Corporate discord brews in India as Narendra Modi's sheen dulls

Muttering noises are greeting Narendra Modi as he approaches his first anniversary as India's leader later this month - and it is the sound of brewing corporate discontent. In a country where businesses generally genuflect to those in power, the list of commercial bigwigs willing to chide their prime minister is growing.

The "sheen is falling off Modi" is how Harsh Mariwala, owner of consumer goods group Marico, put it last month. Deepak Parekh, a banker and corporate grandee, similarly complained of rising "impatience" over the slow improvements to India's rickety business environment.

Foreign investors are no happier. Marten Pieters, outgoing India head of Vodafone, told the Financial Times last week that he saw few signs of favourable new telecoms regulation. Most damning of all was economist Arun Shourie, a former minister from Mr Modi's political party, who recently castigated the Indian prime minister for patchy progress and lack of a clear vision.

At first glance, this all seems perplexing. Growth has recovered under Mr Modi. Inflation is falling. The S&P BSE Sensex share index has risen 22.4 per cent in the past year, making India a rare emerging markets star. Plenty of business-friendly legislation has been passed, too, liberalising sectors including insurance. A major national tax shake-up is likely to follow this week.

Much of the carping, therefore, stems from unrealistic expectations. No leader can reform a country as bewildering as India in a single year, especially when its previous government left such a miserable inheritance.

Some of it is also a curious sign of progress. In private, many complaints come from debt-laden industrialists in areas such as power and natural resources. Their sectors have been hobbled by India's slowdown. But they have also been hit by Mr Modi's curtailment of forms of crony capitalism, including government's practice of giving mining rights to favoured businesses and cajoling state banks to dole out indulgent loans. Their grousing is no bad thing.

Yet all is not well with corporate India. Investment remains in the doldrums. The past financial year is also set to produce India's weakest earnings performance in a decade, according to brokerage India Infoline, with average after-tax profits rising by barely 1 per cent.

Companies are currently reporting fourth-quarter earnings, which have been especially disappointing. "This results season is turning out to be really awful," says Prabodh Agarwal, India Infoline's head of research. "Even our lowest expectations are not being met."

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Some sectors face particular problems. Vodafone's Mr Pieters is surely right to quibble, for instance, that India still uses its struggling telecoms sector as a "milking cow" - providing too little spectrum, and thus forcing operators to pay over-the-odds in auctions.

Tax is another deterrent to investors. Writing in the FT last month, Arun Jaitley, finance minister, tried to defuse a row with global fund managers, who had been understandably alarmed to learn that they could be hit with as much as $6bn in unexpected demands.

Mr Jaitley said this and other problems were simply "legacy" issues, inherited from his delinquent predecessors.

However, he mused elsewhere that the $6bn in question could usefully be deployed to fix up India's creaking irrigation system - giving the unfortunate sense that he valued grabbing revenue over fair treatment of foreign investors.

But the biggest problem remains confusion over Mr Modi's vision for business. Many feel his administration has been "good in parts". As Mr Shourie put it: "The situation is like the many pieces of a jigsaw puzzle lying in a mess, with no big picture in mind about how to put them together."

Mr Modi has moved firmly in some areas, but mysteriously gradually in others. On banking, he has balked at recapitalising ailing public sector lenders by selling down his government's majority stakes below 50 per cent. In resources, he has opened the door to companies such as Rio Tinto to mine commercially for the first time but given no sense of when they might begin to do so.

It may be that Mr Modi has more radical plans up his sleeve in these and other areas which - when revealed - will put a swift stop to India's business bellyaching. So far, though, he has seemed oddly reticent about articulating them. For that, he has no one else to blame.

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