The stock market will have to be first given a `thumbs up' by domestic investors before foreigners are going to bite again. Unlike foreign investors who have several alternative equity as well as debt investment options to choose from, the Indian equity investor has only the Indian stock market.

Direct as well as indirect (through mutual funds) investment by Indian in the stock market has fallen over the last few years. And the reasons are there for all to see. An average individual investor has no confidence in the stock market, courtesy the complete destruction of faith in the system because of heavy losses suffered in the stock market during the primary market boomand the failure of Sebi to come to grips with governance in the market. The insider continues to make money all the time from leaks of M&As to open offers to foreign sellout. Not a single soul has so far been found guilty.

What will it take to bring the investor back in--is it by offering government shares at a discount or by boosting the primary market as many experts seem to suggest. Unfortunately there is no short cut solution to reviving this market. Just as there are no short cuts to stop the slowdown that is fast becoming a recession.

The things to do to bring the domestic investor back are exactly the same that the foreign investor is asking for--take action required to put the economy on a fundamental growth path.

First of all, the government should start taking the hard decisions which government after government keeps postponing. Forget divestment--talk privatisation. It means that the government should wholly get out of the likes of SAIL (before it is referred to the BIFR); to get out of LIC,GIC, MTNL, VSNL and DoT (when the companies are still making profits); to get out of HPCL, BPCL and ONGC; to get out of Nalco, BHEL and SBI. It does not mean that the government should not hawk Modern Foods. But investors--foreign or domestic--don't care about Modern Foods.

And remember not to use the sale proceeds to pay the remaining government servants extravagant raises. To talk about achieving a fiscal deficit of 4.5 per cent because of sale proceeds from privatisation is a crime--it's like selling your factory to pay your electricity bill and that happens only when the entity is not a going concern. Reduce the killing domestic debt burden of this country! Or spend on roads and ports and better infrastructure. Spend on education and health and the social sector, on family planning.

Second of all, get tough with the farmers. Remove subsidies, tax the farm rich, charge them for power. There is no free launch. Someone ends up paying for those subsidies. Our energy intensive commodity businesses cannever be globally competitive (and you need to be that, to face the future) if we continue to subsidise agriculture. At Rs 4.50 per kwh, Indian power must easily rank as the most expensive in the world.

Third, get tough with the bureaucracy. Why on earth do we need the army of ministries that we have--ministry of steel and mines, for instance. Post-privatisation, you won't need any of that. Imagine the amount of money that the government will save.

Move out of prime land. Half of downtown Mumbai and all of Delhi, just to mention, is owned by the government, just get the hell out of business districts. If profitable multinational companies (with revenues larger than our budgets) can do that to cut costs, why can't the government move on these issues?

The Indian slowdown started two years back and we are currently at what most believe to be the peak of world economic growth. Global growth is expected to slow sharply next year, and remain that way for sometime. Remember that the slowdown experienced byindustry is not cyclical, it is structural. Take the banking system for example. Years of directed credit, coupled with political interference must easily mean that we have amongst the highest NPAs in the world. And where is all the new credit going? Institutions keep showing huge disbursement growth when a sum total of proposed gross block additions of the corporate sector-private as well as public--show a sharp fall. In fact, capex plans of most companies are restricted to normal capital expenditure. A look at institutions' steel exposure shows that the bulk of the new asset additions will be sub-standard--this seems to be the prelude to nationalisation of these institutions, to prevent a collapse of the financial system.

I am not saying that private sector companies are doing better. Most of the private sector have been large beneficiaries of the graft associated with the license regime. Get a licence, get 80 per cent funding from institutions on overcapitalised projects, fund your equity from theovercapitalisation, take all that you need during the project stage and you have a cost-plus regime of administered prices to take your protection profits.

Open up the economy and where are all these mighty industrialists--I dont think I need to name them. Yet there are a substantial chunk of companies that are doing well. But they are hampered by implicit taxes by the government. Electricity is just one of them.

India has a great chance to redeem itself. But for that we need political will. And surely not for the nuclear variety. Stock markets operate on fear and greed. It is all about risk and reward. Nuclear blasts are all about additional risks to a faceless investor 20,000 miles away. The rewards have just not been there. The government can act. But will it?