Gloom to Deepen: India Inc

ET Poll of Business Leaders As the UPA approaches the third anniversary of its 2nd term in office, big hopes from its victory have all but disappeared 

• Many CEOs actively considering investing overseas 

• UPA expected to retain power in 2014 general elections due to lack of alternative

 India Inc expects the economic climate to turn worse before its gets better, with a deteriorating fiscal situation and a drop in foreign investments likely to define the country in the medium term, an ET Poll of CEOs to gauge business confidence has revealed. 

Along with dimming confidence in the government's ability to steer the country out of the economic morass it finds itself in, the poll of 50 bosses of some of India's most respected companies shows surprising patience — even sympathy — for the UPA, with more than half the respondents expecting it to retain power in the next general elections in 2014. 

Finance Minister Pranab Mukherjee, under whose watch the economy has slipped and who has been criticised by some for presiding over a bad fiscal slippage, high inflation and slowing growth, emerges from the poll looking good. On a scale of one (very poor) to 10 (excellent), Mukherjee is rated six and higher by as many as 29 CEOs. The UPA's troubleshooterin-chief also gets the most votes — at 16 — as the best finance minister in the present situation, 10 more than his predecessor P Chidambaram and far higher than his boss Prime Minister Manmohan Singh, widely viewed as the father of India's economic reforms. Mukherjee also ranked higher than Singh and Gandhi family scions Rahul and Priyanka as a possible prime minister. 

Most poll participants chose to remain anonymous. 

While all this may be music to the ears of the septuagenarian parliamentary veteran, what will not be is the finding that the government's policies and the prevailing economic environment do not inspire too many corporate bosses to step up investments. Twenty-four of the 50 CEOs polled said they were not planning any capital expenditure in India. 

Some are actively considering investing overseas, a prospect that should worry Mukherjee. Harsh Goenka, chairman of conglomerate RPG Enterprises and who was willing to go on record, sums up the mood. "We are increasingly investing outside India. The US and Latin America are much more business-friendly," he says. 

While India Inc looks overseas, the government will not have the comfort of foreign investors looking favourably at India. A resounding majority — 39 CEOs — said they expected foreign direct investment flows to slow down, the government's recent attempts to soothe frayed investor nerves by putting on hold some of its recent controversial tax proposals having no impact on sentiment. 

Low on Confidence, Lower on Certainty 

Forget reforms, forget investments, forget new projects for now. Business confidence is low and the future hazy. Retrospective Tax to Hit India's Image as Biz-friendly Country 

India's attempts to retrospectively tax past overseas M&A transactions and impose an anti-tax avoidance regime have been slammed by foreign investors and governments, many of whom have warned of damage to India's image as a stable and friendly place to do business. The ET Poll showed a majority of CEOs agreeing with that assessment, with a majority of participants of the view that the government was 'going after' Britain's Vodafone Group Plc. 

However, a significant minority — 19 CEOs — disagreed with that view, an indication the government's efforts to force the UK-based mobile phone giant to stump up thousands of crores in taxes were not being universally derided. 

West Bengal Chief Minister Mamata Banerjee, however, is evoking some derision, with as many as 25 CEOs casting her as the biggest stumbling block to growth. Banerjee, a key UPA ally viewed lately as a thorn in its flesh, was notable in her opposition to opening up India's supermarket sector to foreign players and has opposed several other reform moves. 

By becoming the lightning rod of industry criticism, she has managed to help the Congress look good, despite its problems with corruption scandals, leadership crises and governance issues. As many as 26 CEOs said they saw the Congress retaining power in the next general elections, largely because of a lack of alternatives. Asked by ET what the government could do to regain the initiative and spur investor confidence, each CEO had a different prescription. The common wish-list was for coalition politics to work better so that national concerns such as corruption, Maoist violence and the Lokpal Bill are sorted. Some wanted urgent reforms in banking and insurance, power and taxes, while others want FDI in multi-brand retail and aviation to be allowed. 

Rajiv Lall, MD and CEO of IDFC, said the government should introduce administrative reforms that will improve the delivery of public projects and services. 

"Remove hurdles that are before big projects. Some of the environmental groups need to be investigated and punished. They should not be tolerated and they are harming India's interests," says Raju Shroff, chairman of chemicals firm United Phosphorus.