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Singh’s ‘Game Changer’ Win to Unlock India Economy; Shares Soar

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Singh’s ‘Game Changer’ Win to Unlock India Economy; Shares Soar


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By Cherian Thomas and James Rupert
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May 18 (Bloomberg) -- Prime Minister Manmohan Singh’s electoral victory, the biggest any Indian politician has scored in two decades, may loosen political shackles that have restrained the country’s economic growth as it struggles to free half a billion people from poverty.
India’s benchmark stock index soared more than 17 percent, breaching the daily limit and triggering a second trading halt. The rupee surged as much as 3.3 percent, the most in more than two decades, to 47.78 a dollar, according to data compiled by Bloomberg.
“This is an absolute game changer,” said William Nobrega, the co-author of ‘Riding The Indian Tiger,’ who advises U.S. companies on investing in the world’s largest democracy. “It can truly move India in a much faster pace to where it deserves to be in the global economy.”
Political stability will make India a more attractive investment destination as Singh, 76, seeks the funds to stimulate Asia’s third-largest economy. It may also encourage President Barack Obama and his administration to seek greater cooperation in the fight against rising militancy in neighboring Pakistan and Afghanistan.
Singh’s ruling Congress party will be able to form a government without needing the support of communist lawmakers who frustrated plans to entice foreign investment in his first five-year term. The ruling Congress party won its most seats since 1991 in the election, which concluded May 16.
Caretaker Premier
Singh handed his resignation to President Pratibha Patil today after a cabinet meeting, and will continue as caretaker premier until a new government is formed.
“This is good for India and good for the world,” said Rahul Bajaj, chairman of Pune-based Bajaj Auto Ltd., India’s second-largest motorcycle manufacturer.
Congress and its allies won 261 of the 543 elected lower- house seats, with the party getting 206 lawmakers of its own, 61 more than in 2004 and almost twice as many as the opposition Bharatiya Janata Party. Lal Krishna Advani will continue to lead the BJP in parliament, its chief, Rajnath Singh, said in a statement.
The main Communist party, Singh’s partner in the last administration, won only 16 seats, less than the 43 it gained in the last election. The communists, who resisted increased foreign ownership of insurers and any outside investment in retailing, tried to bring down the government last July over a civil nuclear energy accord with the U.S.
‘Warm Partnership’
The U.S. wants Indian help in its fight against Islamic militancy in the region, especially Pakistan. Singh stalled a peace process with India’s nuclear-armed neighbor following terrorist attacks in Mumbai that killed 166 people in November.
“The U.S. recognizes the significance of the election for the people of India,” the White House said in a statement May 16. “President Obama looks forward to continuing to work with the Indian government to enhance the warm partnership between our two countries.”
Wal-Mart Stores Inc. and Prudential Plc are among global companies that stand to gain a stronger foothold in India now the government can function with fewer coalition partners.
“There were so many major initiatives that were sidelined,” Nobrega said. “It will have a phenomenal boost on the Indian economy this year and next.”
The incoming government will need to bolster an economy that’s growing at the slowest pace in seven years as the global recession saps demands for Indian goods. Industrial output fell by the most in 16 years in March as exports plunged by a record.
Trading Halt
In the first day of trading after the election results, the benchmark Sensitive index gained 17 percent to 14,284.21, while the Nifty index jumped 17 percent to 4,323.15, triggering a day’s halt in trading for the first time ever.
 

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“The ‘play’ button will be on” now, said Madhabi Puri Buch, Mumbai-based chief executive officer of ICICI Securities Ltd., a unit of India’s second-biggest bank. “If global cues continue to be positive, the ‘play’ could even become a ‘fast forward.”
The election strengthened the leadership credentials of Rahul Gandhi, 38, the heir to India’s leading political family, which has dominated the Congress party since independence from the U.K. in 1947. Gandhi “should be in the cabinet, but I will have to persuade him,” Singh said in New Delhi on May 16, after declaring victory.
India, whose international political ambitions include a permanent seat on the United Nations Security Council, wants to maintain annual growth rates in excess of 8 percent for two decades to reduce poverty.
Millions Undernourished
About 231 million Indians are undernourished, more than in Sub-Saharan Africa, according to the Food & Agriculture Organization. The World Bank estimates 41.6 percent of Indians live on less than $1.25 a day.
Gross domestic product has risen more than four times since 1991, when Singh, then finance minister, abandoned Soviet-style state planning and introduced free-market measures. He cut red tape, removed state-enforced production caps on steel and cement makers, and allowed overseas companies such as Ford Motor Co. to set up Indian operations.
India received about $38 billion of foreign direct investments last year, about a fifth of the flows that went to neighboring China, which opened its economy 13 years earlier. Investments into India have been constrained by an unreliable power supply as well as choked roads and railways.
First Term
In Singh’s first term, Communist resistance stalled a bill to raise the foreign investment ceiling for insurers to 49 percent from 26 percent. He also failed to pass a bill aimed at removing a 10 percent cap on the voting rights of foreign investors in non-state banks. His plan to permit global retailers into India also foundered.
Kamal Nath, a Congress lawmaker and India’s trade and industry minister, said in an interview last week that the government will continue its focus on “stimulating the rural economy” as a means to spur growth. More than three-fifths of Indians live in the countryside.
Congress has introduced a rural jobs program, written off farmers’ loans, and created economic zones, many of them located in the countryside, to create employment, boost consumer demand and win popularity.
To contact the reporters on this story: James Rupert in New Delhi at [email protected]; Cherian Thomas in New Delhi at [email protected].
Last Updated: May 18, 2009 05:17 EDT
 
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