Online NewsHour: India's new business environment -- May 13 1996

NEW-FOUND WEALTH

MAY 13, 1996
TRANSCRIPT

India's economy was opened to foreign investment five year ago. New business ventures, including high tech software firms, have expanded the country's middle class. The country's poor, though, still lack adequate housing and educations.
ELIZABETH FARNSWORTH: The victors and vanquished in last week's elections are maneuvering now to put together coalitions to control parliament, and business leaders are watching closely. The Congress Party, which ruled India for five decades, has in recent years overseen sweeping free-market reforms. Fred De Sam Lazaro of KTCA, St. Paul-Minneapolis, was in Bangalore, India, just before the voting and filed this report.
FRED DE SAM LAZARO: The India of 1996 is very different from the India of just five years ago. Huge public buildings symbolize the India of the past with a strong government that kept a tight rein on the economy through a myriad of licensing and regulatory laws. Except for four years, that government, since independence in 1947, has been led by the Congress Party.
SPOKESMAN: It is our duty to bring to your notice, bring to the people what has been done.
FRED DE SAM LAZARO: In 1991, Prime Minister Narasimha Rao began to open the economy to private foreign investors and competition. In a sharp departure from his party's past, he eliminated protections enjoyed by a few domestic industries. Nowhere have the reforms borne bigger results than the southern city of Bangalor. Dozens of multinational, high technology companies were first to arrive, attracted by the reforms and by India's large supply of software and engineering talent, second in number only to the U.S.
SUBROTO BAGCHI, Business Executive: You must give the devil its due. The government in the last five years has only reduced standards, has taken away restrictions. I think they realize that there is more good for the country by letting business do its own business, rather than meddle in business.
FRED DE SAM LAZARO: Subroto Bagchi is vice president of Research & Development at Witpro, an Indian company specializing in software systems and engineering. Its annual revenues have risen severalfold in the last five years to $500 million.
SUBROTO BAGCHI: Because of economic reform, it was possible for Indian companies to go out of India and instead of designing only for Wipro let us design for the world at large. In five years' time because of the enabling conditions of economic reform from 18 people we have grown to 600 people.
FRED DE SAM LAZARO: Witpro's work force is spread across three continents. Witpro has labs here in Bangalor and in California's Silicon Valley, where it has partnerships with several U.S. firms.
SUBROTO BAGCHI: Together we create what we call a 24-hour development environment. What that does is that as the sun sets in U.S., the sun rises here. So we are like a virtual team with our U.S. counterparts where we pick up the trade from where we leave and hand it over as the sun sets here and the sun rises there.
FRED DE SAM LAZARO: Literally?
SUBROTO BAGCHI: Literally, absolutely.
FRED DE SAM LAZARO: It's a hand off?
SUBROTO BAGCHI: Yes.
FRED DE SAM LAZARO: It's a shift change across the ocean?
SUBROTO BAGCHI: Yes, sir. Yes, sir. This is what we call the future of work. This is in a way how technologies of tomorrow will be showcased, will be delivered, will be used, largely thanks to -- not only economic reforms but I think we should also thank Internet.
FRED DE SAM LAZARO: The economic reforms have also begun attracting smaller scale entrepreneurs from abroad. Eager to tap a vast new market, Daniel Eldredge arrived in 1993 hoping to sell water purifiers patented and assembled in the United States.
DANIEL ELDREDGE, U.S. Business Executive: They're very impressed in the U.S., in Minneapolis-St. Paul.
FRED DE SAM LAZARO: Today, Eldredge and his Indian partner have moved production of most components to a plant in Bangalor.
DANIEL ELDREDGE: Everything in this product is made here in India, except the cartridge and the filter. When we first started out, we were going to have to sell this for about $45 including tax. By manufacturing here, we've brought the price down to about $30, $31, $32.
FRED DE SAM LAZARO: Under the new rules, foreign investors like Eldredge can keep a greater share of the joint venture's profits, and they can keep trade secrets, in this case the patented purifier's secret. That's also a change from the past. All this has prompted a steady stream of expatriate Indians to return. M. T. Raghunath, a graduate of the University of California-Berkeley, left a comfortable position at IBM to join the Witpro Banglo Laboratory.
M.T. RAGHUNATH: There is a lot of interesting work going on. And I'm sure that I can--if I find my niche--and be happy doing stuff here, the opening up of the economy here and sort of general openness that's come in is very good, and something always prompted me to come back. Had this been five years ago, might have took place, now I don't have any -- I didn't think twice about having to move back.
FRED DE SAM LAZARO: Rughunath is part of the middle class that has grown significantly in recent years to an estimated 200 million people with a growing appetite for consumer comforts. In a country used to chronic shortages and goods of poor quality, the economic reforms have brought an array of choices for families like Subroto Bagchi's.
SUBROTO BAGCHI: We have all the material comforts that one could think of in a society like this. We can afford two cars. We can afford two cars. We have a house. We live in a house like this. We have everything else that you would want in a house, whether it's a French television and cooking range and--
SUSMITA BAGCHI: As I was growing up, we never had a fridge in our house, so now I cannot imagine life without a refrigerator or even without a cooking range.
FRED DE SAM LAZARO: Their unprecedented prosperity has made India's middle class the staunchest supporters of economic reforms. However, for the poor, who still outnumber the middle class by at least three to one, images of consumerism is all the dividend they've seen from the economic reforms. Despite its prosperity, even Bangalor is not an island from the country's pervasive poverty. What the poor do share with the rich -- far more than the past -- is access to food. India has become one of the world's major food exporters. In fact, this year, it will produce more wheat than the United States, significant for a country once synonymous with famine. Still, many basic human needs go unmet. Kushwant Singh is a leading columnist and author.
KUSHWANT SINGH, Columnist: Nobody goes hungry. We don't know what the word "famine" means. It's gone back into history. Where we haven't succeeded is in giving housing to everyone, giving employment to everyone, illiteracy -- more than half of us are still illiterate, and under the party line, we eat enough to survive, but not really become strong people.
FRED DE SAM LAZARO: Despite the immense problems India faces, few experts expect dramatic change in economic policy no matter which coalition emerges to form the new government. The Hindu Nationalist BJP, which will likely have the largest number of seats in parliament, has railed against foreign investment in the past but did not make that much of an issue this time.
KUSHWANT SINGH: Even the communist parties keep quiet about it. They talk but tongue in cheek. The BJP, as I mentioned, have already accepted this liberalization as a good thing. It is a part of the Congress's list of achievements which they claim, so there's not going to be any dispute, but the liberalization will continue no matter which party wins.
FRED DE SAM LAZARO: That's reassuring to Bangalo's business executives like Subroto Bagchi.
SUBROTO BAGCHI: I'll be more worried about probably the U.S. elections or what happens in Japan, or, you know, how the European Community actually implements its European unification agenda than who comes to power in New Delhi.
FRED DE SAM LAZARO: Bagchi notes it's the hard currency investment from those nations that's driven India's economic growth in recent years, and despite some nervousness in financial markets in the election aftermath, he and other business leaders expect that foreign investment to continue to pour in.
ELIZABETH FARNSWORTH: Since no one party received a majority in the election, the leaders of the various parties will now try to coalesce and form a government. The Congress Party and several leftist parties are discussing a coalition but one obstacle to that is Congress's commitment to free market reforms which some leftist parties have opposed.


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