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Sanctions are good news



I totally disagree  with the views expressed by Mr Barun Mitra and Kush on
India's compulsions to go overtly nuclear. I have a host of articles
adequately documenting India's strong case (including some written by
knowledgeable Americans). But that's beside the point. I would respectfully
suggest that the India policy forum should waste no more time  discussing
why the nuclear genie was let out of the bottle, since there is no question
now of puttiing it back. (And labeling India's government as "Hindu"
nationalist is highly objectionable.  Why do some Indians slavishly try to
copy the western media ?  Is it due to a sense of inferiority complex that
some Indians unfortunately still continue to suffer from vis-a-vis the
westerner, notwithstanding the fact that we have been a free nation for
more than half a century? If India is to make progress the first thing we
have to do is to get rid of that inferiority complex). Let's focus on what
we have got  to do NOW. Perhaps, the following article by Raj Cherubal and
Marc Cooper which appeared in a recent issue of The Economic Times under
the title  " Sanctions are good news" 
 could be a useful starting point:

QUOTE:
Sanctions are good news 

Elimination of handouts, in the long term ,will not hurt India, argue Raj
Cherubal and Marc Cooper

THE FIVE nuclear tests recently conducted by India have triggered a wave of
international economic sanctions. From the cutoff of aid by Japan to the
pledge of the United States to thwart disbursement of aid by multilateral
agencies such as the IMF and the World Bank, the International community
has determined that India must be punished for Pokhran blasts. Conventional
wisdom claims that poor nations require economic assistance to lift
themselves out of poverty and that by depriving a poor nation of
desperately needed capital that nation will suffer enough economic harm to
change its course of action and bend to the will of the sanctioning
nations. 

We believe that by displacing the need for private capital inflows and
delaying free market reforms perpetual international aid usually causes
more harm than good. It is also our contention that the elimination of
handouts will, in the long term, not hurt India, but could actually help by
compelling its political leaders to accelerate economic liberalisation
measures which will lead to enhanced growth. 

International aid has created a legacy of dashed hopes, arrested economic
development, and dependency. The sorry history of the IMF highlights some
of the many problems that plague the aid industry. As recently noted by
Bryan Johnson and Brett Schaefer of the Heritage Foundation, more than 50
per cent of the nations receiving funds have shown no economic improvement
and one third are worse off. At some point it must be acknowledged that
only has years of economic assistance failed to help these nations, but
that it may have even harmed them. 

Such aid permits the political leaders of these nations to continue
promoting failed socialists economic practices and avoid implementing vital
free market reforms that would lead to long term economic growth.
Additionally, capital flows which are directed by political means rather
than by the market are all to frequently misallocated and thus do little to
improve the plight of the nations receiving aid. Also, international aid an
be capricious. 

Donor nations are primarily driven by domestic political concerns not the
requirements of the needy nations. So aid can be summarily cutoff just when
it is most needed and thus can be an unreliable source of capital. There
are also questions about sovereignty. Aid usually comes with strings
attached and desperate nations are frequently compelled to placate the
donor countries. India finds itself in this predicament. This naked
blackmail is demeaning to a proud nation such as India and also reveals
something about the motives of the donor countries. 

India is a poor nation due to lack of capital. A loss of an important
source of capital, unless replaced by other means, will make India poorer.
While this appears troublesome at first glance, we believe that it could
present a positive opportunity. 

Faced with the loss of politically directed capital, India must turn to the
private international market to replace this loss. In order to do so, it
must enact key economic reforms to become attractive to investors, and to
assure them that such investments will be safe from capricious government
interference. With its stable democracy, abundant natural resources, and a
huge middle class which is very much westernised, India should have no
trouble in attracting enough private investment to more than offset the
effects of sanctions, provided that the requisite economic reforms are
implemented. 

In the past few years, India has taken some encouraging steps in the
direction of economic liberalisation. Such steps have resulted in strong
growth of the kind that is necessary to lift the average citizen out of
poverty. Yet poverty remains a persistant problem so further reforms are
required. These reforms include clear and secure private property rights,
relaxed capital controls, reduction in government interference in the
private sector, removal of restrictions on foreign ownership of Indian
companies, etc. 

Many of these measures will face intense political opposition, but this is
where the imposition of international sanctions could help India's leaders.
By claiming that such measures are necessary due to the sanctions could
help India's leaders. By claiming that such measures are necessary due to
the sanctions, the Indian government can use international community as a
scapegoat and gain political cover. This political dynamic is just what is
required to brake the stanglehold of entrenched bureaucratic and
protectionist interests and to accelerate the pace of economic
liberalisation. 

Instead of being viewed as a harbinger of economic troubles, the sanctions
that are being imposed on India could represent an historic opportunity.
The only path to long term economic growth is via capital accumulation. If
sanctions compel India to enact reforms required to attract private capital
and reduce its dependency on international aid, than sanctions could be a
blessing in disguise. 
UNQUOTE.

Ram Narayanan