"Make more investments in infrastructure; push for more flexible labour laws, and cut down red tape." Rahul Bajaj, Chairman, Bajaj Auto

For a government that wants to, there's plenty to be done, though. Says Rahul Bajaj, Chairman, Bajaj Auto, and one of corporate India's most vocal critics: ''There are three things it can do to kick-start the economy. One, make greater investments in the infrastructure sector; two, push for more flexible labour laws and, three, drastically cut down red tape. If the government can do these things, other improvements will automatically follow.'' But can the government can do any of these things?

Take, for example, infrastructure-perhaps the single-biggest factor that can kick-start the economy and boost sentiment. The average cost of power in India is the highest among export-driven countries like China, South Korea, and Japan. Reason: rampant theft and subsidised power to farmers at the cost of industry. In fact, the states of Punjab and Tamil Nadu supply electricity to farmers free of cost. The irony is that even at high prices there is no assured supply. Outages are a matter of routine, and industries need to generate power on their own, which adds to their costs.

According to the Power Ministry, there's a power shortage of 12,000 mw during peak hours, which will need Rs 50,000 crore in investment to bridge. The government is cash-strapped, and the private sector won't invest because there's no guarantee that the sick state electricity boards will pay them for the power they buy. An option is to reform the sick electricity boards, but since help from the different state governments will be needed, there has been no headway except in the states of Andhra Pradesh, Orissa, and West Bengal. The same problem stands in the way of wheeling electricity from power-surplus states to those facing a shortage.

Ports and roads are other areas where investment is needed, but not coming because user charges cannot be guaranteed. D.K. Srivastava, Professor, National Institute of Public Finance and Policy, estimates that 60 per cent of an infrastructure project cost can be raised via private investors if user charges can be assured. In the absence of such assurances, and consequently investments, exports are suffering. Increasing India's share of world trade from 0.6 per cent to 1 per cent would mean creating special economic zones, reducing transaction costs, and depreciating the rupee even more. ''It will also mean hard bargaining at the WTO to ensure the best possible market access for Indian products,'' points out Manoj Pant, a Professor at the School of International Studies, Jawaharlal Nehru University.

The bill for modernising Indian ports is estimated at Rs 16,000 crore, but the government would be lucky to rustle up even half of that. Where investment is either taking place or planned, the violence in Gujarat is forcing a rethink. Says Vivek Mehra, Partner, PricewaterhouseCoopers: ''Three LNG terminals were being planned in Gujarat-one at Dahej, another at Hazira, and third at Pipavav. Now, investors would not want to look at Gujarat as a destination for investment.''

So, the government must face a peculiar situation, where it desperately needs investors but is unable to inspire confidence in them. Last year, foreign direct investments were a bare $3 billion (Rs 14,550 crore). This year, they may be lower still. As for portfolio investments, the trend is obvious. There is a virtual race to get out of India, and those who want to stay are having trouble explaining why to their shareholders.

Linked to stockmarkets is also the question of cheap capital. Even at 11 per cent prime lending rate, interest rates in India are high. The IPO route is shut because secondary markets have been in the doldrums. Compared to May last year, the Bombay Sensex is down 5 per cent. Says Rajan Nanda, Chairman, Escorts Group: ''The economics of competition now squarely lies in the cost of capital. The cost of money should be pegged at 3-4 per cent in real terms (that is, minus inflation). This is core to good economic management.''

"The economics of competition now squarely lies in the cost of money. It should be pegged at 4 per cent in real terms." Rajan Nanda, Chairman, Escorts Group

Even Jalan admits that the benefits of the low interest rate regime of past two-to-three years have not spread evenly across corporate India. There are companies that still have to borrow at crippling rates of 15 per cent a year. A prolonged downturn, like that of the last five years, is all that it takes to push them into a vortex.

Borrowing more to invest in infrastructure is another option for the government. But again there are risks associated with it. An immediate fallout would be an increase in fiscal deficit, which is already frighteningly high at 5.7 per cent of GDP. Higher government borrowings will also increase interest rates and jack up industry's cost of capital too. Still there are people who feel that it's a risk worth running. Says Mehra of PricewaterhouseCoopers: ''Capital account fiscal deficit is not such a bad thing.''

Another way to get more money into the government coffers would be to cut non-productive expenditure, and prune both implicit and explicit subsidies. Today, the subsidy bill stands at 14 per cent of the GDP, or Rs 30,580 crore (budget estimates for major subsidies in 2002-03). Says nipfp's D.K. Srivastava: ''This kind of subsidisation is clearly unsustainable for any government.'' But only a government with a clear majority can even think of touching this politically-explosive issue.

Increasing the tax base is another means of enhancing the government's revenues (since essentially it's a question of the government needing to earn more than it spends). This can be achieved by bringing greater number of services under the tax net. The finance minister has already initiated the move (41 services are today in the tax net, as against 26 in 2001-02), but greater measures need to be undertaken in this area.

What's compounding industry's woes is the fact that fairly straightforward legislative work that can remove obstacles in the way of growth is not being done. Even members of BJP's own think-tank agree. Says Jagdish Shettigar, Chief of BJP's economic cell and a member of the National Committee: ''Unless policy intentions are allowed to be translated into measures, there cannot be any economic recovery.''

Indeed. Amendments to a number of import bills such as the Essential Commodities Act, the Industrial Disputes Act, the Electricity Bill, the Competition Bill, and the Fiscal Responsibility and Management Bill haven't taken place despite intense pressure from industry. ''Forget investment in infrastructure, can we at least have these bills amended?'' asks Ravi Sinha, CEO, SRF Ltd. In the absence of a Competition Law, mergers and acquisitions will continue to be decided by the government, without any proper economic analysis of impact on competition and consumers. ''Unless bills like the Competition Bill and Insolvency Bill are cleared by the Parliament, second-generation reforms can never take off,'' contends Pallavi Shroff, a partner at law firm Amarchand Mangaldas.

Not surprisingly, Sonia Gandhi's pitch at CII's annual meeting was based on ''governance''. She even spelt out what Congress' economic priorities were: to strengthen agriculture, create jobs, revive manufacturing, boost privatisation, and launch a food-for-work programme.

Despite Gandhi's hard-sell, only two of the 50 CEOs that BT polled telephonically were willing to see her as the prime minister, although a good 20 per cent were willing to have p. v. Narasimha Rao back as the Prime Minister. Half of the CEOs polled wanted Manmohan Singh as the Finance Minister (See CEO Straw Poll). Even if a Congress-led government did come to power, there's no guarantee that it will be any more effective than the NDA. Says Shetty of Fitch: ''Given the ascendance of regional politics in India, it appears that Congress would also need support of other parties in order to get a majority (in Lok Sabha).''

For corporate India, the writing on the wall is clear: be it BJP, Congress or xyz, the politics of uncertainty is here to stay. Survival is a battle that India Inc will need to fight on its own.

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