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Crisis of Confidence Grips Corporate India

A crisis of confidence grips corporate India as it struggles to forget 2011, which saw growth falter, inflation soar and the global investment sentiment turn negative. Several Indian company CEOs, who spoke to CNBC, see little hope of an economic revival in 2012.

BOMBAY, INDIA: A sign board 'Mumbai' is placed near the Taj hotel at the famous landmark the Gateway in Bombay, 13 May 2005. Since independence in 1947, regional advocates in India have called for a change in many place names to reflect the wide linguistic and ethnic variations in the country of one-billion-plus people that spans the Himalayans in the north to the meeting of the Indian Ocean and Arabian Sea in the south. AFP PHOTO/Sebastian D'SOUZA. (Photo credit should read SEBASTIAN D'SOUZA/AF
Sebastian D'souza | AFP | Getty Images
BOMBAY, INDIA: A sign board 'Mumbai' is placed near the Taj hotel at the famous landmark the Gateway in Bombay, 13 May 2005. Since independence in 1947, regional advocates in India have called for a change in many place names to reflect the wide linguistic and ethnic variations in the country of one-billion-plus people that spans the Himalayans in the north to the meeting of the Indian Ocean and Arabian Sea in the south. AFP PHOTO/Sebastian D'SOUZA. (Photo credit should read SEBASTIAN D'SOUZA/AF

“India’s growth is stalling. The rupee is in a free fall, the fiscal deficit is widening, equity markets are sliding and companies are shying from investments. There is a crisis of confidence in both business and politics,” Harsh C Mariwala, Chairman of Indian consumer goods giant Marico, told CNBC.

Just last week, Indian Prime Minister Manmohan Singh said economic growth in the fiscal year ending March 31, 2012 would slow further to about 7 percent, lower than a revised forecast of about 7.5 percent issued by the government only in December.

“There is serious concern on growth. The slowdown is very sharp and is hurting not only the industry, but also the nation,” B Muthuraman, Chairman of Indian’s largest manufacturing company Tata Steel and President of the Confederation of Indian Industry, said.

Investment proposals in India plunged 45 percent to a five-year low in 2011 as companies halted projects citing administrative hassles, according to a report in India’s Economic Times this week, which quoted data from the Centre for Monitoring Indian Economy.

“Domestic challenges coupled with global uncertainties have eroded India’s business confidence. The mood, fear and negativity is worrisome,” KV Kamath, Chairman of Infosys, India’s second largest IT company, told CNBC.

The rise in interest rates - the Reserve Bank of India has increased rates 13 times since March 2010 in a bid to control inflation that has stayed stubborn above 9 percent – has also had a crippling impact on industry, say market watchers.

“The RBI has been overzealous in raising interest rates in its battle against inflation, choking the industry while failing to get a handle on prices. Food inflation may have eased a bit but it is too early to say the policy has been effective,” says Mariwala.

Sanjeev Bhikchandani, CEO of Naukri.com, India’s largest online job search portal, thinks that the government has been too occupied with tackling inflation. “The government is not doing anything other than tightening monetary policy to fight inflation. That is clearly not working. Judging from hiring trends the slowdown seems to be broad-based. Companies are turning extremely cautious in adding to headcount.”

India's industrialists also say the government has not been able to give economic activity a boost via any policy initiative. In December, the government suspended plans to open India's $450 billion supermarket sector to foreign firms, backtracking from one of its boldest reforms in years in the face of a backlash.

“Whether it is a case of allowing foreign direct investment in retail or monetization of state-owned assets, the government moved one step forward and two steps backwards in the reforms process. We had a great opportunity to stand out but it has been completely lost,” says Mariwala.

India’s business elite seem frustrated with log-jammed approvals, regulatory flip-flops, lack of access to natural resources and land acquisition battles.

“The need of the hour is to expedite approvals for land acquisition, access to mineral resources, and (the government) must give confidence to companies to plan new investments,” says Kamath.

His views are echoed by Infosys CEO SD Shibulal, “The velocity of government decision making needs to be increased across sectors and there should be greater transparency.”

However, the government stands mired in a spate of scandals and corruption charges, which sawpolitical heavyweights, business tycoons and high-ranking officials sent to jail for short-selling telecom licenses, illegal mining and usurping war widow homes.

Analjit Singh, Chairman of Max India, says that India may land up growing just 6 percent in the financial year ending March 2012 due to a lack of political will to breathe life back into the economy. “Politics is hurting the economy,” he said.