NEW DELHI – India’s Congress party began putting together a new cabinet Monday amid euphoria over a definitive electoral victory that will give the government a free hand to pursue economic reforms.
The country’s stock market surged more than 17 per cent when it opened Monday for the first time since the election results were announced. The rise was so dramatic it forced an end to the day’s trading.
Prime Minister Manmohan Singh chaired the last meeting of his outgoing cabinet as party leaders surveyed the new political landscape. The near-collapse of India’s once-powerful Communist parties will allow Singh, who will return for a second term, to pursue key reforms in insurance, pension funds, banking and retail.
The Congress-led coalition captured 261 seats in India’s 543-seat parliament, far more than most analysts predicted, but still 11 short of a majority. Congress leaders were expected to gather support from several smaller parties to put them over the edge.
Singh met with President Pratibha Patil on Monday afternoon and handed over his cabinet’s resignation, a formality before his new government can be sworn in, said Patil spokesman Nitin Wakakankar.
“The president accepted the resignation but asked him and his council of ministers to continue in office till alternative arrangements are made,” Wakakankar told The Associated Press.
The newly elected Congress legislators are scheduled to formally choose Singh as their leader Tuesday, and then Patil will invite Singh to form the new government.
An economist and technocrat, Singh shifted the country away from decades of socialist-style policies and toward a more open economy when he was finance minister in the early 1990s.
But over the past five years, many additional market reforms that Congress backed were blocked by the Communists, which remained a strong force in parliament. In the election results, announced Saturday, the Communists lost more than half their seats.
With a free hand, Singh is likely to open India’s insurance, retail and banking sectors to greater foreign investment. The country’s pension regulator could also get proper legal standing, which would encourage greater investment. And some steps might be taken to loosen hidebound labour laws, like allowing contract labour.
In just seconds of opening, the Bombay Stock Exchange’s benchmark Sensex surged 2,110.79 points, or 17.3 per cent, to 14,284.21, triggering the historic shutdown Monday.
All 30 stocks on the Sensex posted gains, with infrastructure, banking and real estate companies leading the way.
Engineering firm Bharat Heavy Electricals Ltd. shot up nearly 33 per cent and infrastructure giant Larsen & Toubro Ltd. rose 29.53 per cent.
The Congress party, however, is keenly aware that a third of India’s more than 1.1 billion people live in extreme poverty and more than 90 per cent work in the informal, unorganized sector.
In his last term, Singh oversaw a costly initiative to guarantee employment to the poor in rural India and alleviate farmer debt. But those programs have added to the country’s already onerous fiscal deficit and antagonized factory owners who say workers have grown lazy on government aid.
India’s total deficit this fiscal year could hit 11.4 per cent of GDP, up from 5.7 per cent last year, according to ratings agency Standard & Poor’s, which has threatened to downgrade India’s country rating to junk.