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India's Overseas Investors Spur Economic Nationalists

TO Rajesh Gognal, Kentucky Fried Chicken is a reincarnation of the East India Company, the 17th-century trading monopoly that opened the subcontinent to 200 years of British domination and economic exploitation.

''They are sending the money back to the US. They want us to remain poor,'' Mr. Gognal cried as he and other members of the Swadeshi Jagran Manch , a nationalistic Hindu group, protested recently outside New Delhi's first KFC outlet.

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The Swadeshi Jagran Manch has strong ties to the opposition Bharatiya Janata Party (BJP). This week, the BJP-run New Delhi administration ordered KFC shut, alleging health violations. But, political analysts see the move as a political gimmick aimed at whipping up resentment against the foreign investors being drawn to India by Prime Minister P.V. Narasimha Rao's four-year-old economic liberalization program.

The campaign's main victim so far has been the Enron Corporation. The US-based company had begun building a $2.8 billion power plant in Maharashtra when the project was cancelled in August by Hindu nationalists who won state elections five months earlier. The move shook the financial community and provoked dire warnings that American firms would think twice about risking money in India. Those forecasts now seem to have been premature.

The prospects that the Enron project will be revived now are growing, and the lure of a country that will someday surpass China as the world's most populous is strong. American executives - though now more cautious - remain committed to investments in India ranging from telephone systems and computers to car factories, food-processing plants, and even the bottling of water from the River Ganges, which is considered holy.

''Our position is that we intend to continue with our investments. The Enron situation is merely a cautionary note,'' says John Paul Parker, president of the Indian subsidiary of Ford Motor Co. The company has just won Indian government clearance for an $800 million vehicle-manufacturing joint venture.

''Americans have pride of place in investment in India,'' insists US Ambassador to India Frank Wisner. ''We are the preferred investment partner.''

Compared with investment in other developing Asian economies, foreign investment in India is still modest and will likely remain depressed until general elections next year show the direction of future economic policy. Many economists and foreign businessmen are eager for India to enact deeper reforms, including further reductions in government regulations, and would like the government to invest in its overburdened, crumbling infrastructure.

But, they are also confident that, objections by groups like the Swadeshi Jagran Manch notwithstanding, India has gone too far to reverse economic course. With the rupee now falling in value, they say, India will continue to offer great opportunities.

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''You are looking at a market in which the middle class in India is larger than the population of the United States,'' says Daniel Roper of Sparton Electronics in DeLeon Springs, Fla., which makes paging systems. ''The market is big and is just starting to catch on.''

Direct US investment in India is outpacing that from elsewhere, with almost 50 major American companies now doing business. US business accounts for about 40 percent of $3.6 billion in direct foreign investment made since Mr. Rao pried open India's protected, socialist-style economy in 1991. American investments are expected to see slow, but steady growth.

Most American firms have not faced the kinds of problems experienced by Enron and KFC. The problems they encounter are similar to those confronting other foreign firms: bureaucratic ineptitude, inefficiency, and red tape. Indeed, Pepsi, KFC's parent company, has been quietly running a highly successful food-processing plant in Punjab State that has created some 35,000 direct and indirect jobs and brought new agricultural prosperity.

A wooing mission

A number of Indian officials have visited the United States this year to woo American firms. During a tour last month, Laloo Prasad Yadav, the chief minister of Bihar, India's poorest state, signed 23 memorandums of understanding. Petroleum giant Amoco reportedly told Mr. Prasad it is considering spending $1 billion over 30 years on methane-gas projects in Bihar.

In the latest boost to investment hopes, Enron earlier this month was invited to negotiate reactivating its 2,015-megawatt power project by Maharashtra's governing coalition, the Hindu nationalist Bharatiya Janata Party (BJP) and the more rabidly xenophobic Shiv Sena.

Apparently seeking to exploit popular apprehensions over the new influx of foreign capitalists, the BJP and Shiv Sena had campaigned on a promise to close Enron. While offering no proof, they alleged that the Houston-based firm bribed the former state government of Rao's Congress Party to win favorable terms.

But, having successfully used Enron as a whipping boy, the BJP-Shiv Sena coalition then seemed to have realized that it desperately needs the project to cover a dire power shortage that threatens the state's economic growth.

With Enron offering lower capital costs and tariffs, the coalition decided to reconsider the case and says it will decide by Dec. 10.

Clamping down on KFC

KFC is now bearing the brunt of the ''economic nationalism'' campaign of the Swadeshi Jagran Manch and allied groups. The drive is widely seen as a BJP tactic designed to rally antiforeigner sentiments for the party's bid to oust Rao from power in next year's general elections.

In the latest attack on KFC, New Delhi's BJP city administration last week ordered the capital's only outlet closed, the second such action taken against the chain.

In September, its first outlet in India, located in the southern city of Bangalore, was closed for several hours, before a court ordered it reopened.

Despite its problems, KFC says it will not be deterred from eventually opening 60 restaurants, including Pizza Huts, around India.

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