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  • DECEMBER 10, 2011

A new crisis threatening Indian economy

There was a time when our country struggled with the issue of brain drain. However, with country growing at a rate faster than the rest of the world, the trend reversed. While the brain drain has become a thing of the past, the new fear tightening its grip on India could be the 'domestic capital drain'. We are referring to the possibility of Indian businessmen opting to invest abroad instead of launching new businesses backhome.

The reasons are obvious and too many - the lack of action on the policy front, the excruciating delays in getting clearances for the projects, environmental clearances and land acquisition issues. Add to those basic issues like high power costs, corruption, taxation issues and poor infrastructure. The ingredients are enough to make anyone sick. And it's not just the FIIs that India is losing . The country is on the verge of losing homegrown billionaires - the business men and industrialists that are a strong foundation of the domestic economic growth.

Nothing comes without a cost. And globalization is no exception. While we have reaped enough benefits from liberal policies, now could be the time to pay the costs. And how? The Indian businessmen across diverse industries are planning to shift base of their operations overseas. This is well reflected in muted investment plans in the country.

However, a close stock of the situation suggests reasons beyond policy paralysis, which is not something new in our country. Despite the same, we have managed to grow at a rate that puts to shame the so called developed countries. Unfortunately, that is not convincing enough for industrialists to stay back and they seem fine sacrificing growth for stability. There has to be a bigger reason for this sense of gloom. And looking at the recent developments, what could make life in the country tough for them is the recent slew of raids and the arrests made in the corporate world. Not comfortable with the chances of skeletons coming out of the closet, many high profile Indians seem to have already started playing safe by buying personal properties in cities like London and Singapore, where individual security is guaranted.

The development is an eye opener on two grounds. It is high time that India gets its act right and shuns away the dormancy that looms on the policy front. Having said that, it is also time for corporates to appreciate and follow ethical business practices. This will help them not just to avoid their own harassment, but earn investor's confidence as well. This will be hugely rewarding in the times when the investors are keen on educating themselves on the profile of the companies, management and business practices. An amalgam of both policy reforms and sound corporate governance will ensure strong returns in the long term, without shadows of fear and uncertainty hanging around.

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