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Will a hung Parliament hit reforms?

A Correspondent in Mumbai | May 11, 2004 17:31 IST
Last Updated: May 11, 2004 19:26 IST


The 30-share Bombay Stock Exchange index -- the Sensex -- crashed by 230 points, almost 4 per cent, registering its biggest fall in the last four years on Tuesday. The Sensex fell to 5326 points from its previous close of 5556 points.

The National Stock Exchange's Nifty too lost 70 points to close at 1699 points from Monday's close of 1769 points. In the process it too plummetted by 4 per cent.

The 230-point fall for the Sensex is its biggest in the last four years, since July 24, 2000. Almost 612 points have been shaved off the Sensex since the second exit polls which indicated that the country is heading for a hung Parliament as the NDA may not garner the required magic figure of 272 seats to form a government at the Centre.

With the prospects of a hung Parliament looming large and fears that a stable NDA government at the Centre may be a pipedream now with even a strong ally like the TDP tasting humble pie in Andhra Pradesh, the markets and the industry have been gripped with panic.

"If the NDA government fails to form the government at the Centre, there might be some flight of capital in the short term as any coalition which is perceived to be inimical to the markets will lead to investors becoming jittery," said one analyst.

The NDA has been considered by the markets as a friendly government, which they feel may not be case of a Left-supported government taking over the reins of the country, feel analysts.

The reason for this is that it is widely held that with the domination of the Leftist parties, labour reforms, divestment programme, subsidy cuts, economic reforms, etc may come to a standstill, making investors keep off India.

Some analysts were of the opinion that the ouster of the NDA government from the Centre will slow down the economic reforms process and put it back by at least two to three years thereby affecting the nation's GDP growth, investment inflows and employment opportunities.

However, others differ with this view. Despite the political uncertainty, some analysts feel that foreign funds may use this opportunity to invest more in the Indian stock markets to buy at lower levels thus triggering off a new rally in the weeks to come.

Reposing confidence in the strong fundamentals of Indian economy, industry on Tuesday projected a positive post-election outlook, saying that reform process was irreversible.

"There would be no impact on the economic reforms and any government which comes to power at the Centre will have the opportunity to drive country's economy on a higher growth track," N Srinivasn, Director General (designate) of Confederation of Indian Industry, said.

Amit Mitra, Secretary General of Federation of Indian Chambers of Commerce and Industry, said, "The message of the Andhra polls is clear. Economic initiatives in the services and IT sector should be taken in agriculture, food processing and rural industries."

He said water in the Rayalseema region should have been used for creating food processing industries and chemical clusters were needed in the port-stretch in the state.

The setback to the TDP in the polls does not mean that the electorate is against the knowledge industries but a message for the next government that such initiatives should continue and add to it with rural development, he added.

Associated Chamber of Commerce and Industry said it was too early to offer any comment, saying :"We should wait for the final outcome."

The rising global oil prices, the slump in the Asian and American stock markets, rising US interest rates and a general tentativeness in global economy might to some extent affect India, say analysts, but believe that in the long-term India -- with its strong fundamentals and growth opportunities -- would be able to tide over the crisis.

A section of the analysts says that as soon as a new government is in place at the Centre and political uncertainty abates, FII inflows will rise as the reforms process and the pace of liberalisation may not slow down. No matter which coalition forms the government, it will have to give impetus to the national economy, they say.

Meanwhile, G N Bajpai, Chairman of the Securities Exchange Board of India, said that the markets are ready to face any election-related shocks as all the risk management systems are in place.

"The exit polls and its after-effects have not bothered SEBI. However, Sebi will be going ahead with the regulatory measures to check the irregularities in the market, if any," he said.

'Verdict against reforms'

Some economists termed the TDP debacle as a "verdict against reforms" and pointed out that the new Congress government in Andhra Pradesh should be "development friendly and people-centric".

Commenting on the poll results in AP and prospects of a fractured mandate at the Centre, a cross-section of economists contacted by PTI said the verdict should give the opportunity to new governments to "redirect reforms" to push development and growth.

"There will be a very healthy redirection to adjust the reform process to make it more people-centric rather than directing it towards a mere top 20 per cent of the population," Jayati Ghosh, professor, Jawaharlal Nehru University said.

Commenting on the issue of carrying forward the reforms process, Veena Jha, India Pogramme Coordinator of UNCTAD, said, "Even the bastions of liberalisation are questioning the reform process and in this backdrop the new government at the Centre may shift to development-friendly reforms."

Additional inputs: PTI


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Number of User Comments: 5




Sub: Change of govt will hit reforms

It will be unfortunate for India if there is a hung parliament! If a non-BJP Govt is formed, it certainly hit reforms and lead to ...


Posted by J. Narayan





Sub: Elections 2004

Yes, hung parliament will definately effect the reforms. I feel, NDA government was the best for the country.This government did wonders on all fronts ( ...


Posted by B S Bansal





Sub: Reforms will not be side lined

Let us understand that the indian economy is some thing which has grown with out government leverage, Unlike in China where the government has taken ...


Posted by Manoj Anand





Sub: in case of hung parliament

chambers of commerce is rightly saying that let any govt come to power reforms to continue but at the same time more attn should be ...


Posted by rk sharma





Sub: onlybjp

bjp can foam goverenment.


Posted by maanickchand.g.jain




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