International Business: COMMENTARY
COMMENTARY: INDIA DIDN'T COUNT ON THIS AFTERSHOCK
Go nuclear--good things will happen. That was the strategy of Bharatiya Janata Party's newly installed coalition government in India. The decision to detonate a nuclear device was supposed to raise India's international stature and cow Pakistan and China. At home, the show of strength would give the BJP the popularity it needed to push through economic reforms.
So much for brilliant ideas. Three months into its term, the BJP government is already losing its credibility. It has failed to capitalize on its high popularity ratings after the nuclear tests, politically or economically. India's international image has suffered grave damage, and foreign investors are wary. At home, the party's unruly coalition partners are threatening the government's stability. And the momentum for reforms begun in 1991 has ground to a halt.
The list of damages is long. Many disillusioned Indians feel that superior Pakistani diplomacy since the tests has turned China into an open champion of Pakistan's position. President Clinton is even suggesting that China be party to India-Pakistan negotiations and play the role of policeman for Asia. That could create a genuine security risk for India, which sees China as a hegemonic power.TARGET OF OPPORTUNITY. A week after the nuclear explosions, J. Jayalalitha, a former actress and party leader who holds the key to some crucial seats in the coalition, took the first shot at the BJP. She resumed her threat to withdraw her party's support if the BJP did not dismiss the current government in her home state of Tamil Nadu, which is pressing corruption charges against her. Two other allies--from Bengal and Orissa--are pressing their narrow state interests, and they may also bolt from the coalition.
On the economic front, the BJP has failed to exploit the postnuclear euphoria to do something substantive. Investors were hoping for an end to subsidies that suck up precious public funds. In its June 1 budget, the BJP actually proposed big cuts in fertilizer subsidies and raised fuel prices to market levels. But so weak is the coalition that when opposition parties protested, Finance Minister Yashwant Sinha immediately backed down, reducing the subsidy cut by half and dropping the fuel hikes, saying only that they were mistakes.
The government's vacillating policies have sent the stock market plunging 30% since June 1. The rupee has depreciated 7% against the dollar. In the first week of June alone, $130 million of foreign portfolio money left India. Bharat Shah, chief investment officer for Birla Capital International, says the blow to the economy is even greater given that Indian companies have finally begun to shake up management and restructure their businesses to meet global standards. Now, they cannot tap overseas investors for the capital and technology they need.
Meanwhile, executives wait anxiously for the start of the sanctions imposed by the U.S. after the tests. The Group of Eight has said it will block aid-agency loans for India--a sign that U.S. diplomacy to get backing for additional sanctions is working. The World Bank deferred $1 billion in new loans in the last month. Combined with the absence of a strong budget, the impact of sanctions could cut economic growth to 4%, far too weak to create needed jobs. And inflation, which had been tame at 4.5% annually, should jump to 10%.DEATH WATCH? The BJP reacts with typical bravado, saying sanctions will only help India become "self-reliant." But India has been trying to get self-reliant for 50 years without success. Rival parties are set to pounce. Congress Party political analyst Rajiv Desai says his party is waiting on the sidelines, watching as the BJP "discredits itself and falls upon its own contradictions."
Most worrisome is the prospect of a BJP, desperate to retain popularity, making another aggressive move. One tactic sure to arouse popular passion: building a Hindu temple on the site of a destroyed mosque in Ayodhya, in north India. This is a stated goal of the party, even if such a move could trigger massive strife between India's Hindus and its 100 million Muslims. Although a BJP manifesto claims the party will abide by a court decision on the matter, one party spokesman says he has no doubt "the law will be on our side." Already, masons are working on the columns and plinths of a grand white marble Hindu temple in a factory near Delhi. They are destined for Ayodhya. The political fallout of that event would be far worse than that of a nuclear test. India, it seems, is not learning from its mistakes.By Manjeet Kripalani