Suzanne Goldenberg reports on how the prospects for the poor might improve with inward investment
IN a village on the eastern edges of India, where the lives of the poor have only a passing acquaintance with the 20th century, Laloo Prasad Yadav was rattling off the names of foreign countries like an incantation.
“I have been to Singapore, to the United States and to the UK,” India’s charismatic peasant leader and chief minister of India’s second largest state told the sea of expectant faces.
And everywhere he went, Yadav said, he found business people eager to invest in his native Bihar. The crowd cheered. But, given the level of corruption and lawlessness in Bihar, the fact is that nobody is investing there.
Like Yadav, most of the people in Salmari village belong to poor, peasant families. The literacy rate among men here is barely 25%.
But it is a measure of the broad acceptability of the market reforms which India introduced in 1991, that Yadav had to pay tribute to foreign investment, even in places so remote that liberalisation has had little impact.
India’s reform programme has remained in the background in the campaign for general elections, where voting in all but a handful of seats wound up this week.
While there is concern in the local as well as the international community that the coalition government, which is expected to emerge by mid-May, may be too weak or too unstable to push through reforms, it is acknowledged that India will never return to the licence raj, the planned economy and tortuous red tape of the past.
“A tacit national consensus is emerging that we do need areas of foreign investment, and especially in infrastructure,” Vishwanath Pratap Singh, a former Indian prime minister and Janata Dal leader, said.
India’s outgoing finance minister, Manmohan Singh, has estimated the country will need to invest $200-billion in infrastructure over the next decade, and there is a broad acceptance that the money will come from abroad.
The ruling Congress Party has said it will introduce reforms promised in its manifesto. The right-wing Hindu chauvinist Bharatiya Janata Party (BJP), which is widely forecast to win the most seats — though that is no guarantee it will be able to form a government — has said it is in favour of foreign investment in infrastructure and hi-tech industries.
While the Communist Party of India (Marxist) has called for the rolling back of reforms, West Bengal, where it holds power, has been aggressively pursuing foreign investment.
Like his counterparts, communist Chief Minister of West Bengal Jyoti Basu has travelled to the West to seek investment.
The loosening of central economic controls and the rise of regional parties in India means that process will continue no matter what government comes to power in New Delhi.
However, there is opposition to the entry of multinationals in the consumer goods sphere. This has united Hindu extremists, the left and environmentalists in the self-reliance movement.
BJP extremists have been at the forefront of the occasionally violent campaigns against the entry of multinationals, including the sacking of the first Kentucky Fried Chicken (KFC) franchise at Bangalore in January. However, the restaurant has re-opened, and is doing a roaring business under armed guard.
And the western states of Maharashtra, where the BJP is part of the governing coalition, and of Gujarat, where it rules in its own right, have been quick to open up to investors.
While Maharashtra scrapped a $2,8-billion power project by the US firm Enron Development last year, it renegotiated the deal on more advantageous terms. Since then, the southern state of Karnataka has smoothly given its approval to a $1-billion Cogentrix power plant. Hyundai and Ford are to build car plants in neighbouring Tamil Nadu.
While 1995 saw a slowdown of foreign direct investment as businesses wait to see what kind of government emerges, portfolio investment has been flowing in.
Since January, more than $1-billion has been invested in Bombay’s stock markets, and analysts expect an additional $3- billion by the end of the calendar year. The figures compare well with a total of $5-billion in portfolio investment from 1993 to 1996.
Analysts say this reflects a belief in the fundamentals of India’s economy: a 6,2% growth rate, a 10% industrial growth rate and corporate profits of 25 to 30%. But there is concern that a weak government could not address the country’s fiscal deficit, so increasing inflation.