Government inertia – what many politicians see as “playing safe” – is taking its toll on corporate confidence.
Reuters | Dec 16, 2011, 05.28PM IST
NEW DELHI: Frustrated executives while away time in five-star hotels waiting for deals that never come, and civil servants play video games in their offices – growing signs of the reform limbo and crisis of confidence behind India’s economic malaise.
Policy paralysis, corruption scandals and a government fearful of political backlash to any bold moves have combined with the global slowdown and worsening domestic finances in the last few months to derail Asia’s third-largest economy.
India now faces the worst-case scenario that was touted earlier this year – stubbornly high inflation, slowing growth, a mounting fiscal deficit, a rupee that risks freefall — and both policymakers and the Reserve Bank of India (RBI) have few levers to fix it.
For years, Indian entrepreneurs have boasted they can do business despite the government – adeptly working around potholed roads, clogged ports and reams of regulatory hurdles.
But government inertia – what many politicians see as “playing safe” – is taking its toll on corporate confidence.
Entrepreneurs once feted in Bollywood movies as national heroes, whose million-dollar homes and jetset lifestyles were a beacon for millions of India’s aspiring middle classes, no longer seem capable of driving the $1.6 trillion economy.
“We may have seen phases of economic growth slower than this in the two post-reform decades, but never has the entrepreneurial mood been so low,” wrote Shekhar Gupta, editor-in-chief of the Indian Express.
It’s echoed across offices of business leaders from Mumbai to Delhi. One foreign executive described increasingly strained telephone conversations over the past year with his U.S.-based CEO as deals became mired in red tape and ministerial inertia.
“They always understood that India was difficult to do business in. But not this difficult,” said the executive, who asked not to be named as he was not authorised to speak for his company.
The banking sector is now under strain from bad loans.
Economic reforms that may bring in much-needed foreign investment, such as opening up the supermarket sector to the likes of Wal-Mart Stores Inc (WMT.N), have been put on hold as political parties eye important state polls next year.
Even reforms seen as no-brainers politically, such as the introduction of a digitalised national ID card or food subsidies for the poor, have faced delays as opposition parties and coalition partners smell blood ahead of a 2014 general election.
FROM COCKY TO FEARFUL
India used to be full of brash business leaders.
When Tata Steel (TISC.NS) bought an Anglo-Dutch rival in 2007 for $12 billion, the newspaper headline “Empire Strikes Back” epitomised the supreme confidence of India’s aggressive capitalist kingpins then on a global buying spree. Jaguar, Land Rover and other foreign brands soon followed into Indian hands.
The economy may grow at under 7 percent this fiscal year, down from initial forecasts of 9 percent. That’s still a far cry from the around 3.5 percent “Hindu” rate of growth that plagued the decades after India’s independence from Britain in 1947.
But these last few heady years have changed expectations.
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