T N Ninan: Dollar options

WEEKEND RUMINATIONS

The Reserve Bank gets a little over 2 per cent as return on the dollars that it invests overseas""mostly in US and other government securities.

Critics argue that this accurately reflects the lack of business wisdom in a central bank that has refused to do many other things that might seem obvious""like moving more pro-actively out of dollars since that has become a declining currency.

But in the RBI's defence it must be argued that it isn't doing any worse than other countries' central banks""many of which hold even more dollars than the RBI, and which get about the same return on their money (the average is said to be about 2.5 per cent).

One tantalising possibility when one considers an alternative use for these embarrassing riches (over $125 billion at last count, and climbing at the rate of a billion a week), suggested itself last week when an iconic brand went under the hammer: a Chinese company bought IBM's computer hardware business, for the miserly sum of $1.25 billion.

If that's all it takes to become the third largest player in the personal computer and laptop game, why can't Indian companies think along similar lines, is the obvious question. After all, dollars are no longer a constraint, we have them coming out of our ears.

Well, Indian companies have had that very thought and have been moving in the same direction as the Chinese""but more modestly. The largest overseas acquisition by an Indian firm so far has cost under half a billion dollars.

But the game may have just begun. ONGC popped a bulb the other day by suggesting that it could bid for Yukos, the giant Russian oil firm whose chief has been jailed by Mr Putin, the Russian president.

And why not, if India wants to ensure energy security, because Russia after all is among the three largest oil producers in the world and has vast reserves that can be tapped for decades.

For those adventurously-minded, there are several other possibilities. Like some of the troubled airlines in the world which are today going for less than IBM's computer business, and which have all the landing rights and more that Air-India could ever wish for.

The spin-off benefits for the country as a whole would be obvious: more tourists could be brought in and flown out of the country, without airline capacity being a constraint (though the airports would be!).

An imaginative businessman would have looked at the possibilities and tried to see if a deal is possible, but in the government's hands, it's a non-starter.

Still, firms that have been gearing up to face a globalised world are now ready to make the big moves. The Tatas talk of taking their overseas turnover to $5 billion in double-quick time.

Narayana Murthy at Infosys wants to take his billion-plus firm to 10 times that size in as many years, if not even faster""and become a global leader in size.

And if the Ambani brothers can sort out their differences, Reliance could just as easily bid for major oil and gas fields overseas""as ONGC has been doing.

Indeed, the Tatas should be asking themselves why, as steel producers for nearly a century, they cannot emulate the success of Laxmi Mittal and buy up distressed steel plants in other countries, and thus become an India-based global player in a metals business.

Even publishing companies could look at overseas possibilities: Bennett, Coleman produces titles that rival international leaders in scale, so why not explore other markets now that, from a market leader's perspective, the Indian market offers limited possibilities for rapid growth?

Another model that suggests itself is Temasek, the Singapore government's investing arm that is active in China (where, if reports are to be believed, it has not done very well) and India, as well as the developed markets.

Singapore has massive dollar holdings and limited prospects for investment within its own small territory, so Temasek is constantly on the lookout for good investment opportunities, and hires sharp brains to evaluate possibilities and negotiate. Is it time that India did the same thing?

The short point is that, if we are faced with the medium-term prospect of lots of investible dollars being available, there are more options and outlets for the money than the RBI has thought of so far.