February 23, 2020
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How Tough Is Tough?

While the US mulls over sanction specifics, India has become a pawn in US domestic policy

How Tough Is Tough?
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WHILE the Clinton Administration is still working on its guidelines on how the economic sanctions imposed on India are to be applied, Pokhran II is fast becoming a part of the great American political football game. The guidelines are delayed. Says a congressional staffer: "The law kicked in automatically, but the question is how do you read the law? What are the parameters of the sanctions? How are the lawyers to interpret them? These are important issues and corporate America is waiting to see these guidelines." Washington sources told Outlook that the legal eagles had kicked the guidelines issue upstairs to the policy people.

Meanwhile, stalwarts from the Republican side of the aisle in Washington are conveniently using the Indian nuclear tests to push their own political agenda: bash Clinton's China policy and lobby for that Reagan-era favourite—the anti-missile defence system, part of Star Wars. But Congressional staffers, trade representatives and independent India experts warn that New Delhi should not misread the political rhetoric emanating from the Washington noise machine. "India will be committing a horrendous blunder if it thinks that the noises they are hearing from Newt and his Republican colleagues are in any way a sign of their affection for India and an understanding of its nuclear policy," says a senior congressional staffer.

The reference is to a "Dear Colleague" letter that the powerful House Speaker Newt Gingrich, a Georgia Republican, has written to House members. "The Clinton Administration would much rather confront an Indian democracy than anger a Chinese dictatorship," accused the letter. "This double standard in Administration actions—disregarding China's far more dangerous actions while sanctioning India—is appalling." On the Senate floor, Arkansas Republican Tim Hutchinson, long-time political foe of President Clinton, said: "As this country moved closer to China, as we continued to assist its military machine, as we continued to turn a blind eye to China's transfer of technology to Pakistan, why are we surprised that India would move to arm itself with nuclear weapons? Mr President, it was US policy that led to these developments!"

 But, the congressional staffer, who asked not to be identified, says bluntly: "I'm afraid Indians are not realising that this is not a reflection of a pro-India position under any circumstance. I hope the BJP government doesn't take these statements as an approval of their nuclear policy. They are not.But I'm concerned that's how they are going to read it. If they do, they will regret it."

Other analysts agree that the removal of sanctions imposed on India was way away from the minds of US lawmakers. Asserts an Administration official: "Newt will jump ship. He's doing this for a political purpose—not that he cares about India." "The anger against India's nuclear actions is pretty high. There's no question about it," former Congressman—and long-time friend of India—Stephen J. Solarz told Outlook in a telephone interview from his Virginia home. He added: "I would like to see the sanctions removed very quickly, but as a practical matter, I don't think that is likely."

 Amidst all this confusion, the good news for New Delhi is that credit rating agencies haven't shifted their outlook on India.The outlook on foreign currency and local currency obligation ratings is currently stable, says Shelly Chaddha, Duff & Phelps Credit Rating Company's primary analyst on India. However, she adds that the sanctions could negatively affect India's balance of payments: "This, in conjunction with negative market perceptions about the Indian government's foreign investment policies, could result in lower capital inflows. We are closely monitoring developments in India, and seeking to assess the political and budgetary implications of heightened security concerns in the South Asian region."

DCR's bigger competitor in the downtown Wall Street area, Standard & Poor's, has given a BB+ long-term foreign currency rating to National Thermal Power Corporation (NTPC) of India. S&P's in-house India guru, Joydeep Mukherjee, acknowledges that the NTPC evaluation could be viewed as a tacit reaffirmation of the agency's BB+ credit assessment of India itself. He, however, warns that things could change: "The Budget is very crucial."

ALSO assessing India favourably is US Trust Corporation (USTC). "India will continue to be an attractive investment in the long term," remarks Rosemary Sagar, head of USTC's global investment division. To her, Indian stocks remain alluring, even if the government slows market reforms and the lifting of protectionist barriers, since import barriers mean Indian companies would enjoy a closed market and higher profits. Sagar, who oversees about $1.1 billion in assets, says she is not reducing holdings.

But the vibes are hardly all positive. For instance, Phelps Dodge Corporation has told Outlook that it has no immediate plans for mineral exploration in India. Spokeswoman Lynne Adams said America's largest copper producer would not capitalise on the prospecting licence approved by the Indian government without first checking with the US State Department among others: "We are waiting for guidance on how to proceed given the unclear situation. We have no plans to explore in India until we hear from them."

Indeed, even if sanctions finally turn out to be mild, no one in the US expects them to go soon. "In order to remove the sanctions," said Solarz, "there will have to be some change in India's nuclear policy. Now, what that change is hasn't been defined by anyone here. I don't think the administration knows itself. But without this change, it is politically inconceivable that Congress will repeal the sanctions. There is a big difference between some isolated expressions of understanding of the compulsions which led India to make this (nuclear) decision and some recognition of a certain hypocrisy of the American position on the one hand, and being able to muster sufficient support for repealing the law on the other. We are very far from it. Very. There's no possibility, whatsoever, that sanctions can be lifted over the course of the next couple of years."

"There's a lot of hurt here in official Washington," says a congressional source. "In fact, the State Department is quite open about how they are feeling. You don't have to look further than that. The Indians often simply don't realise that yes there are some 100 members of the India Caucus in Congress, but not everybody knows about India. These tests are the first-time exposure for many of the members and their staffs to India. And how India is perceived by them for the first time is very important. Both the US and India have to drop their emotions, let their egos go and sit and talk. These are the two best and largest democracies in the world. It's stupid for them not to talk to each other. Their real enemy is China—a communist country."

Says a trade analyst: "The Indians were complaining that they were not being recognised, that nobody gave them respect. After the bomb, they have now worked their way into the Big Boys' Club. But you can't start calling the shots right away. I mean, they are calling the shots on CTBT. You are not gonna win friends that way. Let India take the leadership role in the fissile material negotiations starting in Geneva, and I guarantee you the mood will change. Take leadership on that front. On peace. Sign the CTBT, sign it with reservations. The US does that all the time."

The BJP government's optimism over the removal of the sanctions is misplaced, feels Rajiv Khanna, who runs the influential Indo-US Chamber of Commerce. Warns he: "It's time both governments stop posturing and start talking to each other to find a solution. India is in real danger of being forgotten if the US keeps the sanctions on for a long time. Corporate America will switch attention to other countries. That's the real danger, not sanctions themselves, but from the attitude to forget India and move on. Corporate America has a very short attention span and if the stalemate continues, the attention will be lost." That will be bad news for India.

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