NEW YORK-The largest democracy in Asia represents a substantial opportunity for American companies seeking to serve India’s growing telecommunications market and to import to our shores the high-technology products and services its educated labor force provides.
“India’s liberalization seems to be gaining momentum, with the destruction of its telecommunications monopoly, trade liberalization in software exports, a large and well-educated middle-class base and, most importantly, the grassroots support of a population attuned to world trends via the Internet,” said Girish K. Bhakoo, a partner in Equinox Partners L.P., New York.
Bhakoo chaired the recent “Indian Technology, Media & Telecommunications Conference”, co-sponsored by the New York Society of Security Analysts and ASK-Raymond James & Associates Ltd., headquartered in Worli, India.
“The sense is that India and the United States have come together after President Clinton visited India in March 2000, pledging to reduce impediments to bilateral trade and investment and to expand commerce between us, especially in high-growth, high-technology areas like software,” said Rudi V. Warji, deputy counsel for India in New York.
“In the last 18 months, there has been a build-up of the institutional mechanisms for these goals, including the Science and Technology Agreement and Internet and Economic Development Initiative.”
Although foreign companies may have difficulty entering the country, India has independent judiciary known for siding with offshore firms in such cases, he said. There also is a framework for legal protection of intellectual property rights.
With the past few years, the Central Government has embarked on a process of “devolution and decentralization,” keeping for itself determination of general policy direction, while vesting democratically elected state governments with “much of the power to determine the ease with which business can be done,” Warji said.
A new federal law, the Convergence Act, replaced the federal agency that had controlled telecommunications since 1885. Under the new regime, whose structure has been fleshed out and was publicized in January, communications, information technology and entertainment services will be dealt with as part of a unified whole. The statute, which can be obtained on the Department of Telecommunications Services Web site at www.dotindia.com, also mandates 75 million new telephone connections within a few years, he said.
“McKinsey’s (latest) quarterly report said that multinational companies understand India’s value as a platform for software development, and telecommunications is one of the industries most likely to benefit,” Warji said.
To John Band, executive director of ASK-Raymond James, India’s 6 percent annual growth rate, while stellar compared to that of neighboring countries, could be double were it not for the “self-inflicted wounds of post-independence socialism.”
Calling himself “one of the country’s strongest internal critics because I would like to see it succeed,” Band said India had made considerable progress in the last decade. No longer is it the case that “every machine in every factory has to be licensed … quota restrictions on a large number of goods and services are being eliminated, and tariff barriers are going down, though the government would like to increase them,” he said.
The federal government also has promised to reduce its stake “as soon as possible to less than 50 percent” in India’s two largest telecommunications carriers, MTNL and VSNL, Band added.
However, the India-based banker said he is concerned that, although India is a member of the World Trade Organization, many of its local businesses will not be competitive in that open environment. Compounding this problem is the fact that, in his view, “the regime for investing in India is unnecessarily complex,” despite the fact that those who are not citizens “can invest as venture capitalists through a reasonably civilized V.C. structure or buy ADR’s (American Depository Receipts).”
Band said ASK-Raymond James estimates that India will invest $35 billion in telecommunications, $7.5 billion in ports and $5 billion in roads over the next five years.
“The telecommunications infrastructure is a long way from being world class, but the liberalization of telecommunications will reduce costs and open markets. The price of telecommunications is rapidly falling, even cellular costs, and that is a first in recent history,” said Ajay Mathrani, an investment analyst for ASK-Raymond James.
“Parliament also has cleared a bill which provides a legal framework for e-commerce.”
Although India has not yet produced any “commercially successful “software, the information technology services sector will grow at a compound annual growth rate of 52 percent over the next five years,” ASK-Raymond James projects. The United States purchases 61 percent of those exported IT services.
“There are opportunities to produce software, including mobile computing and enterprise software,” Mathrani said.
Although the price of skilled labor for IT software development and services in India is about one sixth that of the United States, “competition from Ireland and other countries is eroding India’s advantage,” he added.
