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Old May 17th, 2004, 03:40 PM
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Talking Indian Investors Pin Market Fall on Gandhi

NEW DELHI - Angry investors chanted "Down with Sonia Gandhi" outside India's stock exchange Monday, blaming the country's prime minister-in-waiting for a panic that led to the biggest one-day plunge in the market's 129-year history

With the financial community unsettled about the possibility of a communist-backed ruling coalition, Gandhi's government is in deep trouble even before it takes office Wednesday.

Since Thursday, when Parliament election results showed Gandhi's Congress party would be able to govern only with support from pro-labor, anti-privatization communists, India's capital markets have bled some $45 billion, brokers estimate.

The outflow culminated in what TV newsmen called "black Monday."

Regulators closed the markets twice: Rules require suspension of trading when stock values change more than 10 percent in a day.

After intervention buying from state banks and financial institutions, the Bombay Stock Exchange Asia's oldest recovered halfway from its 800-point intraday fall, the worst since it opened in 1875. It closed at a 12-year low. The National Stock Exchange, India's largest, plunged 17.47 percent, the worst day in its 10-year history.

Indian investors whose funds have helped pushed growth to 8 percent in the past year, providing the capital needed to build highways, dams, hospitals and schools were furious as they watched their holdings shrivel.

They blame Gandhi, who had pledged to go forward with India's economic liberalization, for not making any reassuring statements to investors since her election victory.

The 57-year-old widow, who was criticized during the campaign for lack of experience in government and for coasting on her famous name, didn't mention the economy in a nationally televised speech Saturday a day after markets suffered their worst one-day plunge in four years.

Most of the fleeing funds belonged to foreign investors, who had put $7 billion into India's markets during a yearlong rally.

"There's a possibility this government might not last for more than a year," said Rahul Sen, an economist with the Singapore-based Association of Southeast Asian Nations Economic Bulletin.

In the meantime, he said, "the reforms process is going to slow down. Probably the disinvestment (privatization) process is going to be stopped."

Gandhi's communist allies insist no profitable Indian government entities should be sold, while manpower and money should be spent to improve unprofitable ones.

The communists, with 62 seats in the 545-member legislature, announced Monday they would not join Gandhi's government but rather provide it only legislative support to give Gandhi the numbers needed for a parliamentary majority.

"The left is supporting from outside, but this confusion is because they can still wield pressure on the Congress constantly," said D.R. Dhariwal, one of the chanting investors outside the Bombay stock exchange. "Each party head is making conflicting statements. That's the problem."

Gandhi was to meet Tuesday with President A.P.J. Abdul Kalam to discuss formation of the government. She will be sworn in as the first foreign-born leader of this nation of 1 billion people on Wednesday, said her party officials and allies.

Gandhi's Congress and its allies trounced the National Democratic Alliance led by Prime Minister Atal Bihari Vajpayee in the elections. It was an extraordinary upset, as all polls had indicated the booming economy and Vajpayee's unprecedented peace gestures toward Pakistan had assured him another five-year term as prime minister.

The stock market dive over the prospect of Gandhi's becoming prime minister contrasted sharply with the euphoria that gripped the markets five years ago when Vajpayee was again named prime minister. The Bombay Stock Exchange closed at a record high of 5031.78 points on that day in 1999, the first time the index had closed above 5,000.

Gandhi's only comment after the election on the economic fears was made Thursday, to La Repubblica, a newspaper in her home country, Italy: "In reality the reforms were started by my husband and by the Congress. And those reforms will be continued by the government of the Congress."

India spent four decades after its 1947 independence from Britain following a Soviet-style model of central economic planning, control of business and protectionism.

Her late husband, Prime Minister Rajiv Gandhi, began reforming the system in the late 1980s. But changes were slow, even though Rajiv Gandhi had a record 400 of Parliament's 545 seats to push the economic changes.

Between Rajiv Gandhi's assassination in 1991 and elections in 1996, his party colleague and successor P.V. Narasimha Rao gave the first real push to changing the old economic system.

Vajpayee's government broadened many of those policies. But it was accused of going slow on firing unproductive government workers, a major vote bloc, and not getting taxpayers the best deal on sales of profitable state concerns.

India's economic liberalization now entails selling government companies, relaxing rules that hamper entrepreneurs and keep employers from streamlining their work forces, and opening India's markets to products, services, capital and competition from abroad.

Business leaders fear frequent strikes favored by the communist parties. And there is concern about the Congress and leftists' tendency toward subsidies or giveaways to placate restive blocs such as rural farmers.

"Policies are going to be pro-labor now. More and more protection will be given to workers and not employers," said Ravi Basavaraju, whose 10 workers supply machine tools to factories in the southern state of Karnataka.

Manmohan Singh, finance minister in the 1991 government, is likely to regain the post in Gandhi's administration. He tried to calm fears Monday, saying: "We are pro-growth, pro-investment, pro-savings and pro-employment. There is absolutely no need for panic."

But his comments on privatization were less than the resounding assurance investors awaited.

"We are not pursuing privatization as an ideology," he said. "Wherever privatization is necessary in the national interest it will be carried forward."
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Last edited by DesiBaba; May 17th, 2004 at 03:43 PM.
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