- The Washington Times - Monday, May 24, 2004

Sonia Gandhi’s magnanimous decision to bow out of India’s premiership has helped buoy the stock market. Investor optimism about the leadership of Prime Minister Manmohan Singh and his appointed finance minister, Palaniappan Chidambaram, lifted the benchmark Bombay Stock Index by 3.3 percent yesterday. The equity market has more than recouped the losses from last week’s freefall, but is still down 4 percent since the Congress Party unexpectedly won the election 12 days ago.

Mr. Singh has proven free-market credentials. In the early 1990s, he engineered an economic revival, fueled by major economic reforms. His tapping of the similarly free market-minded Mr. Chidambaram reinforces his commitment to fiscal responsibility and liberalization. India’s market rally is good news for U.S. interests in South Asia and beyond. A continuation of India’s economic rise would bolster the clout of democracy and free-market policies in the developing world, providing a material counterweight to jihadist calls to establish radical Islamist governments in Southeast Asia. Indian prosperity would also help check Chinese influence in Asia.

Just as importantly, a thriving India could be a less defensive country and more open to continuing a rapprochement with Pakistan. A growing Indian economy also could bolster Pakistan’s future trade opportunities and provide a large market for Central Asian countries such as Afghanistan. Initial signs indicate that India and Pakistan will build on confidence-building initiatives. On Sunday, Mr. Singh and Pakistani President Pervez Musharraf spoke on the phone for 20 minutes, with positive results, according to Gen. Musharraf. Resolving the dispute with Pakistan over Kashmir would eliminate a call to arms for Islamist terrorists and drastically reduce the threat of a nuclear exchange. The new Indian government also should demonstrate its commitment to global anti-terror efforts by continuing to improve oversight of capital moving in and out of the country.

The coalition built by the Congress Party will probably be difficult to manage, even for a unifying figure like Mr. Singh. Wariness about governability continues to weigh on investor confidence, and stock prices could be volatile until Mr. Singh and his finance minister prove that their political agility matches their economic wisdom. A defining moment probably will be the government’s budget proposal, to be presented in late June or July. Hopefully, the new government will prevail. There is much at stake in South Asia.

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