Amid rising concerns over the country’s economic growth prospects, industry leader Deepak Parekh on Monday said that the only thing holding India back at this juncture is “lack of political will” and investors can no longer be placated by talks of “long-term fundamentals”.
On a day when global rating agency S&P warned that India could lose its investment grade rating and risks being downgraded to junk status, financial services giant HDFC’s chairman said in a letter to shareholders that India Inc is currently suffering from “self-inflicted traumas that India has brought upon itself”.
“Economic hardships can always be overcome. What India needs to do to set itself back on course is known to all. Legislations that can re-instill confidence into the markets are ready and waiting for the requisite nod from Parliament,” he added.
“As a result of the self-inflicted traumas that India has brought upon itself, some companies are caught in the dilemma of giving up the ‘billion opportunity’.
“India has always been a country where investors need patience, but the rewards have been visible. Though there are deepening doubts about India’s ability to manage its future, companies with a long-term vision still believe that the risk of not being in India is greater than the risk of being in India,” he added.
Parekh, who had previously also raised concerns over slow pace of economic reforms and lack of required policy measures, however was optimistic that “India’s defining moment has arrived and we should not miss out on the economic opportunities that urbanisation brings.”
“A few bold policy measures will go a long way in changing the lives of a billion Indians,” he noted. In the letter to shareholders, Parekh said that most of economy’s problems in the “recent period have been self induced — lack of fiscal rectitude, uncompromising coalition partners, inability to gain consensus on crucial legislation, stalled reforms, corruption scandals and a sense of apathy towards foreign investment.”
“Despite this, India has managed a GDP growth rate of 6.5 percent in FY 2012. In relative terms, compared to most countries, India’s growth rate is still impressive.”The disappointment is that India’s performance is significantly below its potential. Alarm bells have been ringing with deteriorating macro-economic parameters,” he said.
Incidentally, global agency Standard and Poor’s also threatened to downgrade India’s credit rating to ‘speculative grade’ on Monday and said “slowing GDP growth and political roadblocks to economic policy making could put India at risk of losing its investment grade rating”, S&P said.
Finance Minister Pranab Mukherjee, however, rejected the S&P report and said that nothing has happened to show vulnerability of the economy.
Parekh,said that an increasing entitlement and subsidy-driven regime has resulted in a ballooning fiscal deficit.
“With reforms having come to a grinding halt, there is a sense of wariness in the investment climate. Globally too, the economic outlook is grim. In short, investors are forced to cope with volatility,” he added.
“In such an environment, there is a tendency to be blinkered by pessimism. No doubt, business confidence in India has sunk to a low ebb,” Parekh said.