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The boom in India now heard overseas

Foreigners sell to the new middle class and help build infrastructure, while domestic giants take a global view.

January 14, 2008|Cherian Thomas | Bloomberg News

Gordon Brown's plane will have barely departed New Delhi's Indira Gandhi International Airport this month before Nicolas Sarkozy arrives with another contingent of executives seeking opportunities in India's rapidly opening markets.

The British prime minister and the French president, separately visiting next week, are bringing along commercial delegations, including retailers Tesco and Carrefour, attracted by a burgeoning middle class and loosening curbs on foreign ownership in the nation of 1.1 billion people.

Foreign investment in India may double in 2008 for the second straight year to reach $30 billion, the government forecasts, as the world's second-fastest-growing major economy arrives at what Lehman Bros. calls its takeoff point. That's when consumer demand and business spending start feeding off each other and drive even more investment.

"India's growth acceleration is not a flash in the pan," said Robert Subbaraman, chief economist at Lehman Asia in Hong Kong. "A middle class is fast emerging, which is spurring demand as consumption and investment interact."

Like China and South Korea previously, India is benefiting from an increasingly open economy that has already stimulated enough growth to double per-capita income since 2000, according to Lehman.

The resulting surge in demand for consumer goods has tripled mobile-phone use in two years and fueled a 29% jump in sales of microwave ovens last year.

With the explosion of purchasing power, India's economy is poised to expand at a 9% pace for the third straight year, while the U.S., Europe and Japan slow to less than 3%.

McKinsey & Co., the consulting firm, estimates that India's middle class -- comprising those with annual disposable incomes of $4,380 to $21,890 in current dollars -- will increase more than tenfold to 583 million by 2025.

India's appeal is more than a matter of demographics. Prime Minister Manmohan Singh, who as finance minister in 1991 started dismantling barriers to foreign investment and other controls on industry, is preparing to permit overseas companies to build retail chains in the country.

That's prompting interest from companies including Tesco, Britain's largest retailer, and Paris-based Carrefour, which operates supermarkets on four continents.

Singh's government is also moving to raise the limit on foreign equity stakes in local insurers to 49% from 26% and has a road map to let foreign banks increase their holdings in India's private banks.

Brown's party will include representatives of Prudential, Britain's second-biggest insurer, and Barclays, the No. 3 bank, both based in London.

"India has long been noted for its superb 'micro' -- good companies, rule of law, democracy," said Stephen Roach, chairman of Morgan Stanley in Asia. "What has been missing is the 'macro' -- foreign direct investments, infrastructure. What's encouraging to me about India now is that the macro is starting to improve and is reinforcing the already positive micro."

Foreign ownership in telecommunications has helped India become the world's third-largest user of telecom services after China and the U.S. It's the world's fastest-growing wireless market.

"India is a country of enormous opportunity. It's the heart of globalization, in a way," said Ben Verwaayen, chief executive of London-based BT Group, Britain's largest phone company. "You see a growing base for companies from around the globe, being here not just for this region itself, but being here as a kind of base for what they can do in other parts of the world as well."

San Jose-based Cisco Systems Inc., the world's largest maker of computer-networking equipment, plans to triple its Indian workforce to 10,000 by 2010, CEO John Chambers said in October.

Automakers including General Motors Corp. and Suzuki Motor Corp. are spending more than $6.6 billion to build factories in the country. PricewaterhouseCoopers said India's vehicle output will grow about 17% annually until 2011, the fastest among the 20 largest car-making nations.

India's higher profile in the global economy makes it a magnet for foreign investment and gives its companies a bigger role on the world stage.

Indian companies led by Tata Steel and Hindalco Industries, both based in Mumbai, completed a record $39.2 billion of overseas acquisitions in 2007.

Tata's $12.9-billion purchase of Britain's Corus Group, the biggest overseas takeover by an Indian company, made it the world's fifth-biggest steelmaker. Buying Novelis Inc. of Atlanta provided Hindalco, India's biggest aluminum producer, access to customers such as GM and Coca-Cola Co.

The trend is continuing. Tata Motors of Mumbai, India's largest truck maker, was recently selected as the preferred bidder for Ford Motor Co.'s Jaguar and Land Rover units, the U.S. automaker announced.

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