INTERNATIONALISATION OF INDIAN BUSINESS

Summary

Delivered in April 1983 as the A. D. Shroff Memorial Trust’s annual public lecture and published by the Trust the following June, R. C. Shah’s address argues that India — long an ‘open society’ but a ‘relatively closed economy’ — has now reached a level of self-sufficiency from which it can credibly internationalise its business. Shah, then Chairman and Managing Director of the EXIM Bank, frames internationalisation around three concrete vehicles: joint ventures abroad promoted by Indian business houses, project (turnkey) exports, and the overseas branch networks of Indian banks. He treats internationalisation as the natural next stage of the import-substitution path: three decades of inward industrialisation have built diversified industrial capacity and a distinctly Indian ‘intermediate technology’ that, he argues, is appropriate for partners in other developing economies.

The data sections of the lecture survey approvals, regional spread and earnings from Indian joint ventures up to 1980–81. Shah documents 399 approvals (117 in operation, 195 abandoned), a 49 per cent attrition rate, and a cumulative net foreign-exchange inflow of about Rs. 754 million. He diagnoses the rising ‘sickness’ of overseas ventures with four causes — inappropriate choice of local partner, inadequate product adaptation, lack of brand name, and chronic under-capitalisation — and replies with six policy and practice recommendations: tighter commercial-viability screening before approval, allowance for cash equity, fiscal incentives for repatriated earnings, flexibility on royalty and dividend rules, consortium rehabilitation of sick ventures, and better personnel allocation by Indian parent firms. A parallel section on project exports values cumulative capital-goods and turnkey contracts at roughly Rs. 16 billion between 1973 and 1981, with construction contracts of Rs. 35 billion concentrated in Middle East oil economies.

The rendered pages close as Shah opens the third pillar — Indian banks abroad — noting that twelve Indian banks ran 137 offices across 25 countries by mid-1982, and identifying State Bank of India, Bank of Baroda and Bank of India as the genuinely transnational players. He distinguishes the ethnic-retail growth of the late 1950s from the directed expansion of the 1970s, and signals that the lecture will move from production-side internationalisation to services. The argument throughout is pragmatic rather than ideological: the case for internationalisation is built on returns, technology fit and discipline, with repeated insistence that protected markets and weak financial preparation are the real obstacles to Indian business succeeding overseas.

Key points

• Distinguishes ‘open society’ (which India is) from ‘open economy’ (which India has not been) and treats internationalisation of business as the bridge between them.

• Frames the three-decade import-substitution regime as a dynamic ladder that has now produced ‘intermediate technology’ appropriate for other developing economies — the basis for Indian outward expansion.

• Identifies three forms of internationalisation: joint ventures abroad, project (turnkey) exports, and the overseas branch networks of Indian banks.

• Reports that of 399 joint-venture approvals up to August 1980, only 117 were in operation and 195 were abandoned, with a 49 per cent attrition rate — yet net foreign-exchange inflow was roughly Rs. 754 million.

• Diagnoses sickness in Indian joint ventures via four causes: inappropriate local partners, weak product adaptation, absence of brand name, and thin capitalisation that forces premature debt.

• Proposes six policy reforms — commercial-viability screening, cash-equity allowance, fiscal incentives for repatriations, flexible royalty/dividend ploughback, consortium rehabilitation, and better personnel deployment.

• Notes that cumulative capital-goods and project exports between 1973 and 1981 reached about Rs. 16 billion, projecting Rs. 160 billion by 1990 if ‘conscious and disciplined steps’ are taken.

• Observes that twelve Indian banks operated 137 offices across 25 countries by June 1982, with State Bank of India, Bank of Baroda and Bank of India qualifying as transnational — but with weak congruence between bank networks and trade flows in the developing world.