India is to launch a $35bn wave of public sector investment to reverse a decline in the fast-growing economy's growth rate and return it closer to double digits, according to the prime minister's office.

The emergency stimulus measures are in response to widespread criticism of policy paralysis in New Delhi and a dramatic fall in economic growth to 7 per cent from an earlier 9 per cent.

The government of Manmohan Singh has ordered 17 state-owned companies to use money currently held in reserve to invest in a mixture of infrastructure projects and overseas energy purchases.

"They are sitting on piles of cash," said one official of the urgent need to trigger a mobilisation of currently "inactive" resources to boost confidence in the economy, and promote India's energy security.

The move is also an attempt to prompt private-sector companies - which have expressed reservations about investing in the domestic market - to follow suit. But some observers have criticised the move as a throwback to the "old formula" of the 1970s when then prime minister Indira Gandhi used public infrastructure spending to boost growth.

India's top policymakers are worried about the economy's loss of momentum, and ebbing business confidence after a dismal year characterised by political bickering, high profile corruption scandals and an exit of foreign capital.

David Fuller's view Something had to be done because India's national government has developed a reputation for bureaucratic incompetence, fatigue, inertia and corruption. Some observers, including Fullermoney, not to mention India's excellent free press and increasingly vocal middleclass, would rather see the government tackle these issues. Some fear a drift back into "old-style socialism."

These perceptions are important, not least as they will influence the flow of foreign direct investment (FDI). Those who provide FDI are understandably only interested in opportunities in the global market. Governance can make the difference between whether India is viewed as the glass half full, in which case the long-term potential is enormous, or half empty in perpetuity.

I had viewed India as an interesting enigma for decades. However, in 2003 I became convinced that under Manmohan Singh's earlier leadership the country had finally and irreversibly embraced the free market capitalistic system, after seemingly trying everything else. Now Mr Singh, of all people, seems less certain of the path onto which he had guided India's economy two decades earlier.

I think India's stock market (weekly & daily) has probably bottomed, but only because indices in other countries around the world are leading the recovery. If India is unable to improve its relative performance in the developing cyclical bull trend that Fullermoney envisages, I may look for opportunities to lighten my overweight position.

(See also Eoin's review of relative strength leaders in India's stock market, posted below.