Paran Balakrishnan: Gloom after the boom

MY WORD!

P G Wodehouse's happy-go-lucky heroes always faced that awful moment: one minute they were bowling down The Strand in an outrageous yellow waistcoat with the sun shining brightly and nary a care in the world. And suddenly the world would come along and smack them on the head.

Is this one of those moments for the global economy "" and India? Back in January the only question in brokers' mind's was when "" not if - the BSE Index would touch 7000 and then 8000. The adrenaline-charged market looked unstoppable and everyone figured that India's time had finally come. On Friday it was back at 4835.

Who spoilt the party? Should we blame Arun Shourie, Jaswant Singh and the rest of the BJP gang for unloading a few billion dollars worth of IPOs on the market like there was no tomorrow "" as it turned out there wasn't one for them.

Or, must we place the blame squarely on the new celebrities of the Left like A B Bardhan and D Raja who are discovering the joys of talking into a microphone and finding out that that people are actually listening.

Alternatively, should we turn our gaze to foreign shores? To the unfortunate scenarios that are unfolding simultaneously in the US, China and the windowless chambers where Opec's top honchos hold their deliberations.

Will the world economy be derailed by a triple whammy of rising US interest rates, slowing Chinese growth and unstoppable oil prices? Will this fierce combination force the globe's moneymen to move their billions from Asia and the emerging markets? The indicators show that the money managers have already been shifting their funds out of India and other Asian countries.

Yes, things look uncertain for the world economy and particularly Asia. But as always, India has problems of its own making. Consider what happened on Wednesday.

Politburo member D. Raja told a reporter that the Electricity Act would be reviewed. That remark immediately had investors reaching for their mobiles and inquiring whether they should be selling shares like Reliance Energy (formerly BSES), one of the star performers on the markets in recent months.

For most of the week, the market swung wildly as brokers attempted to read the economic tea leaves and guess whether the Common Minimum Programme would turn out to be rhetoric or reality. Finally, on Friday they decided they didn't like the new brew.

The unavoidable fact is that uncertainty will be rife for the next few months. Even if the Left keeps relatively quiet, any pronouncement they do make will be enough to send the markets into a tizzy. Will left wing hardliners vocally try to turn the focus away from growth and mobile phones and cars and back to small farmers and the public distribution system?

Everyone agrees that growth must be spread and reach the poorest of the poor. And raising agricultural incomes in the long run is good because it will boost the economy as a whole. But how that should be done could be contentious "" and costly.

Also, keep in mind the political circus isn't over yet, not by a long shot. Firstly, the new ministers and parties will have to settle into office and reveal their true colours and priorities. Then, there are key events on the political calendar that could shake the applecart.

The Bihar assembly elections, for instance, are due in February 2005. How will that affect relations between the newly anointed Railway Minister Laloo Prasad Yadav and the Congress? During the general elections the Congress was generous to Laloo. Can it continue to be magnanimous?

Back in 1992 at the peak of the Harshad Mehta frenzy, the BSE Index soared briefly to 4600 before crashing back to earth. Twelve years later the market is at slightly over 4800 and there's every chance it will fall further.

To spell it out: that's a distance of barely 200 points in a span of 12 years. There's a warning and a stark message there for the new government: India will have to travel a long way before it shines for the hapless Indian investor.