Banging on

Thursdays raft of cabinet decisions should be evaluated principally on the basis of its impact in turning around the investment climate. While marquee announcements like permitting foreign investment in pensions and a hike in FDI for the insurance sector will grab headlines as did last months okay for foreign investment in multibrand retail the real impact will come from the more pedestrian measures. These include approvals of the tripartite terms for the setting up of the infrastructure development fund and a less noticed RBI okay for foreign investors to pledge papers as collateral for their stock operations instead of using dollars. The first of these two will make infrastructure financing easier by taking loans off the books of the banks. The second makes investment in India cheaper for foreign institutional investors by about 30-40 basis points.

As Deepak Parekh,chairman of the high-level committee on infrastructure,has pointed out,measures to push investment are key to get the economy back to work. These include an overhaul of the regulatory framework for infrastructure,bringing clarity on taxation issues such as anti-tax avoidance rules,and the expediting of land acquisition and environmental clearances. Indias economy had stalled not because the animal spirits of its entrepreneurs were on a holiday but because the spirit of the government was laid low. It is not just that its ambitions were cramped,it wasnt even doing what was simple and possible.

The obstacles to the effective functioning of the government have primarily emanated from within it,not from a legislative logjam. New Delhi must now consistently provide evidence that this sloth is over and get on with providing a larger menu of options for investors. A report by rating agency Crisil,released on Thursday,shows that corporate profitability,which has declined continuously for nine quarters,is now likely to increase. But that would happen mainly because of the softening of global commodity prices,not through government action. Domestic ratings have improved for sectors like textiles,auto ancillaries and processed foods,none of which suffer from government interference. But big ticket investments are bunched in the auto,power,construction,engineering and capital goods sectors. The indication of the stress in these sectors is evident in the whopping Rs 31,400 crore that was approved for recast by the corporate debt restructuring cell in just three months of this year,July to September. The sum is about 80 per cent of the total debt restructured by the cell through last year.