Are Declarations of Indian Industrial Might Premature?

Since the reforms of the economy in the 1990’s the India has grown immensely with domestic firms gobbling up foreign competition in the United Kingdom and elsewhere. Because of the accelerated rate of globalization of Indian firms the percentage of ¬†Indian companies engaged in cross-border trade has risen, accounting for $129 billion in trade in the past ten years.

The roaring pace at which Indian economic growth occurred during the 2000’s has slowed and many economists now question their earlier declarations of Delhi’s imminent dominance in international business. Ever since the global retraction, India’s deficiencies as a global player have come into focus as foreign firms acquired during the boom are now burdens upon their corporate parents.

With the rare exception of Tata’s acquisition of Jaguar and Land Rover, both of which have shown recent market success with revamped and re-styled models like the new Jaguar XJ and Range Rover Evoque, many of India’s cross-border deals are diluting parent company value and placing pressure on India’s arcane corporate governance structure that many economists believe is too shareholder-centric and equity-phobic to support the kind of leverage needed to be dominant in global business.

Further, emphasis on India as a global player is somewhat premature given its 1.9% share of all cross-border deals in the global economy while China’s has remained at 6.2% since 2007. As mentioned above, one of the few bright spots in the Indian buying spree of the 2000’s was the Jaguar Land Rover acquisition. Among the most dismal of these international combinations was Tata Steel’s $13.3 billion acquisition of Anglo-Dutch steel giant Corus which has suffered as margins on steel globally are hindered by cost pressures from primary suppliers.

While economists argue that return on capital invested is the marker of success for a foreign acquisition, political scientists point out that cross-border deals are, domestically and internationally, regarded as markers of influence and prestige. In order to achieve these levels of dominance, The Economist argues that India first needs to restructure its corporate governance at home while also making more strategic cross-border acquisitions.


[The Economist]