Mumbai: Ajay Piramal is sitting on a mountain of cash. Yet the billionaire Indian tycoon, working in one of the world's fastest growing economies, is struggling to figure out what to do with the money.
The problem isn't opportunity, he says. It's India. "Every large investment, there was no transparency," he said.
His dilemma is a worrying sign for India. With the country mired in corruption, red tape and unclear government policies, many of the men who made their billions here are saying maybe it's time to quit India. It's got to be easier to do business elsewhere.
In May last year, Pir-amal's healthcare business sold its generic drug operations to US pharmaceutical giant Abbott Laboratories for $3.8 billion (Dh13.95 billion). Piramal was eager to set that cash pile to work. He wanted to expand one of his chemical plants, but was told it would take five years. "The same plant could be set up in China in two years," he said. "I love India, but my customer is not going to wait."
Frustration peaks
The frustration of India's business elite with corruption, political paralysis, log-jammed approvals, regulatory flip-flops, lack of access to natural resources and land acquisition battles has reached a pitch perhaps not heard since India began liberalising its economy.
"If you are an honest businessman in India, it's very difficult to start up anything," said Jamshyd Godrej, chairman of manufacturing giant Godrej & Boyce. "Companies are going to operate where they see the best opportunities and efficiency for their capital."
Increasingly, that's outside India.
In 2008, foreigners poured roughly twice as much direct investment into India — $33 billion — as Indians plowed into businesses overseas. By 2010, that had reversed: Indians invested $40 billion abroad — twice as much as foreigners invested in India — a trend that's continued this year.
There is another, unspoken element to all the complaints. To the extent that business in India ran on corruption, some of the old, dirty ways of doing things are being disrupted.
Scandals in the staging of the Commonwealth Games, the pilfering of homes meant for war widows and the irregular auction of cellphone spectrum that cost the country billions has sent parliamentarians and even a Cabinet minister to prison.
Steelmakers can't get enough iron ore because a massive mining scandal in Karnataka prompted a court to order the closure of illicit mines that account for a fifth of iron ore production in the country. The bureaucrats — even the honest ones — are reportedly so scared of being punished they are refusing to make the decisions needed to make the country run.
Piramal's office sits in a one million square foot office park in Mumbai his family built.
Piramal had the will and the means to build power plants and roads. Instead, his Piramal Group's largest investment to date has been in one of the office park's tenants: the Indian subsidiary of the British telecom giant, Vodafone Plc.
Last September, when he got the first payout, of $2.2 billion, from Abbott, the phone started ringing.
"Because people knew we had money, we had so many people approaching us for projects in the infrastructure sector," he said. "These people had no experience, no knowledge and no track record of having built a business in any area. And yet they were coming to us, saying we have licences and approvals. That just didn't sound right or smell right."
"They'd name politicians from the centre and the state who had it all tied up for them," he said. "It didn't sound right. Obviously there were things going on in the system."
Piramal also looked at investing in engineering and infrastructure services companies, but couldn't make sense of their books. "We couldn't find anything," he said. "People get greedy. In their desire to get good valuations they resort to, if I can say, creative accounting."
Wealth destroyers
Today, India's infrastructure companies are known as great wealth destroyers.
"Infrastructure investment has become untouchable, a sure way of losing money," said Jagannadham Thunuguntla, head of research at SMC Global Securities. He calculates that four of India's top infrastructure companies — GMR Infrastructure, GVK Power and Infrastructure, Lanco Infratech and Punj Lloyd — have lost over 80 per cent of their value since 2007. A fifth, Larson & Toubro is down 50 per cent.
Piramal plans to sell the 5.5 per cent stake he picked up in Vodafone Essar for $640 million in a few years, when Vodafone Essar issues shares in an initial public offering, he said.
Meanwhile, his thoughts have turned to Boston, where he set up IndUS Growth Partners with a professor from Harvard Business School to look for buying opportunities in the US, in security, financial services and biotechnology. And he says he's still planning to spend over a billion dollars on biotechnology acquisitions in North America and Europe.
"India was going more towards capitalism than socialism," Piramal said. "I think we're going back."
Capital outflow
India, still a beacon of relatively fast growth despite a troubled world economy, should be a magnet for capital. Instead, since the beginning of 2010, the amount that Indians have invested in businesses overseas has exceeded the amount foreigners are investing in India, according to central bank figures.
India's big coporations may be cash-rich but the failure to invest that money domestically is bad news for a developing country that needs capital to build the roads, power plants and food warehouses that could help lift hundreds of millions out of dire poverty.
