With a drier-than-hoped monsoon season, power outages threatening to cripple large parts of the economy, high interest rates and inflation, India’s growth story has faltered this year.
Lord Bilimoria, founder of Cobra Beer and president of the UK-India Business Council, told CNBC’s “Squawk Box Europe” Wednesday: “In the nine years since I’ve been involved in the U.K.-India Business Council, this is the lowest ebb I’ve seen India at.
“Power outages are nothing new in India, particularly over summer. All factories in India have backup power. But to have a cut-out like this, over a population that’s bigger than the European Union, that’s very serious.”
As the rupee has depreciated against the U.S. dollar, and growth in India has slowed to its lowest rate for almost a decade, profits for multinational companies operating in the country have taken a hit.
Asia-focused bank Standard Chartered said India was suffering from “economic and political paralysis,” as it reported an 18 percent dip in operating profit before tax in the first half of 2012 at its Indian operations Wednesday.
The historically high interest rate was left on hold at 8 percent by the Reserve Bank of India (RBI) this week, as it lowered India's growth forecast for this financial year to 6.5 percent from 7.5 percent. The government was hoping for growth of 9 percent at the start of 2012. Even when it is slowing, growth in India is still much higher than in the US and Europe
The stalemate at the top of India’s political system has led to reforms which would have made international investment in the country easier being held back.
Bilimoria said: “The reforms need to be put through. Once they are, India can start generating the investment for infrastructure that it desperately needs. Anyone investing in India has got to take a long-term view. Look at where it was 20 years ago. The growth story within India is still phenomenal. It’s a consumer story, not just an export story like China.”
The appointment of Congress Party veteran Pranab Mukherjee as President last month, and the return of Palaniappan Chidambaram as finance minister are expected to bring some stability. Chidambaram’s replacement as Home Minister is the Power Minister Sushilkumar Shinde, who has just presided over a power outage which some are calling the world’s worst.
Chidambaram has been pro-foreign investment and business-friendly in his two previous stints as finance minister.
Bilimoria argued: “The problem is that India’s growth rate has been phenomenal. India is still an emerging global economic superpower and it’s still on an upwards trajectory. I hope this is a watershed.
“A trillion dollars is inquired in inward investment in the next ten years. What an opportunity — but no-one’s going to do that unless they have faith in good governance.”