Indian stocks stage comeback
 | |
|  VIDEO |
 Some Indians are outraged at Gandhi's victory, claiming it is a shame to have a prime minister not born in the country.
 The Italian-born woman who married into India's political spotlight.
|
RELATED |
• Behind the election backlash
• Pakistan: Peace talks to go on
 • Sonia Gandhi: Fairy tale and tragedy
• Gandhi: A name that spells magic
|
|
(CNN) -- India's markets have rebounded after Monday's meltdown that saw investors dump shares on worries about the country's new Congress-led government.
The main Mumbai stock index closed up on Tuesday 8.25 percent at 4,877 points.
On Monday the Sensex closed down 11 percent at 4,505.16, after plunging almost 16 percent at one point.
The market was closed twice during the day to try to stem the rout.
Investors feared a new government will slow or halt the economic reforms that have delivered 8 percent growth to the world's biggest democracy.
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 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 on Monday forced authorities to use their "circuit-breaker" rules to close the Sensex and another market, the NSE, twice after the dramatic slide.
On the currency market, the rupee was firmer, moving away from an eight-month intra-day low struck on Monday, while bonds rose as the central left interest rates on hold.
On Tuesday, the rupee was quoted at 45.47 a dollar in mid-morning trade against its previous close of 45.520.
Monday's market slump came as Sonia Gandhi moved 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.
Growth outlook
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.
| | INDIA'S GROWTH | 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
|
|
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.
