The slowing Indian economy is not responding to shock therapy. The stock market rally that began in September after the government unveiled its high-decibel reforms programme is fizzling out.
The country's benchmark index failed this month to surpass its October peak - a bearish sign for chart watchers. The rupee has weakened 7 percent since Oct. 4.
In some ways, the Indian selloff mirrors the fate of risky securities globally. The MSCI Emerging Markets Index is now lower than when the Federal Reserve launched its third round of quantitative easing on Sept. 13.
Fears of untimely fiscal cutbacks in the United States and a deepening of the sclerosis in the euro zone are weighing on sentiment. But skittish investors are only one part of the story. A much bigger challenge for India is the deteriorating financial cycle. A Breakingviews analysis of 16 years of monthly bank loan data shows that - after stripping out trend growth and seasonal fluctuations - the cyclical downturn in credit that began in early 2008 is yet to level off, let alone begin a recovery.
That's hardly unusual. Financial downturns tend to last several years, while a typical business cycle recession tends to be over in about 12 months, according to a study by Bank for International Settlements researchers Mathias Drehmann, Claudio Borio and Kostas Tsatsaronis.
In a bank-dominated financial system like India's, the lending and borrowing cycle is of particular relevance to investors. The benchmark Nifty equity index more than quadrupled during the credit boom that began in late 2003 and lasted through early 2008. It is currently trading 11 percent below its January 2008 high.
By pruning fuel subsidies, and announcing its decision to open up retail, aviation and insurance industries to greater foreign participation, the government has stoked expectations of an investment-led revival in an economy that grew as little as 5.5 percent in the June quarter, its worst fiscal first-quarter performance in a decade.
But recent economic data from New Delhi belie expectations of a quick recovery. Capital goods production, which has been lacklustre for almost a year now, collapsed in September even as the country's trade deficit widened to a staggering 14 percent of GDP on an annualized basis last month. With consumer prices rising about 10 percent year-on-year in October, investors are not expecting more than a couple of quarter-percentage-point interest rate cuts in the first half of next year.
A token reduction in the central