Sucheta Dalal :Government fears hit India shares
Sucheta Dalal

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Government fears hit India shares  

May 17, 2004

Indian shares have fallen more than 15% amid fears that the new government could stall economic reforms.

Trading has been suspended after the Bombay Stock Exchange plummeted more than 700 points - the biggest fall in its history.

Traders have fears about the economic plans of the new government set to be led by Sonia Gandhi after her Congress party's surprise election win.

Left-wing parties are still considering whether to join her new government.

A meeting of the largest left-wing party, the Communist Party of India (CPIM), is under way with indications that it may choose to support the government without formally joining it.

Market fears

The Bombay Stock Exchange (BSE) 30-share sensitive index fell 553.29 points in the first few minutes of trading, falling below the psychologically important 5,000-point mark.

Trading on the Bombay Stock Exchange was temporarily suspended but it slid a further 200 points after it resumed, forcing another suspension.

Analysts say the market crashed after foreign institutional investors, who had invested some $10bn in the Indian stock markets over the past year, began to sell heavily.

"Their expectations from India were very high. Now they are jittery about the new government's direction on reforms and are pulling out," leading market analyst, Debashish Basu, told BBC News Online.

But Congress Party officials played down the fears.

"There will be stability for the stock markets in our policies," senior Congress leader Manmohan Singh told journalists.

But he warned that the government would take action against speculators seeking to manipulate stock prices.

"The new government will not hesitate to take action against those who seek to manipulate the market and create artificial panic," Mr Singh, a former finance minister, said.

Political discussions

The financial turmoil came as leftist parties were divided over whether to join the government.

"The question is, should we extend support [to] the government from outside, or should we also be part of it," said party leader A B Bardhan.

Correspondents say the decision is likely to depend on what policy concessions it can extract from Congress.

Several parties met at Mrs Gandhi's home on Sunday night and agreed to back her as prime minister.

Mrs Gandhi will meet the president later on Monday to formally stake claim to form a government and is expected to be sworn in later in the week.

The widow of assassinated former Prime Minister Rajiv Gandhi will become the fourth member of the Nehru-Gandhi dynasty to hold the premiership.

"We are all aware that we have an enormous task ahead of us," she said after being elected as their leader by Congress MPs on Saturday.

"The way ahead is fraught with difficulties. Let us therefore not be complacent."

In her first post-election interview on Friday, Mrs Gandhi said she was pleased that her Italian heritage had not harmed Congress in the polls.

"Most of the Congress Party's opponents used this against me, but I had full faith in the judgement of the people of my country," said Mrs Gandhi, who took Indian citizenship in 1983.

Congress' victory came as a surprise.

The former governing coalition led by the Hindu nationalist Bharatiya Janata Party had been widely expected to win on the strength of a buoyant economy and peace moves with Pakistan.

-- Sucheta Dalal