There has to be some semblance of political order, a more credible governance restored, and macro-economic variables including the uncontrolled inflation becoming more amenable to correction, before the “sentiment”, said to have been created by the burst of FDI liberalisations, can translate into some meaningful responses.

The risks for investors, domestic and foreign, abound in a highly uncertain political environment — UPA Government’s fragility, even if there is no immediate threat to its survival, the roar of accusative opposition parties eyeing elections, and the new breed of “activists”, potentially anarchists, with their own motivated charges and agitations, and not the least, the scepticisms over the passage of key legislation in the winter session of Parliament.

The Finance Minister has thus far largely focused on securing capital flows, however essential for external viability while stabilising the rupee, but all this has not stirred domestic investors. Corporates are highly appreciative but keep egging on Mr Chidambaram to do a lot more for the sinews of growth, which would trigger investments at home.

These would mean, firstly, in infrastructure, especially overcoming the acute power shortages over a large part of the country; secondly, strengthening fiscal framework and thirdly, accelerating initiatives to get major tax reforms enacted in the next budget. The Finance Minister has indicated efforts would be made to build bridges with the opposition to get essential legislation passed in the winter session in November-December.

Even assuming that Government, as indicated by the Finance Minister Mr Chidambaram, comes up with more policy changes in these areas and with a new fiscal path for the medium-term laid out, effective implementation holds the key for bringing about an investment revival and growth recovery from a ten-year low level at the end of the first quarter of fiscal 2013.

The Finance Minister and the corporates are on the same wave length in holding “high” interest rates as a major factor for sluggish industrial growth but they have no shared concerns about the level of inflation, still rising, and the costs it imposes on the economy as a whole, let alone millions of consumers on whom manufacturers and service providers pass on the burdens.

What the Reserve Bank of India will do on October 30, when it announces its Second Quarter Review and Mid-Year Monetary and Credit Policy, is now keenly awaited by, above all, the Government, the corporates and the market. WPI in September was closer to 8 per cent and CPI closer to double-digit, food and non-food. The hefty diesel price revision, after a long interval, has had its impact. Other macro-data also do not lend themselves for monetary easing, or a little hopeful streak in a segment of manufacture.

Yet, the Government would prefer RBI to shift its growth-inflation dynamics toward a rate reduction, because it is on “reform path” and done its bit - and bit only - on fiscal front, with diesel price hike. Even if there is a token 25 basis point cut in the policy lending rate, it would be welcome to the Government, but it would not make much of a difference for the corporates. All said and done, interest rate is not the stumbling block for industry.

There are other major growth constraints, which the Government has proved itself ineffective in tackling so far.

There can be no greater reflection of lack of governance than the way the UPA regime, whatever the inter-ministerial wrangles, had allowed a massive coal-power crisis to engulf the economy. Fuel supply for major power capacity creations is at stake, given the huge shortfalls in domestic production by the state monopoly, Coal India, and increasing dependence on costly imported coal. It has taken a long time for the PMO to bring its monitoring gaze into play.

Power costs are going up and tariffs for the consumers, domestic and industrial, are already under revision and would be under continuous review. It is amazing how think-tanks in Government including the Planning Commission have remained mute observers of what has gone on in different Ministries and sectors rather than make timely interventions to get optimum results for investments, public and private. (The latest official tally of time and cost over-runs for the government projects is put at Rs.118,000 crore.)

Equally, there is much less discussion on bringing about a climate of sustainable growth with price stability. Policy-makers from the Prime Minister downwards assume that an 8 per cent growth is within reach soon, with the current efforts, and that India’s ambition to raise it to 9 per cent growth by the end of the 12th plan (2012-17), is also realisable with reforms under way.

To recapture the boastful growth of 9 per cent (over three years last decade) from a low base of far less than 6 per cent in 2012/13 would involve a great deal of restructuring of the economy in a totally different global environment, not simply through FDI flows and bonanza for corporates at home. That phase of high growth in India was partly fuelled by the pre-crisis global economic expansionary phase, which ended with the breakdown in the free market capitalism in USA.

It is high time for emerging economies to look more inward than seeking solutions through globalised markets and capital flows, in the main. Globally, the era of heady growth has come to an end and both USA and EU, the two most powerful locomotives for the world economy, are mired in problems, which cannot be overcome in the foreseeable future. Also, it is time to rethink our growth strategy to make it genuinely inclusive.

The current slowdown in India has to be reversed and thus calls for addressing vigorously energy, infrastructure and institutional bottlenecks, according to an OECD report on India. It notes that the supply of key inputs has not been able to keep pace with demand for energy and natural resources, for transport infrastructure and skills. Institutions and public as well as private governance also need to adapt to the development of India and the progressive transformation of its economy, it says.

“A return to strong, sustainable growth is paramount to ensuring continued progress in reducing severe poverty, catching up and lifting living standards more generally. However, it is not sufficient on its own”. While Indian authorities have recently renewed reform impetus with foreign investment liberalisation, strengthening fiscal framework etc, OECD said, further reforms are also essential for India to make the most of its assets: a young and dynamic population, an entrepreneurial and increasingly innovative business sector, and proximity to one of the most dynamic regions in the world.

Taking note of Government’s reform agenda so far announced, OECD says in strengthening fiscal framework, spending efficiency needs to be improved, especially on subsidies by improving targeting and delivery and the proposed GST must minimise exemptions to keep the base as broad as possible while also aiming for a single rate within each state. The reform in international taxation (in the light of the Shome Committee report) should help “boost investor sentiment and provide a stable and certain tax environment for businesses,” OECD said. (IPA Service)