Quick, what's the difference between FBI and FDI? One is paid to spook around, and the other is too spooked to play around.

Either way, from the Indian perspective, neither seems to be going beyond half-measures. To gauge the disappointment, think back to the India of late 1991. This was the time that ambitious youngsters, for once, were not desperate to 'get the hell out' of the country, because the rest of the world would soon be desperate to 'get the hell in'. After decades of isolationism, India was opening its economy to foreign direct investment (FDI), and since China had been transformed by FDI in just a decade, there was good reason to rejoice. Awww-right-way to go!

Well, over a decade has passed, and the premature rejoicers are looking certifiably naïve. Alas, FDI into India has not gone exponential. It has averaged a pathetic 0.5 per cent of GDP, though bounty years such as 1997-98 and 2001-02 have seen the figure spike up to 0.9 per cent (China, meanwhile, is at 5 per cent and rising). The trouble is that such FDI is just too meagre to make a noticeable difference to the electorate's fortunes. And so long as this is so, the whole case for FDI remains in danger of losing out to microscopic (even myopic) local interests.

Saw last fortnight's spectacle? The Union Cabinet deferred a decision on the FDI proposals made by the N.K. Singh Committee asking for greater foreign equity participation in the domestic insurance, telecom and aviation industries.

As a symbolic move, to signal the government's reforms intent, a go-ahead mattered all the more because of the Cabinet Committee on Disinvestment meet that stalled the sell-off of oil PSUs. Sure, privatisation is not the be-all and end-all of liberalisation, but it has a direct bearing on the familiar questions that seem destined to haunt us in perpetuity. Will India ever move from big government to small? Will fiscal rectitude ever be observed? Will private capital from overseas ever swarm in? Will the government ever take a cohesive view of FDI's role in the Indian economy?

Predictably, global rebuke was swift, as expressed by the Standard & Poor's downgrade of rupee debt to bb+. Indian bond yields, however, haven't risen; nor has local lending visibly shuddered. That's a relief. By way of damage control, the Finance Secretary has done well to highlight the economy's positives. Growth is okay, forex reserves are high and, a big electorally relevant fact, inflation is subdued.

There's no need to overreact to world opinion. But get real, we must. Take FDI. As it is, India traumatises foreign investors with a thicket of procedural encumbrances, infrastructural deficiencies, one-way capital-account convertibility and uncertainty on policy direction. Feels more like a bed of nails than a red carpet. Anyhow, the brave businesses-less than half the Fortune 500 are here -who do venture into India, do so either for global idealism (Coke and Pepsi) or for extreme long-termism, to invest for the eventual benefit of their "children's children" (GE and Nestle).

Satisfactory? No. FDI won't work its magic until it hits at least 3 per cent of GDP (say, $13 billion). For that, businesses must not just be eyeing India, but salivating at the prospect of entering the market. For that, everyone needs a good thwack of realism.

'Strategic sector' protectionists must realise that rapid economic growth (powered at least partly by FDI) is the only worthwhile strategic tool for a country with as many people as the US population unable to afford minimum daily calorie intake. Sundry 'swadeshi' sentimentalists must learn that India cannot be a superpower without economic success, and for that it simply needs the world's capital, not to mention intellectual resources.

Lastly, isolationists must admit that India isn't a planet in an orbit of its own making, free to defy universal laws. Remember what the International Monetary Fund-man Stanley Fischer said at the India Today Conclave last February? "There is no divine dispensation that gives India alone the power to survive and prosper as an isolationist island in a globalised world." Know who he was quoting? The Indian Prime Minister's Economic Advisory Council.