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Sanctions may force govt to present interim budget

George Iype in New Delhi

The Atal Behari Vajpayee government is drawing up a contingency plan in the face of the US sanctions imposed on India today.

Finance Minister Yashwant Sinha held extensive deliberations with the officials of the ministries of finance and external affairs, Reserve Bank of India Governor Bimal Jalan and senior Bharatiya Janata Party leaders to take stock of the impact of sanctions.

The finance minister also separately met the officials of the Prime Minister's Office led by Principal Secretary Brajesh Mishra.

The meetings assessed that the country will be forced to forfeit nearly $ 3 billion because of the tough US decision to terminate and suspend foreign assistance to India.

But the finance minister, who termed the sanctions "a minor roadblock" in furthering the Indo-US relations, stated that "India will overcome the impact of these economic measures."

Asked what would be the real impact of the sanctions, the finance minister told the media in New Delhi, "It is very difficult to judge it at this point of time.... Washington is yet to issue orders on a commercial basis. But my ministry is making its own assessment of the full implications of the US decision."

Sinha stated that that funding of projects would not dry up as a result of the US sanctions as "there are many other sources of funding apart from the US".

But the US, the largest foreign direct investor in India, is the country's biggest trading partner, according to the 1997-1998 annual report from the industry ministry.

The finance minister said while the US is still to come out with the actual size of the sanctions, loans and aid already in the pipeline will be not be affected. He added that the US sanctions would also not affect private sector investment and infrastructure projects in India.

Sinha said it is still unclear how the dealings with the US banks will be affected due to the sanctions. The measures include opposition to fresh loans to India from multilateral institutions and US banks being barred from lending to the Indian government.

The US government has not yet clarified whether the American banks operating in India would be allowed to invest in Indian gilts.

While the Vajpayee government has put forward bold public statements stating that the economic curbs from the US will not affect the country, finance ministry officials said Sinha has been asked by the prime minister to prepare a contingency plan to minimise the impact of the US measures.

The plan includes the presentation of an interim budget later this year, to adopt tough economic measures to tide over the crisis. Officials say that an interim budget would emerge as a necessity as "the impact of the sanctions have not been quantified" in the national Budget presented by Sinha on June 1.

"Now that the US has finally slapped tough trade curbs on us, it is time for the government to take a realistic stock of the economic situation in the country," an official told Rediff On The Net.

He said the government is also foreseeing a situation where foreign direct investment and inflows into India would dry up due to the international sanctions.

The government is now certain that the five nuclear powers led by the US will force the World Bank to defer the $ 540 million infrastructure loan to Andhra Pradesh.

The Bank has already deferred loans worth more than $ 2 billion in the wake of the nuclear tests.

The ministry officials said they are yet to take stock of how the stopping of any new fresh US government guarantees by entities like Exim Bank and the Overseas Private Investment Corporation will affect the country.

India is one of the top five recipients of OPIC support averaging over $ 300 million annually. The US Exim Bank has $ 500 million in financing pending with India.