It’s a miscalculation of gigantic proportions. Tata’s was no bluff. Because he knows something that Banerjee has not understood: it’s not only because other Indian states want the investment and prestige of having the Nano to roll off their roads; it’s because other countries want to make world history and would give anything to have India’s star innovation manufactured on their soil.

Banerjee’s actions will only precipitate a worrying trend — a second brain drain from India. Only this time it’s not brilliant individuals leaving the country in droves for greener pastures, but brilliant corporations.

Thirty years ago, bright young Indians —engineers, doctors, academics — fled India because they were too qualified for the domestic environment. Thirty years later, the same pattern is being repeated, this time with companies. Having reinvented themselves after decades of protection, they’re hitting a wall at home. They’ve become world class, sometimes even best-in-class with innovative products, global accounting systems and internationally feted managers. But like their individual counterparts, they’re now over-qualified, restricted and just plain unappreciated.

In the last 18 months, Indian companies have spent $35.6 billion in 411 overseas acquisitions, pushing them near the top of the global M&A charts. Tata acquired western giants like Corus and Jaguar-Land Rover, Hindalco acquired Novellis, Mahindra bought 51 per cent in China’s Jiangsu Yueda Yancheng. Anil Ambani is about to finance Hollywood icon Steven Spielberg. An August 19 report by KPMG says in the last six months, the most active companies from emerging markets making acquisitions in developed economies, are Indian — way over Russia and South Korea. India, stated the study, is a ‘net deal exporter.’

Why worry? Isn’t this is India’s golden global moment, to be celebrated? Yes. But view it from the underside: the second great exodus.

To keep India growing and industry productive, several reforms are needed. Infrastructure for better distribution, access to natural resources to fire manufacturing, land reform for an agri and industrial revolution and massive education and vocational institutes to train talent. These are not forthcoming. So private Indian capital, which had been investing at home these past five years, is now moving to foreign environments that will let them prosper. They’re getting better credit, impartial and institutionalised regulation, superior infrastructure, greater opportunity, innovation incentives. “One of the major drivers of going international is to get out of the clutches of a single economy running your business,” said Ratan Tata in 2005. He could not have been more prescient.

Indian companies create benefits wherever they go abroad. According to Amit Mitra, director general of FICCI, in the last two years Indian companies have created an estimated 70,000 new jobs in the course of their global acquisitions, half of those in the US alone. A Ficci-US India Business Council study gives examples. Essar Steel, which acquired Minnesota Steel and call centre Aegis, will add 1,300 new employees in its US operations by 2009, up from 7,200 currently. In Europe, drug-maker Wockhardt will create 1,600 jobs for its new generics manufacturing operations there. Six of every 10 products that Ranbaxy sells in the US are now made right in New Jersey — competitively. And one of every three parts of a Mahindra tractor are made in the US. Investment in Arica is incalculably beneficial.

All this is jobs, expertise and sophistication they could be creating at home. They are, of course, creating jobs at home. But consider: China doesn’t have to go abroad to get technology, international management, scale, global market access and category leadership, because its government allows foreign investment into the country, which in turn propels China forward. China has its problems, but it still creates more employment through open investment policies than India does. Home grown Chinese companies benefit from the spillover of these attributes.

Indian companies, on the other hand, work with their hands tied behind their backs at home, imprisoned by both regulation and politics. So it’s easier to go seek their fortune on more even global ground. Those compulsions have grown more urgent recently. “The level of frustration of Indian business and entrepreneurs has peaked in the last year, fuelled by the fact that they are hooked on growth and frustrated by India’s problems,” says Rajiv Chandrashekhar, a telecom entrepreneur and member of Parliament. A month after the Communist party left the ruling coalition and despite the entreaties of industry, Prime Minister Manmohan Singh is still hesitant about enacting critical reform to counter the slowdown in investment.

Some Indians think going abroad is a natural progression of corporate ambitions and serendipitous economics. A decade ago, they say, Indian companies didn’t have the capital to expand. Now they do, and the weak rupee has helped. Plus they have the credibility to attract both local management and customers with quality products. And they are growing ferociously ambitious and confident. “Indian companies are no longer in a competitive set which is purely domestic,” says Alan Rosling, director of Tata Sons. “Tata Motors can’t win against Toyota unless it goes global and has a meaningful market share.”

All true. But corporate India is no longer willing to pay for opportunity costs.

Tata Steel went overseas because access to the richest iron ore at home is so embroiled in unresolved tribal and land rights and Naxalism that it will take years before the company ramps up its operations and becomes global by growing from a home base. Ditto with Financial Technologies, which is building exchanges in Dubai and Singapore because the commodities laws here won’t accommodate exchanges that will help equalize our society. Anil Ambani is financing Spielberg because Bollywood, sexy as it is, is like filmi kindergarten compared with the professionalism and organisation of Hollywood.

None of this overseas expansion is permanent, says Rajiv Chandrashekhar. As soon as the sweet nectar from determined reform and deregulation begins to flow again, he predicts, the “centre of gravity will swing right back to India.”

Peut-etre. Maybe. But in the meanwhile, it’s possible that India’s luminous icon, the Nano, will be Made-Outside-India.

The writer is bureau chief, Businessweek. Views expressed are personal