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India's Stock Markets Surge With Expected Political Stability

India 's stock markets surged by more than 17 percent as concerns about possible political uncertainty were put to rest following a decisive victory by the ruling Congress-led alliance in general elections. 

There was widespread expectation that stock markets would rise after election results on the weekend saw the Congress Party led alliance defy forecasts, and win enough seats in parliament to form a stable, coalition government.

But few had anticipated the massive surge that took place within minutes after stock markets opened.  The benchmark Sensex shot up by 17.24 percent to 14,272 points.  Trading was halted after the unprecedented rise, the first time ever due to an upward swing. 

Economist Saumitra Chaudhuri, at domestic rating agency ICRA, says the stock markets are reflecting optimism that a clear cut verdict for the Congress-led alliance will boost economic growth.  Chaudhuri has been a member of the prime minister's economic advisory council.

"The impact of this election on this government will be a big positive.  A big positive because not only has the government been returned to power, and we know its policies are geared toward economic progress and development, but also it has a near majority on its own which will make it less amenable to support from outside," he said.

Hopes are especially high because the Congress Party led alliance will not be propped up by left leaning parties, during its second term in office.  Communist parties, which gave crucial support to the government in its last term, were trounced in these elections.

During the past five years, these parties had stalled many reforms such as opening up the retail and insurance sector to greater foreign investment.  

Saumitra Chaudhuri says the government will now have a free hand to implement key reforms, and this will help to attract more investment, which could drive growth.

"In many areas where there was a policy, but because of all the cumbersomeness of the last governmental arrangement, progress was not made fast enough," said Chaudhuri.  "For example public-private partnership in infrastructure, the pace of projects there will speed up, so you will get much more investment on the ground."

India 's economy rose at nearly nine percent for four years, until 2008, when it slowed following the global recession.  But economists say India is already showing some signs of a recovery. 

Prime Minister Manmohan Singh has submitted the resignation of his government to the president, paving the way for the formation of a new government led by him later this week. 

 

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