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Indian markets rebound on new Cabinet

Investors sounded a vote of confidence in India's new reformist finance minister yesterday, with shares jumping sharply after weeks of chaos and volatility as the new communist-backed government opened for business.

Mumbai's benchmark index, hit by some of the biggest plunges and recoveries in its history in the chaos that followed India's election, jumped more than 2 percent soon after opening.

Prime Minister Manmohan Singh, the father of India's reforms, name Harvard-educated lawyer P. Chidambaram to the critical post of finance minister on Sunday in a bid to calm battered markets.

"The message that goes out to India and the rest of the world is that we are back in business," said Arun Kejriwal, of Research firm KRIS.

"Chidambaram will be capital market-friendly -- he knows the need for new investments, he will do things to bring about confidence among foreign funds.

"In the medium term we have to see how they translate word into action. A good monsoon could be the driver to help them come out with flying colors."

Monsoon rains -- vital to the heavily farm-dependent economy -- have hit the southern coast two weeks earlier than usual and weather officials are forecasting a normal monsoon after last year saw one of the best in years.

The choice of Chidambaram, who was the commerce minister when Singh, then finance minister, launched reforms in the early 1990s, will help reassure investors the new coalition remains committed to the further modernization vital to underpin growth.

Economists said the Mumbai stock market, down 16 percent in the past month, should respond positively.

But one of the key questions still remaining is the coalition's economic agenda.

Singh and his allies, including a pivotal bloc of communists and leftists, are still drawing up their economic blueprint, the Common Minimum Program.

After voters punished the ousted Bharatiya Janata Party for failing to share the benefits of reform, Singh is promising modernizing with "a human face," balancing change with the need to tackle poverty and raising living standards.

A draft of the pledges show the new government will aim for 7 percent to 8 percent annual economic growth, encourage foreign investment but slow down privatization of state firms, party officials said.

"The underlying message is that reforms can be people-oriented with compromising on the credo of the market as primary allocator of resources," said yesterday's editorial in The Economic Times.

"So, broad reforms will continue and foreign investment will be encouraged. Privatization will be selective and not seen as an ideological issue," the newspaper said.

Singh has already pledged to keep money-spinning state firms, but will consider selling losing businesses. The final economic program is expected to be announced later this week.

Singh took over as prime minister on Saturday, completing the return of the Congress party to power after a surprise election win.

The new Cabinet has called a session of parliament from June 2 to 10, with a vote on the floor of the house on June 10. Although the Congress-led coalition is in a minority, communists and leftists controlling more than 60 seats have pledged to support the alliance, giving it a working majority.
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