Sanctions amp; solutions

Various voices in government have pronounced that American sanctions will not hurt and that India can withstand them. These are incompatible statements. The one is a blase declaration that sanctions will have no adverse impact, the other an acknowledgment that they will hurt but not so much as to seriously hobble the economy. The second is much the more honest assessment, but the assertions are hardly well thought out. Finance Minister Yashwant Sinha believes that sanctions will hurt for a brief while but not in the longer run. He might have offered an argument for this, on the face of it, flawed assertion. All reflection on sanctions so far makes precisely the point that India can ride them out for a while, but that Indian diplomacy must work on having them lifted soon or they could begin truly to bite it at least the indirect sense of a deteriorating investor outlook.

The question is, just what has the government has done to minimise their impact? The answer is twofold. Diplomatically it has done a goodjob. Economically its strategy is more suspect. It is no mean achievement for India that top US officials are pushing publicly for flexibility on the Glenn Amendment, under which the sanctions have been imposed. Secretary of State Madeleine Albright has worried on CNN, with characteristic forthrightness, that American firms could suffer if other countries8217; corporations rushed in to take advantage of economic opportunities here while their hands were tied. The fact of the matter is that, after its first burst of indignation, the American foreign policy establishment is as anxious as India for helpful loopholes in the application of sanctions.

America is making it clear that it wishes to 8220;engage8221; with India and Pakistan. The Clinton administration has been put on the defensive about punishing India while China got away scot free for supporting Pakistan8217;s nuclear programme. And Indian firmness has brought pressure on the nuclear non-proliferation regime promoted by America, giving the US a stake in speedilysorting out its difficulties with India.

Would that the same could be said of the government8217;s efforts in the economic field. It has treated economic policy in the wake of the nuclear tests solely as an extension of its diplomacy. That can be one component of the economic strategy for the situation. But it cannot be the sum of it. India has been right to convey that it alone will not be the loser and that American firms may in fact pay a greater price. It has rightly bolstered its case by giving quick clearances to several foreign investment projects and providing counter-guarantees to so-called fast-track projects in the power sector. It has begun to woo select countries, especially Japan, as most prominently evidenced by the Maruti settlement. It has made menacing noises about retaliation to sanctions. Where it failed remarkably is in making India a better place to invest. That would have raised hugely the cost to those who preach at it and made them more anxious to get rid of their own sanctions. Theplace to begin was the Budget. That chance was sadly thrown away. Good sense now lies in announcing quickfire policies to open up individual sectors. The BJP, alas, has given no reason to expect good sense on this.