FIIs rule out capital flight

But analysts said foreign investors will set their sights on longer term economic fundamentals. quot;I do not think foreign investors will be reading too much into it,quot; said Miron Mushkat, vice chairman and director of strategy and economics at Indocam Asia here. quot;At the moment it doesn8217;t look likely to escalate to intolerable levels from an investor sentiment perspective. It is a negative point that I think will be noted but not yet factored in to investment decisions,quot; he added.

Foreign investors felt that sanctions could hit India8217;s slowing economy, but doubted if the internationalcommunity would ultimately carry out threats to suspend aid. quot;If they came came in reality sanctions it would have some effect,quot; an analyst with a major European bank said. But I do not really think there is much substance in the sanctions talk,quot; he said.

The United States said it was considering freezing aid to India under a 1994 law that requires Washington to invoke sanctions against any country 8212; apart from the five declared nuclear powers 8212; that conducts a nuclear test.

The sanctions would freeze economic and military aid, bank loans and export licenses to India and would also force Washington to oppose International Monetary Fund and World Bank loans to New Delhi. India is the World Bank8217;s single biggest borrower with cumulative lending of more than US 44 billion US dollars as of last month.

In Singapore, Javad K Shirazi, World Bank regional manager for East Asia and Pacific, declined to comment on the issue. Japan, India8217;s largest foreign aid donor, also said it was reviewing its billiondollars loan programme due to the tests, which it called quot;extremely regrettable.quot;

Kocichi Hagiwara, overseas investment analyst at Daiwa Institute of Research in Tokyo, however, said, quot;It is hard to imagine a massive pullout of Japanese investment from India. I don8217;t think Japanese firms, particulary those in the high technology field, will withdraw their investment there since India produces high quality software.quot;

Taiyo Suzuki, senior economist at the Japan Research Institute, said quot;There will be little economic impact on India in the short term.quot; Since many Japanese firms hit hard by the Asian currency crisis are reviewing their overall investment schemes in Asia, India8217;s nuclear testing alone will not change the course of their investment plans in the region.

But in the long term, India8217;s nuclear testing will not work well for new Delhi in terms of its economic interests, he said, warning of an upsurge in regional tensions.