By Alam Srinivas & Ranju Sarkar

In 1984, Rakesh Gangwal-in the news when United Airlines acquired American Airlines, of which he was the CEO-quit his job as a consultant with Booz-Allen & Hamilton's (BAH) Chicago operations and returned home to Calcutta to set up a pharma venture. Six months of travelling between Calcutta and Delhi-where powers-that-be doled out largesse in the form of licenses-was enough to exhaust Gangwal's patience. He returned to Chicago, bah, and, as history proved, greater things. That was the eighties. Pre-liberalisation. Pre-Manmohanomics. Pre-everything. Surely, things are different now? They are, and they aren't.

Circa 2000:

• Lord Raj Bagri, the London-based owner of the Metdist Group, postpones his plans to set up a copper smelting unit in India citing the lack of scale-economies as reason. But he is exploring investment prospects in the mining sector.
• Gururaj Deshpande, the US-based founder of Sycamore Networks (market capitalisation: $23 billion), says he operates in cutting-edge technologies and won't look at India as an investment destination, yet.
• Kanwal Rekhi, chairman of The IndUS Entrepreneurs, a Silicon Valley-based council of billionaire NRIs which is an incubation-cum-mentoring organisation, is still evaluating investment opportunities in India.
• Sanjiv Sidhu, founder-CEO, of i2 Technologies plans to ''invest heavily in India over the next few years'' and, with the proposed global merger with Aspect Development, the group's Indian operations will consist of nearly 1,000 employees, a fourth of its global strength.

Affluent. Ambitious. Aggressive. And Indian. They are billionaire NRIs (b-NRIs), whose numbers, thanks to soaring tech stocks, are increasing by the hour. Even as old world b-NRIs-like the London-based Hindujas (estimated net worth: £1.95 billion) -consolidate their wealth-base, new ones, like Sanjiv Sidhu (net worth: $1.10 billion), burst upon the b-NRI scene by the dozen. Here's a nugget of trivia for the statistically inclined: of the estimated 280,000 millionaires in the US, nearly 10 per cent are of Indian origin.

That the b-NRIs are an influential clique is indubitable. They rub shoulders with the Clintons and Blairs of the world; dine with the Boston-brahmins and the English-aristocracy; and make the headlines of the international financial press with monotonous regularity. Expectedly, successive Indian governments have wooed them. And none as hard as the ruling BJP-led coalition. Even last month, Pramod Mahajan, the union minister in charge of the newly-created ministry of information technology, visited the Valley to exhort b-NRIs to invest in the motherland.

So, is this wooing paying off? Are NRI-billions heading for India? Not quite. Despite the hype and hoopla surrounding the prodigals bailing out their homeland, direct investments by b-NRIs in specific projects have been rare. The numbers? Between 1991 and 1999, transnationals were given clearances for investing over $10 billion in India; b-NRIs, less than a quarter of that figure. And most b-NRIs lay the blame for this squarely at the door of policy-makers. Says Apurv Bagri, 40, Managing Director, Metdist Group: ''Although it would be wrong to underestimate India's progress in the last decade, a lot more needs to be done on this front.''

There's slightly better news on the new e-front. A slew of b-NRIs, ranging from i2 Technologies' Sidhu, to the Intelligroup's Raj Koneru have invested in software and dot.com ventures in India. Agrees Gurcharan Das, 58, former CEO P&G: ''In the new economy, there is greater scope for NRI investments.''

Still, inflows from the b-NRIs are likely to remain a trickle. The reason? Software and the Net are low-investment areas compared to sectors like power, telecom, and petroleum. Worse, history suggests that intentions to invest do not always translate into actual investments. An instance: Over the last seven years, the Hindujas have scaled up their proposed investments in India from $6 billion to $20 billion; the actual quantum of their investments, though, has been a measly $600 million. Explains Palanai G. Periasamy, 61, Chairman, PGP Group, and one of the first NRIs to invest in India: ''It hasn't always been easy doing business in India.''

That's a fair comment. Dealing with a bureaucracy which is steeped in lethargy isn't easy. It took four years for the Hindujas' 1,000-mw power project to receive a counter-guarantee from the Indian government. When you are a b-NRI, four years is too long a gestation period for an investment: you have a world of investment options available at your feet. Add to these delays the political controversies that surround the NRI investments similar to the one which involves the White House infotech advisor Raj Reddy's Rs 1,000-crore Sankhya Vahini Project, and you have on your hands a sure-fire investment turn-off factor.

The Economics of (not) Investing in India

Transnationals can afford to wait for years for a venture to turn profitable;

 b-NRI's do not prefer to do that. Concurs Manubhai Madhvani, 71, whose family has sugar mills and breweries in Uganda: ''A transnational is a long-term player; but an individual NRI would seek immediate returns.'' Seconds Raj Bagri, 69, Chairman, Metdist Group: Transnationals have the added advantage of (having) deep pockets.''

The eye-on-returns mindset forces many NRIs to review their intended investments in India. For instance, Hong Kong-based Hari Harilela now has second thoughts about future investments in India since his Rs 48-crore hotel project near Bangalore has already been delayed three years by bureaucratic snafus. His logic: India has too few tourists and too many hotels in the major cities. And Bagri has canned his Rs 2,000-crore copper smelter, citing India's poor copper consumption.

The only thing going for India is its people: a huge market, and a vast pool of knowledge workers. The latter's appeal is restricted to Silicon Valley-NRIs; the former, to transnational consumer product majors. Says Das: ''India's competitive advantage lies in knowledge industries like pharma, infotech, it-enabled remote services, media, and agriculture.''

If the economics of business is one reason for the low level of NRI investments, are sops really the right answer? Some b-NRIs, like the London-based Swaraj Paul of the Caparo Group (he refused to speak to BT for this article), who pulled out of several mega-projects in the country when the conditions he laid out were not accepted by the government, seem to think so. Others don't. Says Joydeep Mukherji, 38, Director (Sovereign Ratings), Standard & Poor's: ''There really is no need for the creation of a caste system among businesses-large domestic companies, NRI investors, transnationals-when it comes to investment. Agrees Apurv Bagri: ''If there are special privileges, they are likely to be abused.'' The solution? A coherent, but uniform policy for all investor-types.

The Administrative Aspects of (not) Investing in India

It may just be a perception. Or it could be the true state of affairs. Most b-NRIs believe the corrupt and slothful Indian administration is responsible for delays in getting projects off the ground. Fact: despite the reforms, most investments require multiple clearances. Mukherji claims an entrepreneur can set up a company in ''half a day'' in Hong Kong, and become an ISP in the US ''without having to register with anyone''. That certainly isn't the case in India. L.R. Bhojwani, the Pune-based joint venture partner of Harilela for the hotel project, had to obtain as many as 59 clearances. Every b-NRI's favourite example of how the bureaucratic bugbear can end up smothering investment-ardour is Enron. Says Madhvani: ''They (Enron) had to obtain over 3,000 clearances at various levels to get their power project up and running.'' Evidently, India's much-touted 'single-window clearance' isn't anywhere in sight. Contrasts Deshpande: ''In a country like China, decisions are taken by one authority, at one place.'' Not surprisingly, Periasamy says many of his b-NRI friends prefer China to India. Statistic: The city of Shanghai attracted over $4 billion in foreign investment in 1999; all of India, $2..46 billion in 1998-99.

Nor are the b-NRI fears about delays unfounded. According to Madhvani, the average commissioning time for a project in India is between four and five years; in Malaysia, it is less than two years. Says G.P. Hinduja, 64, President, Hinduja Group: ''Every country has its investment and business process, but in India even if you strictly follow the process there is no result. The bureaucracy must stop acting as if they are doing a favour to foreign investors when they come to invest in India.''

Then there are problems with state governments. Between 1994 and 1997, Purnendu Chatterjee, a McKinsey alumni and Soros-protege, negotiated a power purchase agreement (PPA) with the Madhya Pradesh government for a 500-mw power project. Towards the end of this period, the state government decided to seek re-bids for the project. Today, a decision on the re-bids is yet to be taken. Says Hinduja: ''Our investment in the Vizag Power project is a classic example. We signed the memorandum of understanding (MOU) in 1994. In any other country, the power station would have been commissioned, but here we are still stuck at the paperwork stage. Even though we have obtained all the required approvals, we have not yet reached the financial close. The irony is that all the finances have been tied up but the final clearance is due from the state. And this is supposed to be a fast-track project!''

Policy-makers have always promised the sky, but they don't necessarily deliver when it comes to the crunch. For instance, consider the progress of the proposal initiated by Caparo Group and Bank of Nova Scotia to set up a private bank in India in 1993. Initially, the Reserve Bank of India insisted that the Bank of Nova Scotia should shut down its Mumbai branch. Later, the central bank decided that the combined holding of the two partners should not be more than 40 per cent, instead of the originally-envisaged 60 per cent. The result: two years later, Paul's Caparo Group walked out of the venture.

Caveat: The bureaucracy could just be a bogey used by b-NRIs to explain their indifference to investing in India. ''There are good bureaucrats, and there are bad ones. There are also the corrupt and the honest ones. One simply has to live with them,'' says Raj Bagri. Adds R. Chandrashekhar, 47, CMD, Andhra Pradesh State Non-Resident Investment Corporation: ''We are making efforts to simplify procedures and speed up the processing of applications. Still, it is not as perfect or as fast as it should be.'' So, the bureaucracy provides an excuse to the non-resident investors to clamour for further concessions.

How Indigenous Business Stalls NRI Investments in India

The transnationals don't face it-the antipathy with which local businesses greet an outsider. Ironically, the NRIs do. For, while the NRIs consider themselves insiders trying to help the country, the domestic business community views them as rivals. Explains Standard & Poor's Mukherji: ''There have been several instances where NRI investors have complied with all the norms, only to see their investment-proposals scotched by domestic businessmen who had reason to block potential competitors from entering the country. And, while Indian policy-makers are generally in favour of foreign and NRI investments, they are, often, more responsive to large local businesses.'' Seconds Hinduja: ''Discrimination against NRIs continues at all levels and they are treated neither like local Indians nor foreigners and MNCs.''

Consider this: every time the Hinduja Group announced a renewal of its investment-focus in India, it faced a new controversy. In the 1980s, Bofors controversy haunted the group; and in the 1990s and 2000s, its proximity to prime ministers like Narasimha Rao, and Atal Bihari Vajpayee. And, Manu Chhabria, who has been forced to stay away from India for the fear of arrest by enforcement agencies investigating financial irregularities in his group, has often attributed his woes to the Indian businessmen who did not like the idea of outsiders eventually posing a challenge through the take-over route.

Competiton is one thing; politically-connected rivals, another. Most b-NRIs with global ambitions cannot spend their time fighting turf battles in India. There are far more attractive investment opportunities. Says Dinesh Dhamija, 50, CEO, Flightbookers, the 10th largest travel agency in the world with revenues exceeding £80 million: ''We've decided to expand our operations in Europe because it is an integrated market, and our connections and relationships are here, not in India.''

The new economy, though, is a different ball game. Today, the centre of gravity of Indian business is no longer Calcutta or Delhi; it hovers between Mumbai and Bangalore. The fall-out: yesterday's feudal business patriarchs do not exert the same kind of political influence they did in the past; and new-e companies like Infosys, Wipro, and Ranbaxy have global ambitions of their own, and do not seem to be affected by competiton-irrespective of its provenance.

Ergo, M&As are not frowned upon in areas like software and the Net. i2 Technologies has a modest presence in India, which might go up after the proposed merger with Aspect Development; and Raj Koneru's Indiainfo is on an M&A roll with three Indian acquisitions to its credit. Even L.N. Mittal (net worth: £2.20 billion), the 49-year old chairman of the London-based lnm Group, has small investments in two Indian dot.coms, indiabulls.com, and baazee.com.

Will the new-e, then, change things? The answer is yes, but it comes with several riders. The venture capital boom means b-NRIs can invest in veecee funds targetting Indian companies. Channelling back some of their personal wealth to investments in India through veecees is an attractive option for the b-NRIs, some of whom are in senior management positions in transnational firms. The veecee managers ensure that their returns are respectable. Sidhu and K.B. Chandrashekar of Exodus, for instance, are investors in Chrysalis, a venture capital firm with a corpus of $65 million dollars.

How NRIs and the GOI Went Wrong

To some extent, both the b-NRIs and the Government have only themselves to blame for the mess. One, the investment-potential of the NRI community has been vastly exaggerated. Barring a few b-NRIs, most operate in areas like trading, real estate and services which haven't really taken off in India. Agrees an Indian diplomat who has, over the years, had to deal with many NRI groups: ''Even in the UK, where Indians have been established in business for several decades, very few NRIs have entered the manufacturing sector.''

And in the tech-driven US economy, most NRIs are professionals; some, professionals-turned-entrepreneurs. Expecting these individuals to invest in the high-risk and volatile emerging markets is being a trifle too optimistic. The most lucrative business opportunities, for the new generation tech-savvy b-NRIs like Chandrashekar, whose next major venture is an application service provider called Jamcracker, are located in the advanced countries. Concurs T.N. Srinivasan, 48, Samuel C. Clark Jr. Professor of Economics, Yale University: ''Most Indian professionals in the US at present have neither the inclination nor the experience to become entrepreneurs.''

And those who do, are restrained by mind-sets that are typically conservative. The empire of b-NRIs, in most cases, comprises closely-held companies which are hesitant to step into the full glare of arc lights. Thus, queries about their source of their funds, or their dealings with policy-makers are not met with straight answers. Little is known about the various businesses of the Hinduja family, Mittal, Bagri, Madhvani, and Harilela. Even neo-billionaires like Sidhu tend to shy away from the public glare. Sidhu even refused to give an interview (or his picture) to BT.

Should the government, then, try and leverage the emotional link that the NRIs are apt to have with their homeland in order to attract investments? No, say experts. For, investment decisions are driven not by sentiment, but hard-boiled business sense. Policy-makers would do well to improve the investment climate in the country. Says Mukherji: ''Economic behaviour is the same regardless of language, religion, or nationality.'' It doesn't matter what colour you are. Your money is still green.

-Additional reporting by Roop Karnani, Rakhi Mazumdar, & E. Kumar Sharma. Research by Vijayalakshmi Vardan

Issue Contents  Write to us   Subscriptions   Syndication 

INDIA TODAY |  INDIA TODAY PLUS | COMPUTERS TODAY
TEENS TODAY | NEWS TODAY | MUSIC TODAY | ART TODAY | CARE TODAY

© Living Media India Ltd