Growing graft scandals eat into investor confidence

Growing graft scandals eat into investor confidence

New Delhi: Three quarters of leading Indian companies have lost faith in Prime Minister Manmohan Singh’s second-term government, saying a governance crisis ranging from corruption scams to policy limbo will hit economic growth and their investment plans.

A survey of 75 leading companies by the Economic Times newspaper and Federation of Indian Industry and Chambers of Commerce (Ficci) is the latest sign of corporate unease with the Congress party-led coalition government in a country where grievances from companies are rarely aired in public.

Singh has been besieged by corruption scandals, including a $39 billion telecom scam that saw a minister fired and parliamentary bills blocked by the opposition, as well as anti-graft hunger strikes by a civil activist and a yoga guru that galvanized many Indians.

The survey, published on Monday, said 80% of companies believed that decision-making by the government had slowed and 72% feared investment plans would be hit.

Ministers have repeatedly shrugged off criticism over the government’s handling of the economy, pointing out that growth was among the highest in the world.

Critics say growth is driven despite the government, not because of its policies.

India’s economic expansion is seen slowing to 8.5% by the government in 2011-12, from nearly 9% in the prior year, a forecast that many private economists think is optimistic.

Foreign direct investment has fallen 28.5% in 2010-11, in part a sign of falling investor confidence in Asia’s third largest economy.

India’s main stock index has fallen more than 10% since mid-November, when the corruption scandals began to spiral. That compares with emerging markets equities firming 2.1% in the same period.

“The prevailing negative sentiment among domestic investors will have a bearing on the perception of foreign investors," the Economic Times quoted Harsh Mariwala, president of Ficci, as saying.

Confidence Shaken

A separate survey by the Economic Times and Synovate of 43 leading company executives, also published on Monday in the same newspaper, showed 63% believed that the governance crisis would likely hit India’s growth.

The telecom scandal has seen the jailing of one minister and several company executives. It has shaken India’s business elite with billionaires Anil Ambani and Prashant Ruia both questioned by police, something unheard of in India in recent times. Both have denied any wrongdoing.

Parliament has been virtually shut down during the last three sessions, with the main opposition Bharatiya Janata Party paralysing government attempts at legislative business. Few reform bills have been passed, including one to make it easier for industry to acquire land.

In January, a group of 14 public figures from industrialists to former central bank governors warned in an open letter that corruption and bad governance threatened India’s growth story.

There was one hint of optimism. The FICCI survey said nearly half of respondents expected the remaining three years of the government to be more reform-orientated.

“I do not believe the government has been rendered ineffective," said Bajaj Auto chairman Rahul Bajaj.