India: The Red Factor

2005

Jayanthi Iyengar

Foreigners wanting to do business in India have always been unsettled by the Communist factor. This has been more so with the Manmohan Singh-led Congress government in power at the Center, as it does not have a simple majority in Parliament and needs the support of the Communists for its survival.

The Left parties in India have been fairly aggressive and have made statements from time to time, which go against the grain of liberalization. However, if one looks at the manner in which they rule the states where they are in power, it becomes clear that the public posturing is nothing more than rhetoric - the Communists in India are as committed to liberalization as are their counterparts in China, or their Right-wing coalition partners at the Center in India.

Though one would assume that the Communist-led states are poor or backward, this is far from reality. West Bengal has been one of India's fastest growing states during the last decade, with a 5.2 per cent growth in per capita net State Domestic Product (SDP). Between 1998-2001, the government-led Central Statistical Organization (CSO) ranked it the fifth most attractive investment destination. Such fast growth has been made possible by its focus on IT (Information Technology). The state has been quick to recognize IT as the means of quickly creating jobs and improving the lives of its people.

In keeping with this focus, it was one of the first to set up an IT task Force (March 1999) and announce its IT Policy in January 2000. It also set up an independent IT Department in August 2000, announced a special incentive scheme for IT investors in November 2001, and formalized its ITeS (IT enabled Services) Policy in 2002. Its long-term goal is to become one of India's top three IT states by 2010, contributing 15-20 per cent of the country's total IT revenues.

Such systematic attention to detail and long-term vision has resulted in the state registering a steady growth in the IT sector. Between 1996-03, the Compound Annual Growth Rate (CAGR) was 90 per cent. In 2003, its STPI (Software Technology Parks of India) export revenues stood at Rs1.2 billion (US$268 million). Most of the major IT and ITeS players are already in the state, including Tata Consultancy Services, Cognizant Technology Solutions, ITC Infotech, Computer Associates, SchlumbergerSema, Siemens, The Chatterjee Group, IBM, Wipro, Spectramind, Samsung and United Airlines.

West Bengal ministers have repeatedly stated that they acknowledge the explosive growth in jobs and revenues promised by IT and IT-enabled services. Hence, they would make every effort to support the growth of the sector in the state by creating an enabling environment - though the same party has been aggressively anti-liberalization at the Center. Such double-speak explains why the West Bengal Chief Minister, Buddhadeb Bhattacharjee, was issuing vehicle permits to workers in the state working in IT parks on a day when the Left party leaders had called an all India strike protesting against opening up.

Such examples clearly indicate that foreigners wanting to invest in India should not be intimidated by the public posturing. Instead, it is necessary to understand that the double-speak is part of the Left parties' strategy of rendering capitalism palatable to its electoral base.

WATCHPOINT: Foreign investors should look beyond the obvious while evaluating the anti-liberalization stance of the Left parties in India. With a six per cent voter base, political posturing is part of the strategy adopted by the Indian communists to keep their electorate happy, even while they are as committed to liberalization as is socialist China.

 

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