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May 14, 1998


Liberalise or perish: Bhagwati

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A K Diwanji in Bombay

"This is a good chance for India to become self-reliant economically," says Professor Jagdish Bhagwati of Columbia University, New York. "This is the time for India to pull itself by its bootstraps, because unless weapons are matched by economic power, you cannot be considered a major power."

Professor Bhagwati was speaking in the context of the United States, Japan and other Western countries imposing sanctions on India. He was not too worried about the impact of the sanctions and said it would depend on what measures are implemented. "So far, Japan has only frozen grants and cut the Overseas Development Assistance, which does not amount to much," he said, "Compared to India's resources, this is not much to worry about."

The common sentiment was that India will have to wait and see what measures are implemented. However, given the angry reactions, it is now almost certain that sanctions will be put into force, but most doubt if they will be have far-reaching consequences.

The Confederation of Indian Industry has declared that sanctions will not affect Indian commercial interests. In a statement, the CII said that business will continue as before: investment and trade will not be hampered.

Dr S P Gupta, director, Indian Council for Research on International Economic Relations, New Delhi, said if it would not amount to much. "Trade and private capital flows are not in the picture, so it will not amount to much."

N Kumar, vice-chairman of the Sanmar Group and former CII president, agreed. "We should now try and convince the world we do not want to stockpile nuclear arms as much as simply show our capability. Much will depend on how India explains its position to the world at large," he said.

Gupta pointed out that as per US laws on nuclear proliferation, private flows will not be affected. In fact, many have given the analogous example of how even after Beijing's harsh crackdown on Tiananmen Square in 1984, the Chinese economy continued to grow because private inflows stayed on course even as governments curbed official aid.

Professor Bhagwati said the best way to counter the impact was to open up the economy as fast as possible. When pointed out that the Bharatiya Janata Party had made noises about swadeshi, he replied, "It depends on what they mean by swadeshi. If they mean self-reliance, then in fact now is the chance to prove that they mean it.''

Gupta too was confident that India can overcome the sanctions if it maintains a buoyant economy and ensures that investment keeps coming in. "Nothing much has been cut. The Japanese have cut ODA, but over the past three years, Japan has been cutting ODA by 40 to 50 per cent," he said, "But the main thrust will be in ensuring that private foreign direct investment continues unabated."

Kumar said, "We are part of the World Trade Organisation and hence it will not be too easy to just cut us off. Maybe some companies will be hurt, but the overall impact will be limited."

The Columbia University professor pointed out that China's importance is due to it being a large market for Western countries. "India is also a large market, but so far it is of limited use to foreign companies. If the government opens up the market totally, then Western companies will come flooding into India, and sanctions will become meaningless," he said.

Adds Bhagwati, "Inward-looking policies at this juncture will certainly hurt the country. And don't discriminate between kinds of products. Goods are goods, and even consumer goods can be exported from India."

He stressed that economic might is an important factor in seeking major power status. "You cannot get self-respect by simply exploding a bomb. In fact, this is the best time for India to thoroughly liberalise the economy," he said.

One source of worry is that World Bank loans to the country will be affected. India is the third largest recipient of World Bank loans. While the US will oppose loans to India, the move will fail unless supported by others. Developed countries combined account for only about 42 per cent of the votes, the remaining are with developing countries.

"There is a time lag between sanction and delivery in World Bank loans," points out Gupta, "Those loans that have sanctioned are already in the pipeline. This means that there will be no immediate effect."

Professor Bhagwati too rubbished the World Bank fallout. "For years, I have been arguing against going to Davos with a begging bowl or to the Bank for loans. We can do without them," he declared emphatically.

Many expect some sort of a deal to be reached soon, and the fact that the Western world is not completely united in its stand on sanctions must be satisfying. Hence the unwillingness to predict how bad the situation will be.

Thus, whether or not the economic sanctions hurt India will depend on how the BJP government now plays its diplomatic and economic cards.

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