Friday, December 5, 2008

How Risky Is India?

How Risky Is India?


New Delhi/Mumbai - Until Nov. 26 the strongest force pushing India forward was a mix of good fundamentals and that intangible something that industry calls "sentiment." Forged in the years of 9% growth, this euphoria inspired Indians to economic greatness and lured outside investors eager to be part of the Indian miracle.

Then the shooting started in south Mumbai. The three horrendous days that followed laid bare the gaps between India's image and reality, sparking a nationwide introspection about the nation's future. The fear is that India's mounting problems could drag the country back to its pitiful past. Its governments, despite a manufactured public image, have always been unwieldy; its economy, despite the plenty of the boom years, is premised mostly on future potential; and its much-flaunted stability is no such thing.

India's fragility is revealed by a pattern of diffused violence—a bomb here, a killing there—that goes unnoticed even in India. Most outsiders (and most investors) don't realize how dangerous a place India can be. Since 1993, when 13 bomb blasts in one day killed 257 in Mumbai, just over 29,000 people have died in terrorist attacks, including insurgencies in Kashmir and the Northeast, according to a BusinessWeek analysis of data from the Home Affairs Ministry. Thousands more have died in anti-Muslim riots. At least another 4,500 have perished since 2002 in a Maoist rebellion that simmers, and sometimes boils over, in the mineral-rich region of Chattisgarh, where foreign companies plan to invest heavily.

Just after the Mumbai attacks, three people were killed in a train blast in Assam, a northeastern state that produces more than $2 billion worth of tea each year, most of it exported. "It is not just this one unprecedented attack in Mumbai," says Chandrajit Banerjee, director general of the Confederation of Indian Industry, India's most influential trade lobby. "Across the country we see...violence."

It's quite a contrast to the strengths India has used to attract global capital. Engineers and programmers are first class. Skilled, dedicated workers toil for wages much lower than in the West. The nation's blend of entrepreneurial spirit and democratic values has challenged the more rigid China model. A top-notch executive class boasts chief executives like Ratan Tata, chairman of the Tata Group and innovator in categories from autos to hotels. Tata owns the Taj Mahal Palace & Tower Hotel, which was ravaged in the attacks and which he vows to rebuild.

These strengths still attract investors. But foreign companies are not immune from the violence. In Orissa on the east coast, where billions in foreign investment lie tied up, Korean companies like steelmaker Posco have had executives kidnapped and land promised to them but never delivered: Protesters wield slogans and weapons to keep earthmovers at bay. In New Delhi, the Indian CEO of an Italian company's subsidiary was killed by a mob of employees angry over layoffs. And Patrick Cescau, CEO of consumer-products giant Unilever (UN), narrowly escaped death in the massacre at the Taj Mahal hotel where he was dining with colleagues.



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