The emerging role of India in international business - includes related article on India's cultural orientation

Business Horizons, Sept-Oct, 1996 by Raj. G Javalagi, Vijay S. Talluri

Revitalization Of The Indian Private Sector

India has always been a trading nation. The great explorer Columbus discovered the American continent when he was actually heading for India's riches. Centuries of alien rule and decades of socialism did not stamp out the Indian entrepreneurial spirit. Unlike other countries, such as China, that had hard-line communist governments, business skills in India did not disappear during the heyday of socialism. The Tata and Birla business houses each have a combined sales turnover of $2 to 3 billion. The textiles and petrochemicals giant Reliance Industries has the second largest number of shareholders in the world. Several business groups have raised equity on the international market through the issue of Global Depository Receipts.

These are exciting times for Indian firms. Relaxing the licensing procedures has allowed them to breathe easier. Now exposed to international competition like never before, they are forming alliances with each other to face the challenges of the future. Thanks to the reform climate, it is now possible for Indian firms to merge with other companies. Hindustan Lever Limited, a subsidiary of Unilever and the largest soap and detergent company in India, acquired TOMCO, which was the second largest. Coca-Cola acquired Parle, its erstwhile competitor, thus extending the cola wars to new exotic lands. Pepsi has been operating in India since 1989. Procter & Gamble merged its operations with Godrej Soaps. Companies are enjoying the benefits of economies of scale and synergy. These changes are only the beginning of a wholesale restructuring of the Indian corporate structure. As larger and stronger groups emerge, they will have the resources necessary to invest in upgrading technology.

Removal Of Exchange Controls And Convertibility

In early 1993, the Indian government abolished many of the controls contained in the restrictive Foreign Exchange Regulation Act. Foreign joint ventures are now free to buy and sell property, set up branches and subsidiaries, make deposits and borrow, and take over Indian firms without seeking approval. The rupee was depreciated by 50 percent between 1991 and 1993. In 1993 the two-tier exchange system was eliminated and the rupee was made fully convertible on the trade account. Nevertheless, Indians continued to experience severe restrictions on travel and the purchase of most foreign services. By the same token, investors had also been constrained in the repatriation of dividend and interest income. So the rupee was made convertible on current account transactions in 1994. Most restrictions on currency have been lifted and the central bank has delegated powers to authorized dealers to release foreign exchange. Restrictions on capital transactions remain, but full convertibility is expected in a few years.

Trade Reforms

The government initiated a radically new approach to trade by dismantling the maze of import barriers that have limited the opportunities of foreign firms. The list of products requiring import licenses has been steadily whittled down in the last two years. As of April 1, 1993, trade is completely free, barring only a small negative list of imports and exports that are either regulated or banned. Since April 1992, there has been no need for obtaining any license or permit to carry on import-export trade. Import duties that were among the highest in the world (400 percent) have been slashed in recent years to 50 percent in 1995-96. Again, we detect a change in the governing philosophy; the government has gone from a position of cataloguing the long list of permitted items that could be traded to a small negative list of imports and exports that are restricted or banned.