The animal spirits of Indian business have been down for a while. Wispy data such as the index of industrial production and plenty of anecdotal evidence have painted a gloomy picture for the past many months. There is more news of that sort.
The Reserve Bank of India’s (RBI) quarterly industrial outlook survey for the January-March 2011 quarter confirms that trend. The survey points to a moderation in business conditions in the manufacturing sector. The business expectations index—a compound of parameters such as production, order book situation, inventory of raw materials and finished goods and profit margin, among other indicators—showed a marginal decline in January to March. But more importantly, the decline was marked for the first quarter of this fiscal: It fell from 125.9 to 121.9. When the index falls below 100, it marks a contraction in the economy.
For a foreign observer, this would be surprising. After all, what can go wrong in an economy that is growing at the rate of 8-9% every year when the world sputters from one crisis to another? Plenty. Another survey, conducted by The Economic Times and the Federation of Indian Chambers of Commerce and Industry said in words what RBI put in numbers. In this survey, 80% of the firms believed that government decision making had slowed, and a majority believed this would hit their investment plans.
That is the rub of the problem. For all practical purposes, government decision making is paralysed. Between firefighting one political crisis or another, key government business—be it raising fuel prices or taking a decision in improving the supply of coal—has been put on hold. Various empowered groups of ministers keep on postponing meetings at the drop of a hat. More difficult decisions—on disinvestment and economic reforms—were frozen a long time ago. If this were not enough, foreign direct investment flows have come to a trickle from a torrent last fiscal. Macroeconomic worries complete this dismal picture.
Businesses want to invest and sell in what is unarguably a vibrant economy. But for them to do so, policy certainty is necessary. There is little sign of that.
What has dampened the spirits of Indian firms? Tell us at firstname.lastname@example.org