Political uncertainty and financial panic swept India today as the stock market shutdown after its worst-ever plunge and two powerful communist parties refused to join a proposed new government under Sonia Gandhi.
As she prepared to seek formal approval from the president for the formation of what will now have to be a minority government, Hindu nationalists added to the turmoil with street protests against Gandhi’s bid to become the nation’s first foreign-born leader.
The communists said they would back Gandhi’s ascension as prime minister in coming days, but not from within the coalition ranks.
“The entire left will support the government from the outside,” D Raja, national secretary and spokesman of the Communist Party of India, said.
Investors feared Gandhi would have to backtrack on her pledge to go forward with India’s economic liberalisation. It triggered the worst ever sell-off in the history of the Bombay Stock Exchange, which was established in 1875 – a 15% drop in less than 90 minutes of trading.
The leftist parties, which have 62 seats in the 545-member lower house of Parliament, the Lok Sabha, are essential for Gandhi’s incoming government to secure a majority.
The communists differ sharply with Congress over such key economic and foreign policy issues as privatisation of state-run companies and support for greater ties with the United States.
Today’s stock market dive contrasted sharply with the euphoria that gripped markets five years ago, on the day Atal Bihari Vajpayee was 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.
As the stock exchanges went into a free fall, senior Congress party leaders were scrambling to restore market order.
“I want to assure the investors that our policies will be pro growth, pro investment and pro savings,” Manmohan Singh, a former Congress finance minister and architect of India’s market liberalisation.
“We will continue with the good work done by the previous government but wherever midcourse correction is required, we will do it,” Singh said.