India business chiefs warn of 'atmosphere of fear'

India’s top business groups have warned an “atmosphere of fear” is developing in corporate circles that could hurt economic growth after police accused a leading industrialist of corruption.

Earlier in the week, the Central Bureau of Investigation (CBI) filed a case accusing Kumar Mangalam Birla, chairman of conglomerate Aditya Birla Group, of conspiring to obtain a coal block for a cut-rate price.

“Reputations of institutions and individuals take years to build,” Kris Gopalakrishnan, president of the Confederation of Indian Industry, said late Friday.

“Extreme caution needs to be exercised before any action is taken which jeopardises reputations,” he said in a statement, adding, “the creation of an atmosphere of fear is not desirable.”

The CBI decision to file the case over the 2005 coal allotment against Birla, 46, viewed in the corporate world as a conservative rule player, has sent shock waves through the business community.

“It goes without saying such developments dent the national psyche and also dampen investor confidence, both domestic and foreign,” said Gopalakrishnan.

The deterioration in the corporate climate comes as India’s economy has fallen into a deep slump, growing by just 4.4 percent in the last financial quarter — half the nearly double-digit rates notched up in the last decade.

Birla joins a string of prominent figures named in the coal probe and a series of others graft scandals that have rocked the Congress-led government and claimed several coalition ministers.

Birla was accused of conspiracy along with the former coal secretary, P.C. Parakh. Both have denied any wrongdoing.

The controversies have cast a dark shadow over the prospects of Prime Minister Manmohan Singh’s government in general elections due by next May.

Separately, the president of the Federation of Indian Chambers of Commerce and Industry Naina Lal Kidwai, called the accusations against Birla “unfortunate”.

“We find that cases are being registered against top bureaucrats and industry icons,” Kidwai, a prominent banker, said.

“Capable and highly regarded officers and business leaders cannot be made scapegoats of mere suspicion and misconstrued actions,” she said.