Rift between India’s business leaders and its government widens

October 22, 2013 2:08 pm

Rift between India’s business leaders and its government widens

By James Crabtree

Targeting of billionaire Kumar Birla in coal rights probe provokes angry reaction

Pity the titans of corporate India. Just a few years ago, the country’s leading industrialists were lauded at home and admired abroad as custodians of one of the emerging world’s most impressive growth stories. Now they stand becalmed by an economic slowdown and beset by anti-corruption investigations. Their frustration with India’s lacklustre government is clear. Many wait quietly for the saviour they hope will arrive after next year’s elections: opposition leader Narendra Modi.Last week provided an especially galling example of their predicament, as Indian police named billionaire Kumar Birla, one of the country’s most prominent tycoons, as part of a probe into the misallocation of coal mining rights.

Known as the “coal scam”, this investigation dates from the middle of the last decade, and involves allegations that valuable mineral resources were doled out to business groups without auctions, losing as much as $33bn in tax revenues, according to an auditor.

The move to target Mr Birla provoked a furious reaction, however, prompting fellow industrialists, trade bodies and eventually even Prime Minister Manmohan Singh to rally round in his defence. The Confederation of Indian Business sounded notably pained, saying the moves would “dent the national psyche and also dampen investor confidence, both domestic and foreign”.

Such anguish stems partly from Mr Birla’s prominence: his venerable family-controlled Aditya Birla Group is India’s third largest conglomerate, with revenues of $40bn last year and interests ranging from telecoms to metals and mining.

But it was mostly because of his reputation for probity. Mr Birla, who denies wrongdoing, is seen as a straight shooter in a corporate sector dotted with rogues and rule-benders. His company, alongside other admired groups such as Tata andMahindra, is regarded as one of the country’s most upright.

The police investigation therefore seemed to represent an attack on the heart of India’s right-minded commercial establishment. “The reaction was clearly driven by a sense of fear,” says one senior business figure. “If they are going after him, the feeling was, are any of us really safe?”

India has endured numerous corporate corruption scandals since Mr Singh’s government returned to power in 2009, the most high profile of which have involved alleged wrongdoing in the awarding of scarce resources, such as coal and telecoms spectrum.

The reaction was clearly driven by a sense of fear. If they are going after him, the feeling was, are any of us really safe?

– Senior business figure

Subsequent investigations have tarred many prominent companies, some of which may well have been up to no good. But they have also hurt growth by gumming up the government itself, as bureaucrats in New Delhi became afraid to take controversial decisions, lest they be accused of favouring particular industrial groups.

Last week’s investigations may worsen this problem, given that the police also named a respected retired bureaucrat who once headed the country’s coal ministry. That move brought yet more protests, this time from aggrieved civil servants. It also increased the odds that policy changes needed to revive growth will be further delayed, at least until after the elections, due before April next year.

Such problems are hitting international investors, leading a stream of companies to walk back their Indian expansion plans. Natural resources group BHP Billiton became the latest this week, citing slow-moving decision-making, while American retailerWalmart pulled out of its main joint venture in early October following complaints about restrictive regulation.

More than anything, however, the outpouring of frustration that followed Mr Birla’s investigation demonstrates the widening rift between business leaders and their government in Asia’s third-largest economy.

Few will say so openly, but many industrialists once loyal to the ruling Congress party now argue in private that a win for Mr Modi, the opposition Bharatiya Janata Party leader, would be the country’s best chance of emerging from its recent troubles.

This view may be misguided. Mr Modi’s victory is far from certain, although his party holds a handy lead in the polls. Were he to triumph he would certainly preside over another fractious coalition government.

There is, therefore, no way of telling whether he could bring about the type of business-friendly approach that won admirers in Gujarat, his home state. Hopes for more wide-ranging reforms, to inefficient taxation or labour laws for instance, are unlikely.

Yet even without such steps, business leaders increasingly feel that only a change of administration can limit the drift that hampers Indian growth, and allow crackdowns on corruption without paralysis in government or arbitrary attacks on respectable moguls. That their hopes are so limited, meanwhile, is perhaps the greatest measure of the steep decline in their country’s recent fortunes.