NEW DELHI: Many Indian brand owners are reining in their expansion plans, despite the comparative resilience of the country's economy.
The Centre for Monitoring Indian Economy stated the number of projects announced by Indian firms in the opening three months of 2011 was the lowest for seven quarters, on 990, also down from 1,070 year on year.
Moreover, the amount of initiatives put on hold by domestic businesses reached the highest level in almost three years, and rose from 330 to 390 year on year.
Foreign direct investment also slipped by 14% on an annual basis, suggesting overseas operators are becoming more cautious.
"The investment climate has become slightly adverse," Mahesh Vyas, chief executive of the Centre for Monitoring Indian Economy, told the Economic Times.
“Many large companies and industries are in the throes of all kinds of problems. Some relate to telecom and others to land acquisition."
Fluctuations in interest rates and inflation, the rising cost of debt and difficulties linked to raising capital are the main reasons for the slowdown.
Such a shift in thinking has emerged even though the Indian government predicts the country's GDP should expand by 9% for the 2011/12 fiscal year.
This matches the pace of acceleration recorded for the three years until March 2008, while the global financial crisis caused a moderation in the 12 months to March 2009, at 6.7%.
During the period from 2005 to 2008, capital investment generated half of all India's fiscal growth, before corporations started reducing their activity as the recession advanced.
Akhil Gupta, senior managing director at Blackstone India, the private equity group, warned a range of broader obstacles still need to be overcome.
"India has issues to deal with like corruption, high inflation, resultant slower growth, and scope for reforms and improvements by the government, among others," said Gupta.
"These create a sense of general uncertainty about the future of investing in India and, hence, some negative investor sentiment.".
Venture Intelligence, the research specialist, estimated the number of private equity deals in India featuring overseas companies dropped 18% in the first half of 2011 measured against H2 2010.
"Clearly the expectation is that there will be some more slowing down before growth picks up again," said Abhay Pandey, managing director of Sequoia Capital India, another venture capitalist firm.
Data sourced from Economic Times/Wall Street Journal; additional content by Warc staff