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Passage Back To India


International Business: INDIA

PASSAGE BACK TO INDIA

Raj Bagri started his career as a file clerk in a metals company in Calcutta. Thirty-six years after emigrating to Britain, Bagri is chairman of the London Metal Exchange and one of the country's 200 wealthiest people, with an estimated net worth of about $100 million. Bagri, also chairman of London-based Metdist Ltd., supplies India with 40% of its copper imports. In his latest venture, he plans to build a $600 million copper-smelting plant in western India in a joint venture with Mitsubishi Materials Corp. "I don't fly the ethnic flag, but I have an attachment to India," he says.

After years of building their fortunes elsewhere, Indian emigres are returning to become major forces in their mother country. Called nonresident Indians, they have been enormously successful in the U.S., Britain, Hong Kong, Southeast Asia, South Africa, and the Persian Gulf. Many have amassed spectacular wealth. Although overseas Indians number only about 10 million, their combined annual income is roughly $340 billion. That's equivalent to the GDP of the entire Indian nation of 900 million, says Dubai-based Praveen Suri, Standard Chartered Bank's global head for nonresident Indian business.

These Indians are starting to bring back not only money but technology, marketing knowhow, and financial expertise. Their return could emerge as a powerful tool in the reshaping of India's economy. "This will push India toward new economic heights," says Daniel M. Truchi, managing director-Asia for Credit Lyonnais private banking.

Much of the credit for the phenomenon goes to Prime Minister P.V. Narasimha Rao. India's economy is growing by 5.5% a year, and Rao's liberalization policies have lured multinationals such as General Electric Co. and Unilever. The government has pushed hard to get overseas Indians to invest by opening once closed sectors to them and allowing them to repatriate funds more easily.

SAVVY DEALMAKERS. For New Delhi, the emigres are especially important fow that political jitters have given foreign investors second thoughts. Opposition Hindu parties that have swept into office in recent local elections have taken a hard line on foreign investment, including opposition to Enron's $2.9 billion power project in the state of Maharashtra. Local politicians, however, have fewer objections to investments from Indians living abroad.

To some degree, offshore Indians are following in the footsteps of overseas Chinese. Although their numbers are far smaller, the Indians believe they have unique qualities that will help them turn a profit quicker than other foreign investors in India. Expatriate Indians have strong family connections, an understanding of local customs, and the patience and savvy needed to make deals work.

Indians abroad are by no means a monolithic group. Many in Asia are traders who built empires from scratch. The Middle East has been a magnet for blue-collar Indians seeking jobs in construction and industry. The 1 million Indians in the U.S. are generally professionals who received university degrees and moved on to well-paying jobs. Another 1 million live in Britain, including the diaspora's wealthiest families.

What they bring back to India also varies. Since they are not allowed to buy property in the Middle East, investors in that region are parking hefty sums in Indian real estate. In Singapore, where Indians make up 7% of the population, they serve as middlemen helping companies make direct investments in India.

By contrast, U.S. emigres often return to head operations for such companies as GE Capital, McKinsey, and AT&T. They often end up explaining Indians and Americans to each other. "My role is to provide a cultural interpretation," says Kartar Singh, senior vice-president of Cogentrix Inc. in Charlotte, N.C. Singh now spends much of his time helping Cogentrix build a $1.5 billion power plant in Mangalore.

Many U.S.-based Indians are also working to strengthen India's finance and technology industries. Raghuveer Mendu is the co-founder of a venture-capital firm, Dynam Venture East, that has raised $9 million for investment in industries such as information technology, health care, and engineering goods. Despite government restrictions in the past, "the entrepreneurial spirit was always there," says Mendu, a 37-year-old native of Hyderabad in southern India who now lives in Los Angeles. The recent economic reforms have unshackled that drive, he says, and created a demand for venture capital.

Veterans of Silicon Valley have also headed to India. One example is Anil Kapuria, a computer scientist and electrical engineer from New Delhi, who came to the U.S. in 1975 and worked for Northern Telecom and Tandem. In 1987, he founded Silicon Valley Technology, now the second-largest exporter of computer hardware products out of India, selling motherboards, memory boards, and other add-on products to companies such as Compaq Computer.

AUTOMATIC APPROVAL. The track record of emigres overall is impressive. In the U.S., the average Indian American's income is $48,000, higher than that of any other foreign-born group. Indians own 40% of the motels in the U.S., and 20,000 are doctors. In Hong Kong, where Indians make up 0.5% of the population, they account for nearly 10% of the territory's external trade. Collectively, overseas Indians save $50 billion a year and own $100 billion in real estate. As a group, they are the third-largest investors in India, led only by the U.S. and Britain (charts, page 46).

Aside from money, they are taking ideas home. In 1993, Soumitra Shankar Das returned to India and was struck by its disorganized retail system. So he created Dee's Home Shopping Network, where TV hostesses offer Indian consumers household goods. Other returning Indians have introduced the concept of executive searches and sophisticated TV programming.

In general, Indians from abroad are a potent lobby for change, prodding officials at every opportunity to liberalize faster. Responding to that pressure, the government is opening sectors exclusively to its overseas progeny. Nonresident Indians, for example, get automatic approval for most wholly owned ventures, while foreign companies can only hold a 51% stake. Some 5% to 10% of initial public offerings are reserved for overseas Indians, who can also own property, while foreigners cannot invest in anything other than their own offices or homes.

Like overseas Chinese, Indians have established networks based on shared religions or ethnicity. For instance, Sindhis who lived in what became Pakistan lost almost everything they owned in the 1947 partition of the subcontinent. Over time, they built businesses in the Middle East, Africa, and Asia. Their informal financial network, where goods are traded on credit and trust, allows them to bypass commercial banks.

DRASTIC DELAYS. The Sindhis are spearheading an investment drive into India, led by the prominent London-based Hinduja family. They have created a Mauritius-based holding company called IndusInd International Holdings Ltd. (IIHL). Some 3,000 Sindhis from all over the world pitched in $50 million, with the Hindujas alone contributing 3%. The group includes IndusInd Bank, the first private bank to be formed since liberalization. Founded in April, 1994, it has $225 million in deposits, a little more than half of which comes from emigres. IIHL also runs a $161 million print-and-electronic-media project called IndusInd Media & Communications Ltd., which will launch a cable network, produce TV programs, and acquire Indian movies.

The Hindujas have encountered their fair share of problems. Since their ventures tend to threaten the monopolies of domestic industrialists, the group still comes up against hurdles that have caused delays of up to three years. "There's still resistance from Indian businessmen to offshore Indians," says Sanjay G. Hinduja, group vice-president.

Despite points of friction, the Indian emigres are sometimes able to bridge the gap between India and foreign investors. "I see our role as a conduit," says M. Chamaria, chairman of $500 million Agio Group, a trading firm with investments in energy, infrastructure, and real estate. His company is lining up $600 million worth of projects in India, including a $100 million venture with St. Louis-based Protein Technologies International to produce soy protein.

Another impressive investment comes from Singapore, where Parameswara Holdings has launched a $19 million fund for Singapore investors to break into India. It also has a 10% stake of Singapore investments in the $250 million Bangalore Information Technology Park, a government-led Singapore project. "The nonresident Indian label, the brand, gives you a quicker avenue to doing things in India," says Shabbir Hassanbhai, director of Parameswara.

But no offshore Indian expects it to be easy. Infrastructure is antiquated, power outages are common, and roads are primitive. Corruption is rampant. Executives complain of shakedowns for such basic services as a telephone line. K. Sital, a top Indian business leader in Hong Kong, says it took him months to get a license to open a watch factory near Bombay--and even then, he had to grease some palms. Once he started producing, it took three weeks for his components to get through customs. "Nothing gets out for free," he complains. "You have to pay." Eventually, he shut the plant down. Now, he prefers to make his Indian investments together with other exiles: He is the largest individual shareholder in IndusInd Bank.

Yet for every frustrated overseas Indian, there are countless others charging in. Their infusion of sorely needed capital will speed development in everything from telecommunications to shipping. Moreover, they're providing new consumer services for the country's growing middle class. If India takes maximum advantage of its overseas Indian resources, it could forge ties that will boost the country's ability to become a regional, even a global, player.

To accomplish that, Indian government leaders will have to show their continued commitment to reform and liberalization. But many Indians abroad agree that their country is finally on the right path after decades of stagnation. "We feel the time is right for India to take off," says Lal Hardasani, chairman of the Indian Chamber of Commerce in Hong Kong. Having endured untold hardships overseas on their way to building vast personal fortunes, business leaders of the Indian diaspora aren't about to miss out on the opportunities back home.

Where the Overseas Indians Live

At least 10 million Indians live outside of their native land. They have widely differing skills and degrees of financial clout, and prefer to operate in areas where they have linguistic and ethnic links.

PERSIAN GULF

NUMBER: 2.5 million, mostly Muslim.

INVESTMENTS: Real estate, infrastructure, agribusiness.

AREAS TARGETED: Kerala, Bangalore, Madras, Goa.

BRITAIN

NUMBER: 1 million, mostly Punjabis.

INVESTMENTS: Banking, industry, and power.

AREAS TARGETED: Punjab, Haryana, Andhra Pradesh.

SOUTH AFRICA

NUMBER: 1 million.

INVESTMENTS: Since they cannot legally invest, they are expanding trade in

textiles, other areas.

AREAS TARGETED: Gujarat, Maharashtra, Madras.

SINGAPORE

NUMBER: 190,000.

INVESTMENTS: Finance, infrastructure, high tech.

AREAS TARGETED: Mostly Tamil, they aim for southern India.

HONG KONG

NUMBER: 24,000.

INVESTMENTS: Real estate, finance, telecommunications.

AREAS TARGETED: Bombay, Pune, New Delhi.

U.S.

NUMBER: 1 million, mostly professionals. All ethnicities.

INVESTMENTS: Technology, finance. Also serve as executives of U.S.

multinationals.

AREAS TARGETED: Bombay, Gujarat, Bangalore, Madras.By Joyce Barnathan in Hong Kong, with Sharon Moshavi in New Delhi, Heidi Dawley in London, Sunita Wadekar Bhargava in New York, and Helen Chang in Singapore


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