Investors flee Gandhi's India
Markets are plunging in India on fears the country's reform program may be derailed.
Recent GDP rates
2000-01: 3.9 percent
2001-02: 5.5 percent
2002-03: 4.6 percent
2003-04: 8.1 percent
2004-05: 6.5 percent (F)
Source: IMA Asia
(CNN) -- Investors in India are dumping shares on fears the country's new Congress-led government will slow or halt the economic reforms that have delivered 8 percent growth to the world's biggest democracy.
The country's biggest stock market, the Bombay Stock Exchange in Mumbai, is down about 7 percent in Monday afternoon trade.
That comes after it fell almost 16 percent and was closed twice earlier in the day to try to stem the rout.
India's election in April-May took place against a background of supercharged economic growth stemming from one of the best monsoons seen in a decade.
But the shock victory for Sonia Gandhi's Congress party last Thursday has prompted a massive early vote of no-confidence by business, despite promises of an investor-friendly atmosphere and no end to the reform process.
The selling forced authorities to close the BSE in Mumbai after it plunged 11 percent in the first minutes of trade Monday.
Authorities used their "circuit-breaker" rules to close the BSE and another market, the NSE, for one hour after the dramatic slide.
The BSE 30-share Sensex index, which lost 6.1 percent on Friday, dropped below the crucial 5000-point level Monday and was down to 4549.62 when trading was halted.
Trading resumed at 11.15 a.m. local time, but was halted again for a further two hours after just two minutes of trading which saw the Sensex fall to as low as 4227.50.
When the market reopened at 1.20 p.m. local time it recovered to be about 7 percent lower at 4715.44.
On the currency market, India's rupee is trading Monday afternoon at 45.945 to the dollar, after touching 46.01 earlier in the day, its weakest level since August 2003.
CNN's Ram Ramgopal in New Delhi said there is one operative word in India at the moment, and it is fear, as investors realize that the Communists who Gandhi will have to rely on to form a government, are against privatization.
He said selling is not quite done, hedge funds are pulling out, and there is a lot of panic on market floor
The market slump comes as Sonia Gandhi moves closer to forming a government.
Senior Congress leader Pranab Mukherjee said the market's fall was a surprise as there was no confusion on economic policy between Congress and its allies.
Mukherjee, a former finance minister, promised the new government would foster an "investor friendly" atmosphere, according to Indian media reports.
The Congress party, which began the reform program more than a decade ago under PV Narasimha Rao, has promised to push ahead with economic reforms.
The then-finance minister Manmohan Singh, who is tipped to return to his old job, led that reform push.
In a bid to reassure investors, Singh said on Monday a Congress-led government will be pro-growth and pro-reform.
Financial market development will be a key priority, and it wil opt for "selective disinvestment" in the controversial area of privatization of state-owned enterprises, he said.
But some investors are worried that Gandhi's leftist allies may seek to block some reforms, particularly privatization of government-owned enterprises.
Some leftist leaders have suggested scrapping the Disinvestment Ministry, the body which has overseen government privatization efforts.
The BJP-led coalition government raised $3 billion in the 2003-04 financial year through the Disinvestment Ministry's sale of stakes in various state-run companies.
Some leaders of the leftist parties wanted to join the Congress in government, but they have now decided to stay outside so they can maintain their ability to speak out.
The Indian government recently raised to 8.1 percent its estimate of GDP growth for the year that ended March 31, following a spectacular 10 percent year-on-year jump in the December 2003 quarter.
Growth is moderating, but should still reach 6.5 percent for the year to March 2005, according to the latest forecast by Adit Jain of regional analysts IMA Asia.
India ranks as the world's 12th largest economy -- and the third largest in Asia behind Japan and China -- with total GDP of around $560 billion. Agriculture accounts for about a quarter of that figure.
The key question for the country's 1.2 billion people is whether this year's 8 percent growth rate is sustainable, or simply a one-off piece of monsoon magic that has given the massive agricultural sector a temporary lift.
Opinions among analysts are mixed, but all agree that structural reform must continue if India is to have any chance of maintaining the growth spurt.
Amit Mitra, Secretary-General of the Federation of Indian Chambers of Commerce and Industry, told CNN last month that among the further reforms needed were flexible labor laws, lower power costs, lower interest rates and better infrastructure -- particularly for roads and ports.
As well, he said Indian needed a fresh agricultural revolution that would benefit the 50 percent of the population who live in rural areas.
IMA Asia said recently that India's business operating conditions were likely to remain among the worst in Asia.
It cited high levels of bureaucracy and corruption, combined with poor services such as power and transport.
"Companies whose business plans rely on government decisions (utilities pricing etc) will face considerable risks," it said.