Indian industry and policy analysts fear serious impact on the investment climate and operational costs for businesses in India in the aftermath of the recurring incidents of country-wide protests.
A hike in risk premium and transit insurance on goods, drying up of lending for investments in select areas such as the Northeast, West Bengal and UP and foreign investors reviewing their immediate investment plans in India are among the expected consequences of the unrest, according to senior corporate executives and industry analysts.
In the latest string of incidents, India has been witnessing a fresh wave of protests across various parts of the country since Sunday against a newly enacted citizenship act which is widely seen as discriminatory based on religion.
“There is a possibility of the risk premium and the transit insurance cost in India going up by about 1 percent in the near future,” R Guha, senior finance executive with Akzonobel India, told Arabian Business.
“The increase in transit insurance – insurance cover taken for movement of raw materials and finished goods – will happen as and when companies renew their annual contracts for this,” he added.
The increase in risk premium – both country-specific for borrowings by Indian companies from the international market as also for domestic borrowings – could be reflected in fresh borrowings.
“More than the latest cases of protests and clashes, it is the emerging pattern of such country-wide unrest which is troubling to the industry and more to the foreign investors,” a senior analyst with an international management consultancy firm, told Arabian Business. He did not wish to be identified because of the sensitivity of the issue.
“Rather than dealing with the serious issues of economic slowdown, rising unemployment and financial sector stress, the current dispensation at the centre seem to be pushing its political agenda in quick succession, without allowing issues to settle down. This could raise serious concern on the part of investors, especially foreign investors,” the analyst said.
India has been seeing large-scale foreign investments of late, with several foreign funds and investors, including from the Middle East, investing in a number of startups as also large companies in financial, technology and consumer-centric sectors.
Significantly, new disruptions on the politico-economic front in India are emerging at a time when rating agencies have been repeatedly slashing their forecast for India’s economic growth rate in the current fiscal.
International rating agency Moody’s Investor Service on Tuesday cut its forecast for India’s FY20 growth rate further down to 4.9 percent from its previous downgrade to 5.8 percent.
The latest downgrade will weigh on the sovereign’s credit profile, analysts said.
“Unfortunately, the latest string of country-wide protests and clashes, especially in regions such as the east and northeast parts of India will seriously impact movement of goods to these areas, adversely affecting sales and manufacturing activities of companies in several sectors,” an official with a leading industry chamber said.
“This could further delay a recovery in economic growth,” the official added.
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