New Delhi: Amid rising concerns over the country's economic growth prospects, industry leader Deepak Parekh Monday said that the only thing holding India back at this juncture is "lack of political will" and investors can no longer be placated by talks of "long-term fundamentals".
On a day when global rating agency S&P warned that India could lose its investment grade rating and risks being downgraded to junk status, financial services giant HDFC's Chairman said in a letter to shareholders that India Inc is currently suffering from "self-inflicted traumas that India has brought upon itself".
"Economic hardships can always be overcome. What India needs to do to set itself back on course is known to all. Legislations that can re-instill confidence into the markets are ready and waiting for the requisite nod from Parliament," he added.
"As a result of the self-inflicted traumas that India has brought upon itself, some companies are caught in the dilemma of giving up the 'billion opportunity'.
"India has always been a country where investors need patience, but the rewards have been visible. Though there are deepening doubts about India's ability to manage its future, companies with a long-term vision still believe that the risk of not being in India is greater than the risk of being in India," he added.
Parekh, who had previously also raised concerns over slow pace of economic reforms and lack of required policy measures, however was optimistic that "India's defining moment has arrived and we should not miss out on the economic opportunities that urbanisation brings."
"A few bold policy measures will go a long way in changing the lives of a billion Indians," he noted.
In the letter to shareholders, Parekh said that most of economy's problems in the "recent period have been self induced - lack of fiscal rectitude, uncompromising coalition partners, inability to gain consensus on crucial legislation, stalled reforms, corruption scandals and a sense of apathy towards foreign investment."
"Despite this, India has managed a GDP growth rate of 6.5 percent in FY 2012. In relative terms, compared to most countries, India's growth rate is still impressive.
"The disappointment is that India's performance is significantly below its potential. Alarm bells have been ringing with deteriorating macro-economic parameters," he said.
Incidentally, global agency Standard and Poor's also today threatened to downgrade India's credit rating to 'speculative grade' and said "slowing GDP growth and political roadblocks to economic policy making could put India at risk of losing its investment grade rating", S&P said.
Finance Minister Pranab Mukherjee, however, rejected the S&P report and said that nothing has happened to show vulnerability of the economy.
Parekh, in his letter, said that an increasing entitlement and subsidy-driven regime has resulted in a ballooning fiscal deficit.
"With reforms having come to a grinding halt, there is a sense of wariness in the investment climate. Globally too, the economic outlook is grim. In short, investors are forced to cope with volatility," he added.
"In such an environment, there is a tendency to be blinkered by pessimism. No doubt, business confidence in India has sunk to a low ebb," Parekh said.
On a positive note, Parekh said consumer confidence was not hit and "it is ironic to see the coexistence of falling business confidence but rising consumer confidence."
"But herein lies India's vibrancy and perhaps its true strength. India's demographics have always been a strong attraction for investors. This unique advantage, however, may be lost if sufficient jobs are not created," he noted.
"India and China are markets rightly termed as 'the buying power by the billion'. Given the sheer size of these two markets, companies with global aspirations recognise they cannot afford to bypass these markets," he said.
Parekh, however, said that it is important for investors to recognise that "India is not a 'top-down' story - it never was and perhaps never will be.
"From an investor's perspective, India has always been a 'micro' story. It is a select group of companies that have constantly strived to meet world class standards which has attracted global investors," he said, while adding that"it is an honour that HDFC along with its group companies are amongst this privileged group.
"Through various economic and business cycles, HDFC has realised that a steady pace of growth has held it in good stead. Perhaps we may have foregone some short-term upside on growth, but in the long run, our cautious approach has been our rudder," he said.
Parekh further said that growing economic prosperity and urbanisation are inextricably linked, but a comparison of BRIC nations (Brazil, Russia, India and China) reveals that India's pace of urbanisation ranks the lowest.
However, the government presently has just one key flagship programme on urbanisation and its seven year track record has been dismal.
"70 percent of India's GDP and 7 out of every 10 jobs are expected to be created in urban India in the next 20 years. This should be a compelling enough reason for the government to give more thought on how future urban infrastructure requirements may be funded," he added.
"It is certainly not enough to say that the PPP model will take care of all funding needs. Even municipal and urban local bodies have not been provided with a conducive environment to make them financially autonomous and raise their own resources.
About land acquisition, he said that land has to be acquired for development, the compensation has to be fair and the role of the government cannot be eliminated.
"Collusion and vested interests of a few have distorted our land markets, but it is inaction and uncertainty that is most detrimental for investment projects," he said.