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View from Asia

India won't benefit fully from the amazing productivity of its companies unless it builds a better infrastructure for business.
Tom Leander, CFO Magazine
April 1, 2006

General Electric Corp. has done well in India: in 2004 it sold a majority stake in its pioneering business-process-outsourcing subsidiary for almost half a billion dollars. Yet GE's CFO, Keith Sherin, told CFO Asia late last year that he finds India frustrating. "You get excited and nothing happens," he says. Three years ago, GE did about the same volume of business in both India and China. Today, China is a $3 billion market for GE, triple that of India. So it's no surprise when Sherin sums up GE's Asian strategy by saying that "China is number one, two, and three for us."

His primary complaint is the lack of government support for infrastructure improvements. Turn off any highway in India and you'll know what Sherin is talking about. The ride from Bombay to Pune becomes at times a kidney-jarring ordeal as vehicles bounce along sections of unpaved road that stretch for hundreds of yards, a particular irony given that the road brings you to the chosen seat of the country's biggest automotive players.

It may be unseemly to criticize a government that has to take care of so many poor citizens for not building better roads to facilitate commerce, but India's CFOs point out that infrastructure is a social-welfare issue. Sumant Sinha, CFO of leading conglomerate Aditya Birla Group, says that he spends more on capital expenditure every year than peer companies in other nations might. How many of them, after all, must build their own power stations? This is money that could have been spent on expansion and more job creation.

Saddest of all is that India's companies seem to have more potential than China's. They surpass Chinese enterprises in productivity, although most of that productivity is being exported, via the service sector, to distant markets. According to a UBS report, between 1998 and 2003 the average return on capital employed for an Indian firm was 17 percent. China's was 11 percent. India outpaces China in microeconomic competitiveness — such as company operations and strategy — although it lags in its ability to attract foreign investment. The government has budgeted for major investments in infrastructure development, but in this, an election year, the "infrastructure deficit" may again be a low priority.

Last month, during a state visit to India, President Bush lauded the country's business achievements and economic growth. But it's wishful thinking to conclude that India's remarkable productivity will translate into a thriving internal market any time soon. In the eyes of most U.S. finance chiefs, China remains number one, two, and three.

Tom Leander is editor-in-chief of CFO Asia.




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