Mumbai: After the rapid slide in the rupee this year, the message from
the country's corporate titans to the government is clear: shape up and
fix the problems or more companies will expand their business abroad and
deprive the economy of investment.
Many, such as entrepreneur Kiran Mazumdar-Shaw, are already doing just that.
Ranked
by Forbes as one of the world's most powerful women, she is investing
about $200 million in a manufacturing plant in Malaysia for her
biotechnology firm Biocon Ltd to offset unreliable power and water
supplies back home. It already makes more than half its sales overseas.
"If
India had better infrastructure and more availability of power I may
not have gone abroad," said Shaw, who followed in her father's footsteps
with a master's degree in brewing in Australia before setting up Biocon
in her garage in Bangalore 35 years ago.
"We don't have enough
power, we don't have enough water. So some of these projects where we
need water and power, I will do it in Malaysia because that's where it
is abundant," Shaw, who is ranked 92 in India's rich list with a net
worth of $625 million, told Reuters in an interview.
She is one
of many top entrepreneurs voicing frustration that policymakers failed
to keep economic reforms rolling over the past decade, which they
contend would have prevented India from stumbling into its deepest
economic crisis since 1991, when it was forced to pledge the country's
gold reserves in exchange for international loans.
Economic
growth has almost halved in pace to less than 5 percent in the past six
years, a flood of cash leaving the country has led to a record current
account deficit and combined with a rout of emerging markets, has sent
the rupee into a tail spin. At its record low of 68.85 per dollar in
late August, it was down around 20 percent from the end of 2012, the
worst performer among Asia's currencies. It has since risen slightly to
65.24.
The lack of reform and infrastructure, painfully slow
decision making and red tape are common complaints of corporate India,
but this time they could come at a cost as the rupee crisis shows
businesses how vulnerable they are.
The political cost could hit
the Congress-led ruling coalition at national elections that must be
called by May. An opinion poll on Friday showed nearly three-quarters of
Indian business leaders want opposition figure Narendra Modi to run the
country after the election.
Modi is in the political ascendancy
after turning the western state of Gujarat into the country's economic
star with double-digit growth and investor friendly policies.
The
economic cost is underlined by Indian Inc.'s overseas direct
investment. Including bank guarantees issued to overseas units, it stood
at more than $21 billion in the first seven months of this year, up 38
percent from the same period of 2012.
That is set to increase as Indian companies see the advantages of diversifying globally.
In
a bid to reduce its dependence on a slowing Indian auto market and get a
foothold in China and the United States, Apollo Tyres agreed in June to
pay $2.5 billion for U.S.-based Cooper Tire & Rubber Co , which was
nearly three times its own market value at that time.
Yusuf
Hamied, the billionaire chief of drugmaker Cipla Ltd, which in July
completed the acquisition of South Africa's Cipla Medpro for about $460
million, is expanding his company's base in Algeria and Morocco as part
of a North Africa thrust.
Aditya Birla Group, the $40 billion
diversified conglomerate that gets more than half its sales from
overseas operations, plans to invest $1 billion setting up a chemical
plant in the United States, local media reported last month.
A
spokeswoman for the group, whose business interests range from mining
and metals to financial services and telecoms, was unavailable to
comment.
"MORE AND MORE DIFFICULT"
The Reserve Bank of
India last month reduced companies' overseas investment limit to 100
percent of their net worth from 400 percent, part of a drive to curb
dollar outflows and prop up the rupee.
While these steps could put a
brake on overseas investments in the short term, they might not halt the
outbound march in the longer term.
"The government has to give
us infrastructure - not for a day, not for six months - there has to be
long-term infrastructure, policies that are sustainable so that we can
then also plan accordingly," said Cipla's Hamied.
"In healthcare
there are five ministries involved - chemicals and fertilisers, finance
ministry, law ministry, health ministry, commerce ministry - there is no
nodal body. Who do you go to for infrastructure or for advice or
anything?"
Hamied is particularly concerned about the impact on
the domestic pharmaceutical business of a new pricing policy that has
increased the number of drugs deemed essential that are subject to price
caps.
Many industrialists complain that delays in approving
projects due to differences among various government departments and red
tape make it tougher for India Inc to set up manufacturing operations
in the country than overseas.
"It is becoming more and more
difficult, in any sector. Look at the real estate sector, the amount of
commissions, the amount of bureaucracy that is there is too much," said
billionaire Ajay Piramal, chairman of the healthcare-to-real estate
conglomerate Piramal Group. "We need to have clear rules of business ...
unfortunately that's not happening."
With the prospect of a
populist spending splurge ahead of the national elections,
industrialists like billionaire Rahul Bajaj, chairman of motorcycles and
three-wheeler maker Bajaj Auto are not betting on any changes soon.
"I
believe the government will keep taking short-term measures, which will
have limited effect," Bajaj said. "The way things are going, the
earlier the elections the better."
