CHENNAI: The severe downturn in the Indian stock market has made investors cautious and even fearful, coming close on the heels of grim warnings of a possible global food crisis.

Both are largely linked to external factors such as rising crude oil prices, supply chain disruptions, and nagging uncertainty over US-Iran talks to end hostilities.

Though experts maintain that the country’s macroeconomics are fundamentally strong to a good extent, investors have not responded enthusiastically to claims of an impressive 7.8% GDP growth. One reason could be the unseemly controversy over the change in methodology in calculating GDP, leaving many suspicious or sceptical.

Added to this is the perceptible dent in the government’s overall credibility and political stature due to Gen Z protests and vote-theft controversies, further compounded by lingering political uncertainty and unrest.

The sustained rise in global oil prices will have an adverse impact on the country, which is one of the largest importers of crude. High oil prices are bad news because they will impact the import bill, trigger inflationary trends, and hit corporate profit margins.

It will also complicate the Reserve Bank of India’s efforts to rein in inflation. The central bank is already grappling with issues relating to the continued drop in the rupee’s value against the US dollar, which is heading towards historic lows.

The other reason being cited is the flight of foreign portfolio investors moving funds from India to relatively safer options like global bond markets. The volume of reallocation was so high it could not be offset by extra support from domestic institutional investors.

The increase in market valuations and consequent market surges or rallies of the past have proved a mixed blessing in present circumstances, as cautious investors rush to book profits. Unlike in the past, retail investors are now cautious and sceptical, thereby resisting the temptation of bargain hunting.

That the stock market downturn and economic problems will have political implications must have the government worried. Firstly, it is no longer able to control the narrative and manage headlines through concerted social media and television campaigns.

The widening credibility crisis and deepening trust deficit, especially among the youth, should be a major worry for the ruling party. Despite some dubious window dressing in the calculation of GDP, data suggests a level of resilience in the economy. For instance, industrial production, a key indicator, clocked an impressive 8% growth in August this year.

However, the jobless growth model — where GDP growth does not result in the concomitant creation of employment — continues to hurt millions of educated youth in the country. The Opposition, especially the Congress party, has been consistently flagging the rise in prices of food and essential commodities alongside youth joblessness.

The Opposition has been raising the issue for several years, but only in recent months has it begun to resonate significantly. Accusations of the government indulging in “statistical gymnastics” in the computation of GDP are beginning to stick, even among many stock market retail investors who have been supporters of the ruling party. The government may find itself at its wits' end in managing both economic turbulence and its political consequences.