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May 13, 1998


India, US firms will have 'rough time' if sanctions are multilateral

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Imposing economic sanctions against India to punish it for nuclear testing will hurt many US industries. But executives and academic experts say it is too early to tell what the impact will be.

If other nations join the United States in imposing sanctions, then India could face the same economic hardships the international community imposed on South Africa to protest its apartheid policies in the 1980s. World Bank loans might dry up and the US Export Import Bank, which provides political risk insurance to US exporters, could freeze projects awaiting approval.

''The key thing to watch is whether (the sanctions) are multilateral,'' said US Chamber of Commerce international policy centre Director John Howard. ''If that happens, then India and the companies that do business there are in for a rough time.''

An official of a consumer products company with worldwide operations said much would depend on the kind of sanctions imposed.

''We could be told (by the government), for example, no more new investment but you can keep what you have,'' he said.

Enron spokesperson Kelly Kimberly said it was too early to 'assess any impact' on the US company's power projects in India. ''We're monitoring the situation... India is an important market for Enron.''

She said Enron's highly publicised 826 MW Dabhol power project is 85 per cent complete and is expected to begin commercial operation in December.

Besides power and energy projects, punitive measures against India could put at risk infrastructure initiatives such as building of roads, ports and bridges that involve US companies.

In addition, consumer goods companies such as Proctor and Gamble and Hewlett Packard and auto firms such as Ford Motor Company have sizeable operations in India that could be hurt.

Stanley Nollen, a professor of business at Georgetown University's School of Business, said sanctions on India will not matter much.

''Those companies that are already there will remain and those that were looking will have to accept a higher risk factor,'' he said. But official lending from governments and international financial institutions could be affected.''

The United States is India's largest trading partner and its largest investor. The US state department figures indicate that imports from India totalled $ 7.3 billion in 1997 while exports reached $ 7.7 billion.

Under a 1994 US law, non-nuclear countries that detonate nuclear devices are subject to denial of US credit and credit guarantees. The law also requires US opposition to such a nation's loan requests to international lending institutions such as the World Bank.

India was the third largest loan recipient from the World Bank in 1997 after China and Russia, according to the Bank. There are plans to double the total this year to $ 3 billion, Bank officials said.

Three energy projects totalling more than $ 500 million are scheduled to be reviewed on May 26 by the Bank's executive board and a $ 275 million loan covering road improvements is expected to be examined on May 28.

The board usually makes its decisions by consensus, rather than a formal vote. But the United States and Japan, which also threatened sanctions over the tests, could influence the outcome by persuading governments to back their view or calling for a negative vote they would win as the two largest contributors.

The US Export-Import Bank has about $ 575 million in projects in India awaiting approval.


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