India goes to the left
Published by The Straits Times, Singapore on 2004-05-18
NEW DELHI - When the Mumbai Stock Exchange's benchmark Sensex index plunged by an unprecedented 800 points yesterday morning - causing market losses of more than US$200 billion and bringing a halt to trading for two hours - a couple of Leftist leaders attributed the financial debacle to foreign factors.
They rolled out familiar villains: unnamed rightwing market manipulators, including some in Southeast Asia; the Central Intelligence Agency of the United States; international investors determined to bring about destabilization in India by pulling out their money in the wake of the defeat of the right-leaning National Democratic Alliance in the recent parliamentary election; even Pakistan-based foes of the victorious Congress Party, whose Italian-born head, Mrs Sonia Gandhi, will become prime minister this week.
They conveniently neglected to take into account, publicly at least, their own role in the stock market drama both yesterday and last Friday. (The Sensex finally closed at 4505.16, or a drop of a record 584.71 points, for a loss of 11.14 percent of market value; last Friday, the Sensex dropped 330 points, for a loss of 6.1 percent, or US$22 billion.) The Left leaders, including those from India's two Communist parties, came out bitterly against the outgoing government's policy of privatization of unproductive public-sector companies. They also grumbled about the speed of economic liberalization which, they suggested, had enriched the wealthy and disregarded the country's majority poor.
The Leftist rhetoric wasn't particularly surprising; India's communists and socialists were never enamored of the free-enterprise ideology of the outgoing administration, which was led by the Hindu-dominated Bharatiya Janata Party (BJP).
But the pronouncements took on startling gravitas because of the 62 seats that the Left won in the Lok Sabha, the 543-member lower house of parliament. Support from the Left is essential for Mrs Gandhi in order to sustain a governing coalition, which she's calling the United Progressive Alliance. Because Mrs Gandhi herself said little about economic policy since her victory, India's markets reacted violently to the statements made by her leftist allies. Only a volume-buying intervention by government institutions late yesterday afternoon, and a commitment by the Reserve Bank of India guaranteeing liquidity to banks underwriting margin calls, helped revive the stock market somewhat.
While financial institutions as well as individual investors - both domestic and international - were seized with deepening worry, what happened yesterday represented a coming out of sorts for India's Left. After long years on the periphery of national politics, they have finally become players of clout and consequence. Regardless of whether its members actually join Mrs Gandhi's cabinet, there's little doubt that Leftists will be influential in shaping the new government's economic and social agenda.
That agenda, according to Dr Manmohan Singh - the former World Bank economist who's tipped to be the next finance minister - will be 'pro growth, pro investment, pro savings and pro employment.' Asked yesterday about the BJP's privatization program, Dr Singh said, somewhat tentatively, that the new government wasn't opposed in principle to such a program but that it would proceed only on a 'case by case basis in the national interest.'
His words didn't sound terribly convincing, not the least because the Congress-Left's 'Common Minimum Programme' of action is unlikely to be ready much before the end of the week - a lifetime in national politics. The Congress-Left alliance, after all, was a post-election marriage of convenience. Indeed, the two are political foes in states such as West Bengal and Kerala, which communist parties hold power. The 'Common Minimum Programme', therefore, will be a manifesto for governance.
It will try to accommodate the pro-private-sector leanings of people like Dr Singh, widely considered the originator of economic liberalization during an earlier stint as finance minister more than a decade ago. It will need to incorporate the populist demands of the Left. It will have to reassure international investors that their money is safe in India's heretofore booming equity markets. It will need to persuade these very investors to increase their input from US$10 billion annually in the stock market, and it will also need to convince financial decision makers abroad to pour more than the current US$3 billion each year into manufacturing, high-tech and other sectors in an India whose political environment is stable.
The 'Common Minimum Programme' will also have to address the persistent problem of rural poverty - how to generate more jobs in the hinterland, how to expand irrigation facilities in a country still held hostage each year by the monsoons, how to widen primary health care and how to increase the number of schools.
And the central question that the 'Common Minimum Programme' will have to address unflinchingly: How to pay for all this?
There's little question that in the budget that Mrs Gandhi will have to present in parliament next month, Indians are going to pay more taxes. They are also going to have to pay more for their petrol and kerosene. It will cost more to travel by train. Tickets to the movies will cost more, too. These aren't measures that the Left will especially want - except, of course, more taxes on the rich. Indeed, yesterday some prominent Leftists called for more kerosene and diesel-oil subsidies.
So how is Mrs Gandhi going to reconcile the exigencies of economics with the political wish-list of her Leftist allies?
That's what worries the markets. And until the prime-minister-to-be clarifies her vision for governance and lays out some specifics of policy, the uncertainty that has roiled the stock exchange is likely to continue.
Says Sucheta Dalal, one of India's leading economic observers, 'Asinine comments such as those by the Left aren't very helpful at this delicate time.'
It's clear that India's Leftists are out of sync with the economics of globalization. Governments are getting out of business around the world, restricting their role to that of monitors and regulators. Government activism may be essential in providing social services and helping strengthen the infrastructure. But when it comes to generating grassroots economic growth, the Leftists here have yet to learn that the best government is the least government.
Senior Writer and Global-Affairs Columnist