INVADING INDIA? AUGUST 14, 1997 TRANSCRIPT

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For years India pursued a socialistic economy, discouraging foreign investments, but since 1991 India has opened its economy to foreign markets. And a few small American bussiness are testing the foreign waters.

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Online NewsHour links August 17, 1997: Shashi Tharoor, author of "India: From Midnight to the Millennium," and executive assistant to the United Nations Secretary General, discusses India's 50th anniversary of independence with David Gergen. August 17, 1997: Pakistan celebrates 50 years of independence. A report on India's business sector. January 31, 1997: Elections in Pakistan Browse the NewsHour's complete coverage of Asian affairs.

FRED DE SAM LAZARO: For most of its independent existence India has pursued a socialist economic model, discouraging foreign investment and spawning a big government bureaucracy to regulate, even run, all aspects of business. But since 1991, under pressure from international lending agencies, India began opening up the economy to foreign investment and competition. A country still known for immense poverty, about half its people are poor, has seen strong growth in its middle class, which has attracted numerous multinational corporations. A few small businessmen have also invested in India, like Dan Eldredge.

DAN ELDREDGE, Businessman: I think it's tripled in the last 24 months, the money that's put in here. I think you can go to it. I think a perfect example is every major card company is here in India right now, except maybe one or two--from Ford, General Motors, all your Japanese cars, Mercedes, BMW, and everything else. I think--they're not here for their health.

FRED DE SAM LAZARO: Health is Eldredge's market. He's selling the possibility of clean water. About ½ million Indian children die each year from diseases born in unsafe water. Four years ago Eldredge purchased the rights to sell a line of U.S.-patented water purifiers in the Indian market.

DAN ELDREDGE: The molds are already here?

SPOKESMAN: Yes. We can take the--

FRED DE SAM LAZARO: With a local partner, Eldredge began manufacturing much of the devices in a new factory in Bangalore, India, instead of importing the product from the United States, and realized huge savings in import duties and labor costs. We first interviewed Eldredge a year ago, soon after the products were launched.

DAN ELDREDGE: What we've done really to the price is taken about 40 percent off. Now, the idea for that is instead of being able to sell to 1 or 2 or 3 percent of the market, the Indian market, by bringing the price down, and making it available, we feel that 35/40 percent of the Indian market can afford some of these products.

FRED DE SAM LAZARO: Eldredge's optimism was buoyed by the size of India's middle class, estimated at over 200 million people. But one year later, the joint venture has yet to yield a profit.

DAN ELDREDGE: It takes time. I mean, walking in here and thinking that we had a product that was going to fit here perfect, you live and learn.

FRED DE SAM LAZARO: What they learned is the products needed to be modified for the lower pressure in India's water supply. Retailers reported the price--though lower--wasn't low enough. Also, Indian partner Vikram Vish says the containers weren't large enough for Indian families.

VIKRAM VISH, Businessman: For example, in the U.S., the families are small, whereas, over here it's a larger family. So when someone sits down for dinner, there are a couple of kids, a husband, wife, father-in-law, mother-in-law, so they need a bigger purifier. Now, Pure-It, which is designed for two to four people has now had to be readjusted for six to ten people. So the size had to be doubled.

FRED DE SAM LAZARO: Another problem facing Vish and Eldredge is that those with money want to spend it on well-known brand names and big ticket items, according to Aroon Purie, who publishes the magazine "India Today."

AROON PURIE, Publisher, "India Today": Most of the products which are advertised are more the consumer products, which are cars, motorcycles, clothes maybe, fridges. A lot of people who have money tend to go in for durables, things which are going to improve their visible quality of life.

FRED DE SAM LAZARO: In response, Eldredge and partners have launched ad campaigns and demonstrations, like this one at the entrance to a Bangalore department store.

VIKRAM VISH: This is something that you can collect your tap and it's always on line. This is something that's there for a family that you can carry along.

DAN ELDREDGE: 95 percent of the product is manufactured in India. There's no electricity, no power, just the flow of the water does it.

MAN: How often do you change the filter?

DAN ELDREDGE: The filter, here again, it depends on the condition of the water. If you have water that's been already partially cleaned, it'll last for maybe three or four or five thousand liters. It clogs up, and it automatically tells you when it's time to change the filter.

MAN: You are from this place, Minnesota?

DAN ELDREDGE: I'm sorry. What?

MAN: You are from this place?

DAN ELDREDGE: I'm from St. Paul, Minnesota.

FRED DE SAM LAZARO: Eldredge isn't counting just on water filters.

DAN ELDREDGE: How many quantities are they good for?

SPOKESMAN: We can give you almost 20 million.

DAN ELDREDGE: With the existing--

FRED DE SAM LAZARO: He has plans to manufacture other American products in India, where there's a wealth of engineering know-how and low-cost labor. His local partner in this venture, Surendernath Makela, says his firm can design and mass produce the same items here for half their U.S. cost. Makela's firm has been in business for a little more than a decade, making various plastics products, mostly for refrigerators. Business has climbed twenty-five-fold since the beginning.

SURENDERNATH MAKELA, Businessman: It's been fantastic. In fact, we are under the positive side of this globalization, enablization, because there is a certain explosion in the consumer appliances market.

FRED DE SAM LAZARO: Yet, for all the positives, massive problems remain, despite a wealth of university-trained engineers, the illiteracy rate remains at 50 percent. Despite the influx of automobile manufacturing, the road system has barely improved since the time of Queen Victoria. Despite solid growth in new manufacturing, Makela's factories rely heavily on their own backup generators because the government-run electric supply is sporadic at most times, non-existent on Mondays.

SURENDERNATH MAKELA: Where the power is not there, where the government did not supply the power, that is only for workers. So it is standardized. Every Monday is a holiday because there is not the power.

FRED DE SAM LAZARO: Energy is one of several key sectors, still solidly controlled by government bureaucracies that nationwide employ 20 million people. It's evidence to Purie of the limits of the reforms.

AROON PURIE: There's a certain mind set which hasn't changed in this country, which actually doesn't really welcome foreigners, which actually does not become an exporting nation. It doesn't open up its borders. It doesn't make things easy for people to come in here. There's always this little bit of control which actually is enough to irritate you and stop you.

You will hear all kinds of lip service about the fact that the government, there should be less government, but I have yet to see any action which actually hides off a government department. You'll talk of disinvestment in the public sector. Nothing has happened. So this is all--we've done reforms, which is what the easy stuff is, which doesn't require any real political guts.

FRED DE SAM LAZARO: Despite all the gains in recent years, investment in growth in India's economy still lags far behind other Asian countries, but Eldredge continues to see opportunity.

DAN ELDREDGE: I think there is 17/18 percent of the world's population here, and no matter how you want to cut it, if only 15/20 percent can afford something, that's a heck--that's a big market.

FRED DE SAM LAZARO: Eldredge and partners expect their water purifier venture will begin making money by the end of this summer, helped in part by the monsoon season, when people worry more about water-born disease. So far, he, like many westerners who have tried to tap the Indian market thrive as much on promise as profit.

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