possible source of long-term capital is insurance, something there 
isn't much of in India. The government took a big step last year in allowing 
private insurance companies back into India after nearly 50 years. But as the 
race to start marketing policies begins, only half a dozen companies have 
jumped in. Foreign companies are limited to 26% of each insurance 
partnership. That is a problem, because launching an insurance company can 
take $75 million, and "there are not that many Indian companies that can 
support 74% of that kind of a number," says Gary Benanav, chief executive of 
New York Life Insurance Co.'s international unit. The company, which is 
launching its India insurance venture in partnership with an Indian 
conglomerate, estimates the Indian market could support 50 insurance 
competitors.
	"They've made a decision which I don't think in the long run is in the best 
interests of India, though I understand it. The colonial era has left a few 
wounds here," Mr. Benanav says.
	Write to Danny Pearl at danny.pearl@wsj.com
	


Brian T. Hoskins
Enron Broadband Services
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