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Gunpoint bargaining? - The Economic Times

Debashis Basu ()
May 13, 1998

Title: Gunpoint bargaining?
Author: Debashis Basu
Publication: The Economic Times
Date: May 13, 1998

The BJP government has just gone ballistic. What will be the
economic fallout? Scaremongers talk of economic sanctions,
blacklisting, slowdown in foreign investment, etc. All this is
nonsense. One, India's attractiveness as an investment
destination has not reduced a bit. Two, morality and instant
outrage have little place in international business.

No matter what CNN commentators tell you, and no matter how
arrogant the threats issued by the US government, international
business and economic relations are a matter of guile and
bullying, i.e., a pure game of carrots and sticks. Going by
global experience, global investors are only out to make (or
lose) money. And in that, in the '90s, governments usually have
played the second fiddle.

Recent international economic relations are littered with cases
of business imperatives overwhelmingly dominating political or
moral compunctions. French support of cannibalistic and corrupt
despots in bone-poor former colonies like Ethiopia, Ivory Coast
and Mozambique has been long and shameful. In the '70s US
conglomerate ITT's involvement in overthrowing the popular
government in Chile opened our eyes to how amoral multinationals
can sometimes be.

More recently, the student massacre at Tiananmen Square in China
drew protests from liberals but even before the blood dried,
western governments went rushing in with businessmen in tow to
grab business opportunities. Beneath their pinstripes, global
business leaders are as greedy to grab carrots as our petty
businessmen. And in that India remains a pretty attractive place.

Foreign businessmen are desperate to enter India and make money
out of the 'vast middle-class population' and also the vast
opportunities in infrastructure. In addition they have their own
rivalries propelling them to come here. Like GM vs Ford. Having
lost to General Motors in China, Ford wants to win in India.
Pepsi is losing to Coke in most places. It cannot afford to lose
in India. Jack Welch says India, Mexico and China are the three
biggest opportunities.

Unfortunately, so far, Indian governments have not shown enough
savvy to keep the carrots dangling and raise the stick once in a
while. This sounds crude but is essentially the standard
international negotiating practice repeatedly demonstrated by the
Chinese. But we are far from extracting the best out of
foreigners.

In the power sector by giving sovereign guarantees we have made a
nonsense of an elementary commercial principle: risk is
proportional to return. Having assured high returns to attract
investment (because such investment was seen to be risky), India
then reduced the risk by providing sovereign guarantee! Indian
sportsmen lack killers' instinct. Indian reformers have been no
better; they have never acknowledged the brutal fact that every
area of economic reforms is dominated by hard-nosed bargaining.

A few years ago a US official said in a speech in Chicago that
large emerging markets such as China, Indonesia and India will
the battlefield for a "bloody fight" as companies from
industrialised countries vie for markets and government
contracts. This official declared that the aggressive policy of
the US Commerce Department is being integrated into US foreign
policy. He described how the Clinton administration is mobilising
private and government resources for a US "assault" on the 10 big
emerging markets in which India figures prominently.

The new US strategy, this official explained, is to deploy
President, cabinet members and other senior officials in a
"coordinated hunt" for business. President Clinton himself called
the Brazilian President to push for a Raytheon bid. Hazel O'Leary
has made trips to India and Pakistan with dozens of businessmen
for pushing US companies' bids for power projects. Obviously this
is not moralistic, benign economic diplomacy. Notice the lingo:
war, battleground, assault. Isn't it time Indian bureaucrats
incorporate such a candid and brutal approach to international
economic relations? Behind pinstriped suits and mahogany panels
international business is not a middle-class morality game. Let's
hope the nuclear blast will soon lead to this realisation. It is
time to place our hands on the. holster when we haggle.


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