Political uncertainty a bad omen for economy

The current bout of political uncertainty in India would not have come at a worse time, with experts hoping the stalemate would be over soon and help check inflation.

Experts feel the government is not able to concentrate on the economic situation arising out of zooming inflation that hit a 13-year high of 11.63 percent for the week ended June 21.

India's headline inflation has shot up by over three percent since the week ended May 17, when the annual rate of inflation was 8.10 percent, and continues to maintain an upward swing.

"If political uncertainty persists, the government will be faced with a compounded inflationary situation marked by an overall slowdown in the economy," said Rajesh Jaiswal, associate fellow at the National Council of Applied Economic Research (NCAER), an economic policy think-tank.

"The capital market is already paying a price with the Sensex (30-share BSE sensitive index) maintaining a fluctuating trend. It is not a healthy sign," Jaiswal told reporters.

DH Pai Panandikar, director of RPG Foundation, another think-tank, agrees with Jaiswal.

"Political uncertainty is certainly creating problems in the capital market," Panandikar said.

Indian equity markets June 4 recorded their seventh consecutive week on the decline, due to rising crude oil prices, inflation worries and looming political uncertainty. Out of the five trading sessions last week, three ended in the negative.

Panandikar, however, claimed that the Congress-led government with the support of the Samajwadi Party (SP) would be more effective in accelerating the growth process than a regime backed by the Left parties.

"The communists have blocked the process of economic reforms, and did not allow Prime Minister Manmohan Singh's government to initiate any key policy steps," he said.

"The issue of India-US nuclear deal is a case in point. The country needs energy to boost economic growth and have a competitive edge over rivals. But the Left leaders are blindly opposing the deal," he added.

With the Communist Party of India-Marxist (CPI-M)-led Left parties threatening to withdraw their support to the government over the nuclear deal, the Congress is trying to woo the Samajwadi Party (SP), which has 39 members in the Lok Sabha.

But SP general secretary Amar Singh criticised the functioning of finance Minister P. Chidambaram and Petroleum and Natural Gas Minister Murli Deora at a media briefing Saturday.

"I am not asking for my pound of flesh. We are against anti-people policies. Deora's behaviour is disgusting. He should come clean on whether he is a corporate honcho or a minister," he told a crowded press conference here.

Regarding Chidambaram, Singh said: "Under his stewardship, price rise and inflation have happened."
Source: - ET