The good thing about FII investments at this point of time is that it has underwritten the stock market bottom for other players at least for the next two years to come. What more can the long term investor ask to repose his confidence in the market?

The general elections is now set to September-October period. But that has not upset the market! As I had argued earlier, the BJP has indeed turned the tables on the opposition.

The Bofors tanker has been rolled out of the shed again and could embarrass opponents. On the economic front, the government might as well earn some mileage by giving their attention to implementing the provisions that hasbeen made in the budget for the social sector, health and education. These are subjects close to the hearts of millions of poor voters.

Coming back to the longer term undercurrents, the lines between the political and economic arena has been getting more and more clearly demarcated, especially over the last three years. Inability to grow faster has been everyone's complaint and Industry has been lamenting the deficiencies in the infrastructure as one major contributory reason. But even here, the picture is getting clearer. Yashwant Sinha has rightly pointed out that the only way the infrastructure industry can sustain growth is through proper pricing of the services, be it roads, power or water. And here we have yet to pick up speed and the political, legal and social speed breakers are many and frequent.

In any case, the poor utilisation of SBI's Reconstruction bonds is proof that want of funds is not the real problem here. Want of bankable projects and an enabling legal and social environ is theproblem.

There are isolated oasis in successful infrastructure projects like the roads in Andhra Pradesh, but the Centre has displayed no capability of learning from these models. With these constraints, the only way funds can flow to fuel the growth engine is through portfolio and increased FDI. Under the circumstances, the cement and steel industry would have to look only at the growth in housing sector to feed themselves. Luckily here, the BJP government has been perceptive enough to give sufficient incentives in the budget to add to housing sector growth.

Exports continue to be our Achille's heel. Funding for textile renovation has been cleared and the government might as well move to selectively target investments, which can add to export growth.

The NCAER survey has reported business confidence at a 12-month high. Industry captains expect a 8.2 per cent sales growth in the next six months. This is in line with the current crop of results. This, coupled with the litmus test of FII investmentsshould embolden investors to increase their commitment to stock markets. Also look at it this way. At the same time, do not fool yourself. There is little any government or the industry can do to drive the economy into a higher growth path. The best that can be done is to ensure that the fiscal position of the government is not allowed to deteriorate further. With the disruption in governing and elections around, the fiscal deficit in the current fiscal is bound to widen further.

But on a longer term view, it has become necessary to institutionalise the process of fiscal discipline. Sinha has already pointed out that coalition governments are not likely to bind themselves to rigorous discipline on this count at the present juncture.

Given the fluid political scenario, the argument for setting up a Finance Commission, which will oversee fiscal discipline in a regime of changing political colours, is an urgently-needed step. Such an underwriting can add much to the flow of both portfolio and FDI funds intothe country. India has been rather insulated in the violent fund pull-out that shook south east Asia in the last two years. A total of $109 billion of private capital flew out of the five countries (Korea, Thailand, Malaysia, Indonesia and Phillippines) between the years 1996-97, resulting in a net outflow of $12 billion from an inflow of $97 billion. This happened because of the inherent weakness in the fiscal structure.

The subsequent restructuring in these countries is what has triggered the new flow of private investments into these countries, now. Yet another factor which has contributed to the portfolio flow is the nervousness in the American economy for the fund managers. Though the American economy is growing constantly, it has some important structural fissures, which can erupt into an earthquake any time. It makes good sense for portfolio managers therefore, to invest in diversification.

Should India institutionalise fiscal discipline, it would add enormously to the country's rating. The centralbank has already earned a reputation of charting its own mandate, despite occasional pressures from politically- oriented bureaucrats. It is now important to proceed further to establishing the Finance Commission. The setting up of the commission will force the different political combinations at the centre to fall in line. Indirectly, such an institution will drive the differing political elements to thrash out their differences on subsidies and pricing for the major products and services for the vast masses. It will also strengthen the national economy by providing a framework and role of an ombundsman for the states.

No investor can afford not to recognise the pattern of the slow but sure path of reform. Over the years, the nation has learned to live with the ground realities. As this proceeds further, there is certainly hope for the long-term investor. He might still be able to beat inflation, by investing in stock markets. The current flood of FII investments, to my mind, reflects this assessment.