T N Ninan: Flight of capital?

WEEKEND RUMINATIONS

Everyone feels chuffed about the way Indian businessmen are taking over global companies, especially marque brands like Jaguar and Land Rover. Many reasons are given for such acquisitions: Indian companies want to reach global scale; they have gained confidence in their own ability to operate in other markets; they want to be closer to customers in other countries; they want to marry marketing and front-end operations in developed markets with lower-cost manufacturing and back-office activities in India; they want to exploit the sourcing advantages to be gleaned from investing in China; they want to access hard-to-get technology or a brand that gives them international market penetration; and finally, the role of hubris "" which is a variation of what the economist Keynes referred to as the "animal spirits" of businessmen.

Conceding all these positive reasons, is there also a dark side to the global investments being made by Indian businessmen? After all, India has been and remains the second fastest growing economy in the world, and the prospects for massive wealth creation are self-evident. Dhirubhai Ambani used to say even when India was growing less rapidly that there were so many opportunities in India, he saw no reason to go anywhere else, merely in the name of "going global". So why would someone take his money and invest in markets that are growing by 2-3 per cent a year? It could be for all the reasons cited above, and it could also be that companies are going cheap "" Tata will pay for Land Rover and Jaguar less than half the price at which Ford had picked them up years ago. But is that the whole story?

The first Indian businessman to make a serious go of operating a multi-country, multi-product strategy was Aditya Birla, who at a young age decided that the Indian business environment was too stifling and that he needed the air of freedom available in countries like Thailand. In other words, he was a high-end economic refugee. Today we have Lakshmi Mittal, who too decided early on that he couldn't make much headway in the Indian environment, and therefore based himself overseas in order to go global "" with spectacular success, since he has emerged as the world's largest steel producer. There are also the businessmen who have technically become non-resident Indians, even while they run large businesses in India, because it gives them greater freedom to operate (and perhaps some tax advantages as well) "" Vijay Mallya, the Ruias, at least one of the Birlas, among others.

India's domestic operating environment today is a far cry from the world that Aditya Birla and Lakshmi Mittal escaped. Many of the licensing and import restrictions have gone, as have most of the foreign exchange controls. Yet, one of our telecom czars told me when the telecom rules were being monkeyed around with for the nth time, that he had told his people to focus henceforth on investing overseas, because India had become impossible. Last week, I met a businessman who has got so fed up with the escalating scale of pay-offs demanded by politicians that he has told his group to invest in other countries, as far as possible. Mr Tata himself has spoken out in the past about his problem with the way rules are operated in India, and for all one knows that could be one of the factors prompting him to develop a business that is now more overseas than domestic. In short, even as India attracts more foreign direct investment than ever before because the Indian market is so attractive, are our best businessmen who prefer an ethical basis to their business conduct deciding that India is not the basket in which they want to place more of their eggs?