Most analysts would blame global cues for the current slide in equity markets and the fact that FIIs were net sellers on Thursday, pulling out some Rs 488 crore. That event appeared to mirror sliding stocks in the US and Europe, with the result that the Sensex closed more than 2 per cent lower, falling by 371 points. The ups and downs in value as the market wisdom goes, is here to stay. But here's a thought. The US and Europe have solid reasons for sliding stocks; both economies are facing rough weather, the former because of the reluctant recovery process and the after-effects of downgrading, the latter because of a debt contagion that at the very least will drain the EU of a great deal of its savings to keep its weaker members afloat. So if stocks appear ‘manic depressive', to use Paul Krugman's memorable phrase, there is reason enough. But Indian stocks? Both the present and immediate future appear positive for the economy's fundamentals; India's growth prospects remain good even after discounting for a slide below 8 per cent in view of anti-inflationary policies. Interest rates here are much higher than in the US, where they remain less than 1 per cent. Yet, capital is moving out; since January this year FIIs have taken out Rs 13,000 crore, according to stock exchanges. One wonders why. Portfolio investors may be fickle friends but direct investments, too, are not exactly flooding in. Since September 2008, FDI has been falling after the consistent increase in the four years to $34 billion in 2007-08. Although the government maintains that there are signs of a turnaround this year, with inflows in May and June 2011 sharply up over the corresponding period in the previous year, it might be too early to come to conclusions. Admittedly, in the case of FDI, other issues than pure governance matter; environmental clearances, land acquisition problems and state-level problems can prove to be even more cumbersome, often stymieing projects as Arcelor-Mittal or Posco. So far, New Delhi, despite its many failings, at least provided some level of comfort. It is important to raise that bar sooner than later. Granted that there is some short-term turmoil but the long-term prospects must be recognised as good and, yet, direct investors too aren't rushing in.

The conclusion seems inescapable. The government's confused and helpless reactions to widely perceived misuse of political power, gets investors nervous. When policymakers rely on the arrogance of a two-year old electoral victory and its police to arm-twist a democratic protest, the world feels that New Delhi cannot absorb and learn as much from peaceful dissent as it has from complacent consensus.

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