Defiant India May Ignore Economic Sanctions

Government approval rating soars following second round of nuclear tests.

As the international community began substituting sanctions for words of condemnation following this week's double set of nuclear tests, an unrepentant India maintained it was ready to face the consequences of its actions.

The message from prime ministerial adviser Pramod Mahajan could not be more clear. "This says we will do what we want to do. We don't bother about threats," he said after Wednesday's second round of tests, adding: "The news of the day is 'India Defies World Opinion.' "

With such defiance, there are serious doubts about whether sanctions alone can prevent India from carrying out further tests or arming its conventional weapons with nuclear warheads.

India is the first country in the world to be punished under US laws introduced in 1994 to deter non-atomic weapons powers from crossing the nuclear threshold. Sanctions announced Wednesday by President Clinton will block US bank loans and credit guarantees, cut foreign aid, and bar defense-related transfers of technology. The United States is India's largest investor and its largest trading partner, with trade between the two countries running at around $15 billion.

More important, the sanctions will also make it more difficult for India to obtain money from the World Bank, which has loaned more money to India than to any other country - some $14 billion. The Indian government says the potential cost of sanctions was factored into the planning that preceded this week's multiple nuclear tests.

Analysts warn that the sanctions could even be counterproductive. "What must be conveyed to the outside world is that people here are treating these sanctions with the utmost contempt," says defense analyst Manoj Joshi.

An opinion poll published this week shows a staggering 91 percent of Indians support the tests. For the volatile Hindu nationalist Bharatiya Janata Party-led government that sort of approval far outweighs the risk that sanctions might bite in certain sectors of the economy. "India will survive the sanctions because Indian public opinion would be firmly behind this decision," says former foreign secretary J.N. Dixit. "It will be a test of national stamina and national resilience, which will generate a spirit of self-confidence."

The country's industry leaders, while endorsing the tests, are urging the business community to remain calm. The effect of sanctions would be minimal, they say. India's economic insularity protected businesses from the fallout of the Asia economic crisis and would also protect from international sanctions. "There is absolutely no reason to panic. The general feeling is of stability and confidence among the industry," says Tarun Das, director general of the Confederation of Indian Industry.

But the complacency among corporations is far from universal. Since 1991 India has painstakingly tried to dismantle the worst vestiges of its socialist economy and roll out the red carpet for foreign investors. Now the aftershocks of this week's tests threaten to undermine seven years of progress at a time when the government is crying out for investment, in areas such as infrastructure, to break the massive bottlenecks that are strangling economic growth.

Hardest hit by the sanctions will be sectors such as power and telecommunications, where many projects that are just about to take off could be grounded if access to bank credit dries up. According to Harry Dhaul, director general of the Independent Power Producers Association, loans worth $3 million to $5 million could be affected. "There will be uncertainties in the minds of power producers for some time. However, these would be overcome because of the strong fundamentals of the Indian economy and the enormous market opportunities that it offers to private producers in energy and infrastructure sectors."

Meanwhile, the government sees the bomb as a way to assert its role globally.

Indian leaders have strongly denied that short-term domestic political gain prompted them to undertake the tests. Instead they have insisted that the threat from nuclear-armed China to the north, rather than long-time rival Pakistan, was the main reason defying decades of international efforts at global arms control.