An overall below-par peformance by the Congress party in the latest round of state elections has thrown up new questions on the UPA government’s economic policies. All eyes will be on finance minister Pranab Mukherjee as he shapes the budget for 2012-13 due next week. Economists and market pundits will keenly watch whether the government can demonstrate a pro-reform approach to shrug off surging perceptions of policy paralysis.
Stocks were rattled on Tuesday as investors raised questions on economic reforms in the backdrop of last year’s events. Late last year, political compulsions and the impending assembly elections had forced the government to quickly bottle up reformist intent. The biggest of the mothballed policy measures were plans to allow foreign direct investment (FDI) in multi-brand retail, aviation and pension management.
Investors appear worried that the government will not push through policies in critical areas to boost long-term growth.
“I think the market will be looking for actions rather than comments,” said a top executive at a foreign bank.
Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services echoed said he expected a populist budget as the Congress appeared weakened.