Last week, the PM?s Economic Advisory Council, the think tank of the government, revised its projection of GDP for 2012-13 from 7.6% to 6.7%. The primary reason cited for the downward revision is the declining growth in agriculture from 2.5% envisaged earlier to 0.5% currently assumed.

Industrial production, and out of that manufacturing output have been estimated to grow at 5.3% and 4.5% respectively. It must be appreciated that even this moderate growth in these two sectors hinges on flow of investment which is dwindling.

Gross domestic fixed capital formation has come down from 32.9% in 2007-08 to 29.5% in 2011-12. For 2012-13, it is assumed at a rate of 30.0%.

A break-up of the investment component would also establish that the decline is most prominent in private corporate investment coming down from 14% of GDP in 2007-08 to less than 10% in 2011-12. It is now widely accepted that PPP route of investment is failing to enthuse the private entrepreneurs to participate in infrastructure build-up. The upward trend in flow of investment, especially in private corporate segment, however, is contingent of a host of other factors. Policy measures under the category of economic reforms like FDI entry in retail sector, adequate viability funding with long term financing of investment, guidelines for land acquisition and compensation to the displaced persons, regulation and development of mining and mineral sectors, environment clearance norms, to name a few, would create an enabling environment for investment.

These are likely to take a long time as all of them are open to public debate and concurrence.

For a short term measure that can spruce up the market sentiment and investment climate is the lowering of the interest rate. This is intriguing that high rate of interest, although cited as one of the major reasons for declining investment by many of the government agencies; the RBI has been steadfast in having a stable interest rate.

It has enhanced the money supply by lowering the statutory liquidity ratio rate from 24% to 23%. But cost of credit continues to remain a major hurdle.

The perceived trade-off between interest rate and rate of inflation seems to have taken a heavy toll on market sentiment. The theoretical logic behind this trade-off is well known. But to bring back the animal spirit, a few risks would have been appropriate.

China is making a sincere effort to reverse the declining GDP growth rate by introducing a limited stimulus measure along with a drop in interest rate.

This experiment would be validated within the next few months. Similarly, some economic activities could have kick started the progress in India to be reflected in growth in industrial outputs. Regrettably, the waiting period for the sunny days to come again has been agonisingly long.

The author is DG, Institute of Steel Growth and Development. The views expressed are personal