INDIA: Ms Sonia Gandhi's incoming coalition administration faced its first serious crisis yesterday before even taking power when India's stock markets plunged to their lowest levels in 129 years, fearful of how her Communist backers would influence market reforms.
Ms Gandhi also postponed her meeting yesterday with President A.P.J. Abdul Kalam to formally stake her claim to forming the government, a senior Congress party said without elaborating.
She is expected to present the president letters from 11 coalition partners including the Communists endorsing her leadership of a Congress-led alliance today, a day before being sworn into office.
Shares in India's financial capital Bombay crashed almost 16 per cent, forcing market regulators to halt trading twice and the incoming government to instruct state-run financial institutions to buy heavily into the market to stem losses. "The markets are scared the Left will slow the pace of reform," Rajeev Sampat, chief dealer of the Bombay-based brokerage firm Parag Parikh Securities, said.
"Foreign funds are selling as they aren't clear about what the new government is going to do on the economic reforms front," Fortis Securities analyst Sumeet Mehta said.
The market crash, which began after general election results were announced last week, giving Ms Gandhi's Congress-led coalition a victory over prime minister Mr Atal Behari Vajpayee's Hindu nationalists, has so far inflicted losses of over $45 billion on investors.
Share prices, however, began recovering later in the day when markets resumed trading for the third time.
The stock market crash triggered a similar reaction in the currency market with the rupee falling to an eight-month low of 46 to the US dollar. But the rupee too recovered marginally, following Central Bank intervention.
Hundreds of small investors who gathered around the Bombay Stock Exchange, blaming their losses on the new government and shouting slogans against the Congress party and its Leftist allies, had to be removed by police.
By midday, a panicky Congress party and its Communist allies who had decided to support the coalition from outside government were declaring their support for a business-friendly environment. Dr Manmohan Singh, the former Congress party finance minister who was the architect of India's economic liberalisation policies in the early 1990s, scrambled to reassure the markets, saying the new government would be pro-investment.
"There is no need for panic in the market. Soon the United Progressive Alliance will unveil their common minimum programme that will demonstrate growth orientated policies, an emphasis on agricultural growth, food and social security and a fast growing economy," Dr Singh said.
He said the incoming government was committed to the orderly and healthy growth of the financial markets via "pro-growth, pro-investment and pro-employment" policies. Dr Singh, however, did not rule out market manipulation for the crash, but did not elaborate.
Meanwhile, the ousted Hindu nationalists and their allies said they would boycott the swearing-in of Italian-born Sonia Gandhi as prime minister to "express people's sentiments" against having an outsider as the country's leader. Caretaker prime minister Mr Vajpayee would, however, attend the ceremony.