This author had pointed out the possibility of the Sensex taking support at the 4756 levels in the technical column on Friday. The index did take support close to this. But even though the market bounced, it closed weak. In fact, for the Sensex, both the opening and closing had been weak. That leaves a big question mark for Monday.

Now that the euphoria over the BJP-led coalition returning to Parliament with comfortable numbers is over, it is time one took a look at the possibilities down the road.

The Parliament will be in session for just one week. No doubt, some important pending legislation will be passed, but market players will need to wait awhile to know the government's game plan for the economy.

The first signs emanating from government rightfully speaks of doing the needful to attract higher FDI inflow. While we have been talking about the need to attract FDIs to the tune of at least $10 billion per year, the fact remains that FDI flows into India have fallen from $3.35 billion in 1997 to $2.26 billion in 1998. Closer home, the inflows during the April-June 1999 period have amounted to a paltry $454 million. The writing on the wall is clear. While portfolio flows have the potential to ebb and flow depending upon the comparative and tactical advantage Indian markets may offer at any point of time, FDI flows are more influenced by the environ for the more sustained investment into the economy being just right, the latter obviously is not the case.

Unlike portfolio investments, FDI investments have to provide for higher discounting to the exchange rate possibilities. The returns that can be generated will have to be measured in terms of both the exchange rate as well as inflation and interest rates.

In other words, unless the fiscal picture improves, or alternately we move faster towards capital account convertibility, we are unlikely to be successful in attracting the kind of FDIs that flow into China - of the order of $45 billion.

While the journey down the capital convertibility road will have to be a deliberate and slow one, the potential for improving the fiscal deficit at home does look daunting. The track record on tax-GDP ratio is far from reassuring. The Centre's gross tax revenue to GDP has fallen from 10.0 per cent in 1991-92 to 8.9 per cent by 1997-98. In 1998-99, this ratio has fallen further to 8.5 per cent.

Successive finance ministers have realised the importance of bringing down the fiscal deficit and have been talking of bringing down to 4 per cent over the span of the next few years. But how would they go about achieving this is still a mystery.

The fiscal deficit is refusing to be tamed down and has actually risen from 5.7 per cent in 1997-98 to 5.9 per cent of GDP in 1998-99. Surely, the government can take solace that increased oil price would earn higher customs revenue for this fiscal, but this is a misplaced comfort. On the other hand, what should worry the government is, non-oil imports have been on the downtrend, indicating a slowdown in the industrial growth. Not enough capital goods, technology or chemical inputs are being taken into the economy.

This brings you upfront against the misplaced euphoria about the latest improvement in the GDP growth rate. True, the manufacturing and mining sectors appear to have contributed, while agriculture has fallen behind, a closer look will reveal that the manufacturing sector is yet to show a significant uptrend over the longer term. On the final count, if the growth rates in recent times have been buoyed more by sectors other than manufacturing. The sectors that have contributed are agriculture and services.

It is in recognition of this performance and promise, that last week I had argued that the agriculture sector needs to be fully exploited. On the manufacturing front, while the cement, steel, auto and pharma sectors are doing reasonably well, we cannot afford to forget that the growth in these sectors too appear to have been driven mainly by growth in the agriculture sector. Capital goods sector did record some improvement though.

Quite often, we fancy that India can skip the manufacturing stage in the development and jump to the stage where services fuel the GDP growth. In India's case, may be a combination of services and agriculture can still make up for the manufacturing sector and exports, which are yet to be running in the forefront of global competition. But to keep the buoyancy while manufacturing tries to catch up, we need a more aggressive policy on the services front. The markets, however, will have to live with the volatility inherent in agriculture's contribution to GDP.

With such a complex picture, is it any surprise that the FIIs were tempted to book profit and wait for the prices to move down. Further down the road, it is now a trade-off between how low stock prices can go and the shape of the government's game plan on the economy. I would not be surprised if the fund managers wait to test the bottom, now that they have booked their profits.