AT THE start of 2012 India offered a cocktail that seemed guaranteed to be lethal for foreign investment: a faltering economy, corruption and political gridlock. In March came the final flourish, the equivalent of the barman spitting into your Death in the Afternoon. A budget was passed that aimed retroactively to tax Vodafone, the country’s biggest foreign direct investor, and to clamp down on the holding structures used by most foreign investors, in particular the routing of money through the low-tax paradise of Mauritius.

In April alone, foreigners sold almost $1 billion of portfolio investments in listed shares and debt. Such outflows are scary. India runs a current-account deficit, which it aims to plug with portfolio inflows and foreign direct investment. After a record deficit relative to GDP of 4.2% in the year to March 2012, the deficit this fiscal year is expected to be 3-3.5% of GDP, or $50 billion-60 billion. To fund that kind of gap safely, India needs the world to be bullish about it most of the time.