Among emerging economic powerhouses, India represents an untapped market potential that is ranked second only to China's (Exhibit 1). Not only is it the fifth largest economy in the world, and home to over 870 million people, but it has also set in motion a process of economic liberalization that—despite progressing in fits and starts—is clearly inexorable.

Until recently, the Indian economy was one of the most inward-looking and inefficient in the world. Mired for years in an elaborate "license raj," companies had to seek permission from bureaucrats to open, close, and even expand their units. Exports were paltry, amounting to a few barter deals with the countries of the former Soviet bloc. Tariffs ran as high as 150 percent, effectively keeping imports out. To many Western companies, India just wasn't worth the effort. Not surprisingly, foreign direct investment in the 1980s was a puny $100 million a year, less than 2 percent of the figure for China.

But since the launch of an IMF-prompted austerity program and a policy of radical liberalization introduced in June 1991, India's economy has begun to cast off its isolationist image. This...