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Clinton unlikely to lift sanctions on India visit

NEW DELHI: U.S. President Bill Clinton's visit to India next week may ooze with cordiality, but Washington is unlikely to lift its economic sanctions against New Delhi because of stubborn differences over nuclear control issues.

Secretary of State Madeleine Albright has already set the scene for some tough talking on non-proliferation, tying progress on better relations with India to controls on its nuclear arms.

"I do not expect the U.S. to lift these last sanctions during this visit," said G. Balachandran, an independent analyst.

"This is the only leverage left with them...to get India to agree on security issues, particularly nuclear non-proliferation, and this is something their officials have been stressing recently."

However, there is still frail hope in New Delhi that the sanctions, imposed on India to punish it for its nuclear tests in May 1998, will be lifted during the visit as a goodwill gesture.

"Both sides agree that the forthcoming visit provides an opportunity to pave the way for a qualitatively new and closer relationship," Minister of State for External Affairs Ajit Kumar Panja said last week. "The two sides will discuss all issues of mutual concerns, including U.S. restrictions against India."

One analyst said the lifting of sanctions would help investor sentiment more than actual flows.

"Lifting of sanctions will help in boosting sentiment in the short term," international accountancy and consultancy firm Ernst & Young India Chairman K.N. Memani told Reuters.

"In the short term we may see a surge in U.S. investments in the knowledge-based industries," he said. "I am not very optimistic about investments flowing into other sectors like infrastructure, power because a lot would depend on domestic policies and economic reforms."

The sanctions, which initially covered a wide range of areas including U.S. Exim Bank credit and credit guarantees and commercial bank lending to the Indian government for non-food and agricultural commodity purchases, have already been watered down.

Last December, Washington removed 51 Indian companies from a list of over 200 against which it had placed trade embargoes.

That was seen as a token of the better understanding generated by several rounds of talks aimed at reconciling Indian security interests with U.S. non-proliferation concerns.

Washington now only restricts exports of defence-related and dual-use goods and technology to India, and opposes non-humanitarian loans by multilateral financial institutions.

SANCTIONS BARELY DENTED ECONOMY

The sanctions have actually had little impact on the economy.

"Only some multilateral loans were stopped, but even these were released after some time under the humanitarian clause," a senior Finance Ministry official said.

A U.S.-based think-tank, the Institute for International Economics, said last year that the real welfare loss to India and to Pakistan - which was also hit by sanctions after it replied in kind to New Delhi's nuclear tests - was $400-500 million.

For India, this sum worked out to between 0.05 and 0.1 percent of gross domestic product, the institute said.

India weathered possible adverse effects of the sanctions in 1998 by issuing Resurgent India Bonds, which tapped the post-nuclear test patriotism of overseas Indians and raised a whopping $4.20 billion.

India's foreign exchange reserves were at a record $36.006 billion on March 3, according to latest central bank data.

Balachandran said the long gestation period for infrastructure projects, the main target of multilateral agency lending, meant it would be two to three years before India felt any pinch.

"Currently we are still drawing down loans which were sanctioned before the sanctions came into play," he said.

"That will keep us going for some more time, but if the multilateral agencies do not resume lending shortly, inflows from that source may dry up in a year or so."-Reuters