General Electric Co is scaling down its home-appliance business in India but aggressively expanding in call centers for global customers and offshore-engineering and financial services. And while Microsoft Corp. is about to launch its Windows 2000 operating system in India, it is making strategic investments by recruiting more software engineers for its local development lab and joining other U.S. shareholders in a venture-capital fund to nurture Indian entrepreneurs.

Internet Ventures
Nothing has showcased Indians' talent and newfound ambition more than software and Internet ventures, including two triumphant Nasdaq Stock Market listings last year. Information technology is bringing India from the margins of global trade into the spotlight of the wired economy, even though this poor country isn't yet wired. High-tech has restored the buzz to Bombay, India's financial capital, as foreign investors fuel a historic stock rally and venture capitalists incubate India's next wave of millionaires.

The international success of India's technology companies and the relative torrent of money in its new economy are prodding the whole economy to open up faster. Politicians are growing more comfortable with competition, entrepreneurs more demanding that New Delhi get out of their way. This week, the powerful software industry asked the government to raise the 30 per cent ceiling on foreign investment in local stocks and ease capital controls on Indian companies that want to acquire firms overseas.

Software services still account for just 1.3 per cent of India's gross domestic product, but the industry is emerging as a profound agent of corporate and economic change. "India is defying the traditional development model," says Vikram Goyal, a regional economist for Morgan Stanley Dean Witter & Co. in Hong Kong. "Instead of bricks and mortar, it has jumped to clicks and mortar."

Rising Export Revenue
McKinsey & Co. estimates that export revenue from India's information-technology sector, encompassing software to services such as back-office operations and call centers, can rise from less than $4 billion this year to $50 billion in 2008, when India's domestic sales could generate $37 billion more. The National Association of Software and Service Companies, India's main software lobby, predicts that by the same year, venture-capital investment in high-tech companies could soar to $10 billion, equaling the government's target for annual foreign direct investment.

Even so, India's economy needs the bricks-and-mortar investment as well, in power, telecommunications and transportation. Government infrastructure spending has declined, while red tape, policy changes and legal hassles continue to deter foreign capital. The combined federal and state-government deficit approaches 9 per cent of GDP, requiring massive borrowing that keeps interest rates high. Despite this, GDP grew 6.8 per cent for the year ended March, 1999. Treasury Secretary Lawrence Summers believes 10 per cent annual growth is attainable if India speeds up reform.

Enter Prime Minister Atal Bihari Vajpayee. His nationalist Bharatiya Janata Party returned to power in October, leading India's first stable coalition government in years. The 75-year-old prime minister doesn't understand economic issues, but bent on modernizing India, he has injected dynamism into the reform process and proved at last that there is consensus on India's economic agenda.

Turning Points
The first of two turning points came in December. Discarding the protectionist rhetoric it had honed as an opposition party, the BJP pushed through a long-pending reform to open the insurance industry to private and foreign investors. The opposition Congress Party, which initiated the reforms in 1991, had no choice but to go along. Foreign insurers won't begin selling policies for a year, but overseas fund managers responded swiftly to the new momentum by pumping $556 million into Indian stock markets in December, the largest monthly influx ever. Parliament also cleared a backlog of legislation overhauling foreign-exchange controls and allowing trading of derivatives to deepen financial markets. The cabinet has since liberalized foreign-ownership limits for most domestic industries, cut bureaucracy for Indian companies seeking to raise capital abroad, and in a significant symbolic step, privatized the first state-owned company, a bakery.

Meanwhile, Vajpayee took greater charge of economic policy-making. He assembled officials and businesspeople to untangle regulatory issues retarding the telecommunications industry, a vital cog in the government's darling sector-information technology. New Delhi announced the policy ahead of schedule, a rarity for any government, and adopted most of industry's recommendations. Vajpayee "wants to make a difference. His cabinet ministers are taking the cue," says Amit Sharma, chairman of Motorola Inc.'s Motorola India Ltd

-- The Wall Street Journal