Fear of Gandhi government prompts record market fall

Click to follow
The Independent Online

The Congress Party leader, Sonia Gandhi, will be sworn in as Prime Minister of India tomorrow, but an economic crisis is developing as it becomes clear she will have to lead a minority administration.

The Congress Party leader, Sonia Gandhi, will be sworn in as Prime Minister of India tomorrow, but an economic crisis is developing as it becomes clear she will have to lead a minority administration.

Mrs Gandhi, 57, is due to meet the Indian President A P J Abdul Kalam this morning to discuss forming a coalition government, said a senior Congress leader, Manmohan Singh.

India's main stock market suffered its biggest fall yesterday amid investor fears about the incoming government's economic policies. Shares on the Bombay Stock Exchange crashed more than 15 per cent before trading was suspended for a second time during the morning session. After reopening, prices bounced back but the exchange still finished the day down by more than 11 per cent.

Investors are worried that the government will slow the pace of reforms that have helped India to become the second-fastest growing economy in Asia after China.

A coalition led by the Congress Party won a shock election victory last week over the Hindu nationalist Bharatiya Janata Party, but Congress needs the support of Communist parties to form a government. Those parties said yesterday they will not join Mrs Gandhi's government but would lend it limited support. She will, therefore, lead a minority administration. Investors fear the left wing will block reforms, such as the privatisation of state-owned companies.

Mr Singh is expected to be the new finance minister, and yesterday he tried to convince investors that the Congress Party would fulfil its commitment to liberalise the economy. He said: "I wish to assure the investing community our policies will be pro-growth and pro-savings. There is absolutely no need for panic in the markets."

Mr Singh said the governing coalition would be called the United Progressive Alliance, which will be led by Mrs Gandhi. She is to become India's first foreign-born Prime Minister, but she delayed meetingMr Abdul Kalam yesterday to seek formal approval to form a government.

Many BJP members won't be at the swearing-in. The party says the boycott is in protest against Mrs Gandhi's foreign origin. She was born in Italy and moved to India only after marrying Rajiv Gandhi in 1968.

"The BJP feels it is a black day in the history of independent India," the party's president, M Venkaiah Naidu, said. "Had it been any other leader we would have had no problem." During the campaign the BJP said if it were re-elected it would amend the constitution to reserve the post of Prime Minister for people born in India.

Comments