Prime Minister Narendra Modi has spent much of the past decade lowering barriers to foreign investment in India. Yet a growing list of firms including BlackRock, BMW and Shein are expanding in the country in partnership with local tycoons. It tightens the grip powerful families have on the world’s fifth-largest economy, and sets them up as future global rivals to those knocking on their door.
On paper, the once-markedly socialist country is open for business. Its craving for capital is strong. Overseas companies in most sectors are free to enter the market on their own, unlike in China, where large swathes of the economy were kept off limits and where some sectors, like autos, were opened up on the condition that foreign companies found local partners.
The problem is, India’s federal political system and sheer cultural and geographical diversity means it remains a tricky place for international companies. Powerful families offer a shortcut to establishing a nationwide footprint, avoiding cut-throat domestic competition, or achieving both of those things.
BlackRock’s decision to re-enter India exemplifies the dilemma. The company run by Larry Fink, which manages over $10 trillion, is in the process of teaming up with Mukesh Ambani’s Jio Financial Services in asset and wealth management. The US company exited an Indian joint venture with DSP in 2018 because it didn’t have a path to control.
Fink is unlikely to have a path to control with Jio but the rapid financialisation of savings in recent years means the market is too attractive for BlackRock to ignore. Partnering with a tycoon is less risky for the US company than trying to beat India’s richest man who wants to push into financial services and is known for obliterating competition.
The desire of foreign companies to defend their market position in India partly explains their rush to subscribe to fundraisings by Reliance’s business units in 2020. These include Facebook-owner Meta Platforms' $5.7 billion purchase of a 10% stake in Reliance’s digital and telecoms business. India remains open for US Big Tech but Indian companies are also flexing their muscles more in digital businesses from telecoms to e-commerce as more Indians get smartphones.
Elsewhere, New Delhi is encouraging partnerships through subsidies in its flagship production-linked incentive scheme to spur manufacturing. This allows the government to dictate which foreign companies team up with which Indian families to be the next leaders in future industries.
Taiwan’s Hon Hai Precision Industry, more widely known as Foxconn, pulled out of a joint venture last year to make chips with Anil Agarwal’s Vedanta, after widespread concerns about the Indian company’s debt and its ability to fund investments. Meanwhile, global companies like French oil giant TotalEnergies are burnishing their green credentials by partnering with Indian tycoon Gautam Adani, who has big ambitions in renewable energy. Smoother access to subsidies is one reason companies including Japan’s Fujifilm are scouting for local partners before they start production in India.
It’s significant that many of the new partnerships are in the realm of technology. Adani’s group will work with German carmaker BMW and Tata Technologies, plan to leverage Indian talent in IT to develop intellectual property that will drive cars of the future.
While India’s approach to inward investment differs from China’s in many ways, the country desires the same thing as its neighbour wanted from foreign multinationals: know-how.
The government yearns for the South Asian nation to become a manufacturing powerhouse. India’s leading business families also want to dominate in their home market and to break out as leaders on the global stage. After picking up a stake in UK telecom operator last month, Bharti Enterprises Chair Sunil Bharti Mittal told journalists India's government is continuously encouraging a handful of companies which have gone global to accelerate the process. — Reuters
Shritama Bose
The author, an India columnist, joined Breakingviews in November 2022. She covers the financial sector and related topics from Mumbai.
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