NEWS
COMMENTARY
INTERVIEW
CHAT
ARCHIVES

The Rediff Business Special

A Roller-Coaster Ride

The Reserve Bank of India spent over a billion dollars in November to arrest the worst devaluation of the rupee in a year and nine months. Foreign exchange reserves hit $ 26 billion but the then RBI governor, C Rangarajan, was calm and firm on television, saying, "The RBI will not hesitate to intervene to prevent any overshooting of the rupee."

Two kinds of businessmen would wish that he did not say and do those things and have no apprehension of diminishing reserves. Devaluation cheapens exports. So exporters who find cost-cutting and quality improvement bothersome always oppose strengthening the rupee. One of them appeared on television after Dr Rangarajan, gleeful about the crashing currency.

Off-screen, finance managers of multinational manufacturers of cosmetics, sports shoes or breakfast foods, televisions, hi-fis or refrigerators, all the way up to luxury cars, should be pleased, too.

Since coming here, many have been numbed by losses in their companies (Whirlpool USA froze investments in Whirlpool India after a 21-month exhaustion of Rs 1.22 billion) totting up conservatively to $ 500 million and exaggeratedly to $1 billion or as much as the Reserve Bank expended over a mid-November week appreciating the rupee.

That figure gives them more than cruel satisfaction of seeing the inexhaustible deceptions of the Great Indian Bazaar that bled them first and now drains the treasury itself. Every paise value-drop against the dollar prolongs the life of a loss-making multinational here.

But several of those who head these companies know better than their finance men to be ecstatic. Any more run on foreign exchange reserves, they realise, could provoke a series of protective measures, including clamping down on imports that could affect business climate worse than now.

Making mistakes

They are partly to blame for as things are. They agreed to making terrible mistakes about the market and the size and character of the middle classes and their purchasing power.

Foreign companies, says B V Raman, Motorola's executive director for the Asia Pacific cellular subscriber division, "came with a figure of a 250 million to 300 million middle class. They don't have the buying power. The rupee has been devalued. Per capita income is shamefully low. Indonesia's is better. A middle-class person who earns Rs 10,000 cannot run his household. Where does he have the money to buy a cellular facility?"

Those who have did not get the best. Mercedes Benz bought its older E-220/E-250D model while a fine car like Fiat Uno lost on looks to Maruti Zen. Seagram introduced not Chivas Regal but 100 Pipers and International Distillers & Vintners Spey Royal and not J&B and sales stagnated.

"Liquor companies thought anyone who bought 'Scotch' would buy their whisky at a premium," says Tara Sinha of Tara Sinha Associates. "That didn't happen. They didn't realise many of those who said they had scotch had the bootlegged variety or said to show off."

Managers like Aditya Vij (vice-president, marketing, General Motors-Opel, the makers of Astra), having experienced several markets, came believing that "when an economy opens up, products come in and the infrastructure opens up." It didn't, but for no fault of theirs. So the rural rich, for example, who would have bought the new cars or refrigerators, don't have roads or power to use them. Vij reckons, now "if the market does not grow at the desired rate, there will be the urge to sell."

Happy days are still far away. An industrial slowdown (5.2 per cent growth in the first quarter against 12 per cent in the same time last year) and exports slack-off beginning eight months ago, despite tax and excise concessions in the Budget, shows little abatement.

"Politics," said the chief of a multinational company in India, "has ruined everything." Adds GM-Opel's Vij, "I personally think things will be sorted out with political stability. Speaking hypothetically, let the Bharatiya Janata Party form a government and see how the stock market pick up."

That was said before last month's political crisis over the Jain Commission report. Industrial confidence will take months to recover from that. As it is, such business federations as the Confederation of Indian Industry and the Federation of Indian Chambers of Commerce & Industry are convinced that the government has to increase spending to kick-start the economy.

"Any kind of spending has to take place," says Gurcharan Das, former chief executive of Proctor & Gamble in India, reasonably. "If we had got basic telecom privatised by now, the private sector would have spent nearly Rs 400 billion to get that going. We move very slowly in India."

Where does all this leave multinational manufacturers of consumer goods? Are they reorienting their strategies? Do they appear better educated about the Indian market? Which of them has done well, and why? Will the majority of them stay or quit?

MNCs dilemma: To stay or to quit?

Kind courtesy: Sunday magazine