Bloodbath at BSE, trauma over Budget

The market is expected to continue the downward trend for the next week or so, till the political situation clears. The rupee is also expected to fall below the Rs 43-mark when the marketopens on Monday. Forex dealers said they expected this could worsen unless the RBI stepped in to sell dollars to cool the market, as demand was likely to shoot up.

As for the Budget, Congress leader Arjun Singh today claimed that his party was against creating any 8220;financial stalemate.8221; For this, he said, party chief Sonia Gandhi had set up a three-member committee 8212; of Sharad Pawar, Manmohan Singh and Pranab Mukherjee 8212; to discuss the passage of the Union Budget. The Speaker, too, has called for a meeting on this on Monday but industry leaders chose to keep their fingers crossed.

The key, CII secretary general Tarun Das explained, was the next government getting in place quickly, perhaps making some amendments to the budget, but getting it passed before May 12, when all the indirect tax proposals will lapse 8212; 8220;We still have close to four weeks, so the new government can pass the budget if it wants8217;, Das hoped.

If not, come May 13, millions of industrial and trading units will have to rework theirprices all over again, as they did on February 27 when the budget was first presented in a situation like this, it is reasonable to expect a sharp drop in the volume of business in the country till things stabilise.

Investment activity, always a casualty in unstable coalitions, is also expected to remain at a low level for some time to come. Industrial growth, for example, fell from 13 per cent in 1995-96 to less than half that for the next three years, primarily due to political uncertainty. The CII-FICCI view, of course, could be a lot of wishful thinking, with the Congress also woefully short of the magic numbers so far, and with some small parties who voted against Vajpayee today stating that they would not vote for a Congress government.

Further, the TMC is also averse to aligning with a government with the AIADMK as part of it. For economic growth to stay on course 8212; after two years of stagnation it is now beginning to show initial signs of recovery it is not just the budget that8217;s critical.There is a slew of bills the Insurance Bill to allow private investment in insurance, the FEMA-Money Laundering Bill to replace the antiquated FERA, and the Companies Bill which has been pending for close to 4 years now.

In addition, FICCI secretary general Amit Mitra points out, there were a host of other initiatives to carry the reforms process further both CII and FICCI have been forced to call off scheduled seminars on what they called second-generation reforms8217;. The Finance and Commerce ministries were working on ways to reduce export costs, the Industry Ministry was working on ways to completely rewrite the IDR Act which governs industrial development in the country.

FICCI was part of a Chemicals8217; ministry taskforce on reworking the Drug Price Control Order which hindered pharmaceutical investment. In addition, there are the reports on the various task forces constituted by the Prime Minister on various industries.

The immediate casualty of the government falling is the changes that thegovernment was hoping to make in the license fee structure for telecom companies who were complaining that the existing burdens were too high, as a result of which almost all companies have failed to pay their dues the attorney general has been asked to suggest how to do this, but this is now infructuous.

In other words, the major changes to stimulate investment were in the pipeline. The budget sops to stimulate software and pharmaceutical investment are also under a cloud now 8212; understandably, the biggest losers on the stock market were these scrips. The way Das explains it, it8217;s not as if the policies of successive governments 8212; four in the last four years are dramatically different, or anti-reforms. Not surprisingly, corporate investment has been falling over the last few years. Total foreign investment both in the stock markets and directly in new industrial units 8212; fell from a high of 6 bn two years ago, to under a billion this year till December.

The money raised by corporates from thestock markets fell from Rs 48,800 crore in 1994-95 to Rs 18,400 the next year. The gross capital formation of the country8217;s private sector fell from 9.1 per cent of GDP in 1995-96 to 8.4 per cent last year. How important this is can be judged from the fact that, in the 8217;90s, it is the private sector which has been the main driver of growth public sector investment has been falling in this period. Right now, however, with the euphoria of having pulled down the BJP, even though the alternative is not fully in sight, few politicians are too bothered about such trivia.