TWO weeks into the nuclear game and the Vajpayee governments bellicose rumblings on economic matters continue. Far from abating, fission- driven jingoism appears to be at its peak. A high- level government official in New Delhi thundered last week to a national daily (the statements have since been denied) that should the World Bank or IMF block fresh loans, "New Delhi may stop repayment of existing loans." Further. " RBI and other permits and facilities for foreign institutional entities would be withdrawn if they obey the Clinton, Kohl or Hashimoto administrations."
Across the planet on the same day, at the WTO meet in Geneva, soft- spoken commerce minister Ramakrishna Hegde was castigating rich nations for "asking us to broadbase liberalisation while not agreeing to lift controls on a single item textiles which is in our interest". Later at a press meet, he took on President Clinton for his "empty rhetoric and scant regard" for the concerns of the developing world.
At the BJP office in New Delhi, ideologue K. N. Govindacharya is unperturbed by all the din. "Sanctions? What sanctions? Russia has not opposed nor has France or the UK. The seriousness of intent in the Japanese and US sanctions are unclear. In any case, the worst case scenario has already been thrashed out by government officials."
True grit? Or false bravado? Cocking a snook at sanctions, Vajpayees aide Pramod Mahajan maintains: "It will be US investors wholl be more hit by the sanctions. Our economy is 95 per cent self- sufficient. We stand firmly on our two feet." The bravado seems to have rubbed off on Indian businessmen. "Industry is not unduly worried. We have shaken our independence from undue foreign influence," said industrialist Rahul Bajaj. "A soft state that gives in on the vital issue of security can never project the image of a strong negotiator on trade and commerce issues," says corporate anayst Jay Bhattacharjee.
How much of this bravura is rooted in ground economic reality? First, the aid cuts. The optimistic brigade may be on steady ground here. The maximum possible loss could only be $3 billion which is 0.8 per cent of the GDP . Hence there would only be a 0.2 per cent cut in growth rate, points out economist Dr D. H. Pai Panandiker.
A second sanctions area is the stopping of guarantees by the US Exim Bank and Overseas Private Investment Corporation that provides political risk cover to giant US corporations in core sectors like infrastructure and power. This may delay ongoing projects like Dabhol, Cogentrix or Hughes Ispat, besides discouraging new projects which would be forced to bear the risk on their balance- sheets. However, non- US export credit agencies could step in, or vendors themselves may stand as guarantors as Motorola did for Reliances cellular business.
What about foreign direct investment ( FDI )? Economic analysts are more or less unanimous in that lucre, not political or moral compunctions, drives businessmen. As Amit Mitra, secretary- general, FICCI , puts it: " MNC s arent going to let go of the vast market potential in India just because it detonated some nuclear devices."
So far so good. But what about the sanctions coming at a stage when the economy is hurtling into recession? Exports are unlikely to move up in the current year, Hegdes reassurance of 20 per cent growth notwithstanding. Debt flows into India are also likely to be negative. Cost of debt will go one way: upwards. Portfolio investments are likely to stay tepid. Defence expenditure is likely to increase. The big question then: Post- Pokhran, where will the money come from to detonate the economy?
Which is why, behind the brave posturing, the government seems perturbed. Fire- fighting operations have begun in earnest. Within hours of the second round of tests on March 13, Vajpayee was locked in consultations with the finance minister and his team, thrashing out a comprehensive economic contingency plan. No coincidence then, that the very next day the power ministry announced that three fast- track projects that had been hanging fire for years stand cleared. Power minister R. Kumaramangalam also announced a policy for mega projects to bring in larger investments into the energy sector . In the ministry of mines the same day, Naveen Patnaik was signing his OK on 34 proposals from foreign companies for prospecting. Next day, the petroleum ministry awarded product sharing contracts for 18 oil blocks.
In a major policy change, the cabinet also gave the go- ahead for foreign direct invest ment in ports. The governments gameplan is fairly well chalked out: woo the MNC s and watch them take care of Clintons aggression. Simultaneously, use the stick to ensure that business rivalries propel corporations to flock to India.
A game of guile and bullying. China has successfully played this game against the US. Analysts point out that even before the blood had dried in Tiananmen Square, Western governments, pushed by businessmen, were rushing in to grab the carrots being dangled by the Chinese government.
The BJP government seems to be in a mood for guntoting bargains. As in the high- visibility Air- India aircraft purchase deal. The Rs 800- crore aircraft order is now likely to go to Airbus Industrie of France, putting the frontrunner, US- based Boeing, in the dock. Official reason: the French offer is better. Hidden agenda: to make a diplomatic point via the stick.
Shrewd move. Already, US corporations and business councils are moving in to protect their business interests. British banks are making overtures to step into the shoes of US banks, should they decide to stop business in India. So, even as Chase Manhattan reportedly plans to stop confirming letters of credit issued by public sector banks in India, American Express Banks global head quarters in New York sent a single instruction to its offices in India: "Go ahead with usual business till further information." Motorola also revoked its decision to stop shipping goods to India, signalling that corporate America could take an independent stance guided by its own interests.
The US- India Business Council comprising companies such as Lehman Brothers, Chubb Corporation, Pfizer, Enron, AIG , Boeing, and Citibank, has written to Vajpayee urging both governments "to take steps in the near future to restore the high degree of mutually beneficial cooperation." The Canada- India Business Council is also lobbying with its government to prevent it from slapping sanctions. "The BJP government seems to have realised that FDI could be a clever weapon to weaken sanctions. It could effectively substitute aid," says Panandikar.
Some analysts opine that sanctions may be a blessing in disguise. "Didnt India become self- sufficient in food after it was denied wheat supplies by US in 1967? Didnt we make our own supercomputer when US didnt sell one?" reasons one expert. The current national mood of sacrifice for long- term national interest could enable the government to bury the swadeshi hatchet with few tears shed, and to take some hard economic measures in the budget. Will the gamble pay off? It might be worth the risk. For like it or not, India Is Now A Nuclear Weapon State.