In its report on `Removing impediments to India's emergence', submitted during the recently-concluded Euromoney conference in Delhi last week, Jardine said there was a need for consistent and transparent policies, clarity of regulation and a machinery to drive implementation.

A strong political consensus on the way forward would also help. "Progress on infrastructure is not just a national issue; implementation at the state level is a critical issue and often there are bottlenecks caused by lack of institutions and machinery to carry approvals through to implementation," it added. Attracting foreign capital hold the key to filling the bulk of the remaining "growth gap". Jardine estimates that nearly athird of all infrastructure investments will have to be funded through foreign capital.

Which means "increasing the absorptive capacity of the economy." The Jardine report is, on the whole, optimistic of the longer-term prospects for India. India's avoidance of the worst of the Asian crisis was evidence that it had been prudent to take a more measured view of opening up its economy, and valuable lessons had been learnt from the experience of other countires. "Its many underlying strengths give its resilience and, over time, will ensure that it will emerge further."

The report, however, says that loss-making public sector units (PSUs) are a major drain on government finances. Of the 240-and-odd PSUs, over 100 were reckoned to be loss-making. These losses amounted to Rs 5,000 crore in 1996 while the budgetary support to all PSUs in 1996-97 was Rs 4,700 crore. Ironically, total assistance to loss-making PSUs that year was budgeted at around Rs 2,200 crore.

Robert Gibson, country head of Jardine Fleming,notes some positive changes on this front. "We have seen some positive statements recently about disinvestment, tackling the problems of PSUs, and most recently about privatisation, that is to say, sale of majority stakes in businesses, and ceding of management control." However, Jardine believes that it was only by going that extra step that one releases the full dynamic effect of disinvestment, and welcomes the apparent recent changes in attitudes.

Gibson says that one of the major impediments to PSU reform has been the lack of a viable labour exit policy and transparency. "Political and popular support is absolutely essential. Privatisation is intensely political, as it starts from a different doctrinal belief from that which ruled before, and involves a redistribution in wealth and power," he said.

The report says that India's largest industry, agriculture, a huge undertaking tied up with poverty alleviation and politics, has quite largely been bypassed in the reform process. Similarly, subsidies areanother contentious issue as it is going to be tough to roll back subsidies even if a sound case can be proved. Central subsidies account for more than Rs 22,000 crore and are dominated by fertiliser and food subsidies. The aggregate level of subsidies for all services provided by central and state governments constituted nearly 14.4 per cent of GDP.