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Wooing the India of tomorrow

With China in the race for mega deals too, Obama will have to put in more than just a three-day junket, writes Gautam Chikermane.

delhi Updated: Nov 05, 2010 13:43 IST
Gautam Chikermane

Behind US President Barack Obama’s visit to India lies a multi-layered reality of an emerging new world. It is not just that India is suddenly a hot investment and growth destination that US companies, their employees and investors need to profit from. That has been driving the economic agenda for the world’s largest economy ever since India opened up two decades ago.

In the new, post-crisis reality, India is more than just a strategic geopolitical territory. It is also a critical geo-economic market — where the world’s second-largest economy, China, is fighting Obama for the cream of India’s mega deals. This is a reality where India is set to be the world’s fastest-growing large economy (it is already the second-fastest after China). And when a trillion-dollar economy grows, each percentage point adds billions of dollars in economic activity. So India’s projected 8.5 per cent growth this year would mean more than $100 billion or Rs 4.5 lakh crore worth of business. If this growth continues for the next 10 years, as analysts expect it to (the number could hit 9 per cent or even the double digits), we are looking at a total growth of $1.5 trillion, about the size of India’s estimated GDP in 2013. To bite into this growth, Obama will have to put in more than just a three-day junket to India, and will have to look beyond the predictable increased foreign direct investment in insurance and retail.

Where the US is vulnerable is in its competitiveness on mega deals that have complex demands behind them. When business baron Anil Ambani wanted to procure equipment for his power plants, for instance, the US giant GE got a $2 billion order — GE’s largest order from Asia — for equipment. But last Friday, the bigger, $10 billion deal touted as the world’s largest order — went to China’s Shanghai Electric Group Co Ltd. It is not clear whether this Rs 45,000 crore deal, which the Wall Street Journal headlined as ‘India Deal Puts China In GE’s League’, was based solely on the Chinese equipment being cheaper.

Again, neither is China the US’s sole competitor nor is price the sole deal-sealer. A lot goes into a mega deal — delivery schedule, volumes, after-sales service. So while SpiceJet may have ordered 30 Boeing 737-800 aircraft from the US company for $2.7 billion (Rs 12,000 crore) in July, on Tuesday it announced plans to buy 30 Nextgen Turboprop aircraft from Canada’s Bombardier Inc for $900 million (Rs 4,000 crore). Thumbs down?

In a world where deals have no national boundaries, the best Obama can push for is strategic interest. So it would be easier for him to sign deals around defence equipment or nuclear plants, where the government is the sole buyer. Jaywalking in the quicksands of free trade, competitiveness and setting the global agenda for G20, Obama will also need to stop whining about US companies outsourcing to India.

That politics may have worked in another age, in the India of yesterday. It won’t work in the India of tomorrow.