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Get to know this unique market well before committing your money, writes Tim Treadgold
Modern India has a reputation for being a tough place for foreign investors. But in the past few years conditions have eased. Foreign direct investment is more welcome now. Sectors of the economy previously closed to outsiders are opening up. And successive governments have talked about privatising some of the country's state-owned industries. Investors would, nevertheless, do well to prepare themselves for the old India of crumbling infrastructure, power shortages, corruption and inefficient bureaucracy.
India is burdened by its history. It is hampered by its diverse people and their many languages and religions. And it is slowed by gross over-population, which will break the one billion mark in about I8 months time. Staunch nationalist politics, which grew from the independence movement of 50 years ago, create further investor headaches. Company executives in the know shudder at the word Swadeshi, the name of the policy to buy Indian only. Add in the country's decision to start an arms race with Pakistan and you can see what a careful investors should tread.
Anyone thinking about investing in India must consider the politics and people of the place and understand that it is radically different to any other country. When this hurdle of comprehension is cleared and the local rules explained (if not fully understood) then new foreign investors will find themselves among some of the biggest names in world business.
The computer software industry is a natural for India with its large, highly-skilled workforce of programmers and engineers. The US firms Motorola (see below), Texas Instruments, Hewlett-Packard, Oracle and IBM have led the charge into India's version of silicon valley around the historic southern city of Bangalore. Software sits well alongside the nationalist Swadeshi catch cry of silicon chips for India, not potato chips. Private power generation should also be a natural choice for investors because India is desperately short of the stuff with power cuts a daily occurrence.
But even though the government says it wants 142,000 megawatts (MW) of new electricity capacity by 20 and 87,000MW can come from the private sector, there has been limited progress. Small projects are most welcome and companies such as Britain's Powergen and...