Emerging Markets : A Dose Of Liberalization And Economic Enthusiasm Sweeps India


The Indian government is moving to liberalize rules that govern foreign investment in India. The government intends to ease regulations that compel a foreign company with a joint venture in India to seek the federal governments permission to set up a similar business in the country. This regulation has been a stumbling block to foreign investment, and the move represents a significant change in the governments approach. The Indian government has recently hiked its FDI target from $10 billion to $15 billion for 2005, which is considered to be ambitious considering that even the earlier target was not met.

The government might find its optimism is justified, though, given the rapid growth of the economy. Industrial output expanded by 10% in India for the month of October 2004 compared with October 2003. This has been the strongest monthly growth rate this fiscal year. In the same period the preceding year, the growth was just 6.2%. The fastest growth recorded previously was in August 2004, when industrial production expanded by 8.4%. That confidence is rubbing off on companies. Indian Oil Corporation (IOC), Indias largest oil refining and marketing company, will invest $1 billion into Irans South Pars gas field.

The idea is to liquefy the gas and transfer it aboard gas tankers to the east coast of the country, bringing in 9 million tons of gas annually. This is IOCs first major upstream venture overseas. Last year IOC had entered into a joint venture in Sri Lanka to set up a network of gas stations, but its intention was always to get into upstream businesses globally. The National Thermal Power Corporation (NTPC), Indias largest power generator, also announced plans to invest $10.5 billion (500 billion rupees) in additional power-generating capacity in India over the next five or six years. In the next two years alone, the company will commence projects of 6,000 to 7,000 megawatts (MW). For the moment the company has 7,900 MW of projects at various stages of completion in India. In the next few months a single project of 1,980 MW is to be commenced, as well as a 2,600MW gas-based project.

Aaron Chaze