The folks in Dasna village, north of New Delhi, have never heard of Alan Greenspan. They do not own shares on the Bombay Stock Exchange. And they are confident India will do just fine, thank you, despite the economic sanctions imposed by the United States on it and Pakistan for their nuclear tests.
"We are 900 million people. We will not die from these sanctions," said Pramod Batra, the 42-year-old village doctor in Dasna, where there are still more water buffalo and bicycles than cars on the road and where the air is heavy with the smell of cow dung used for energy. "This nuclear test was about self-respect, and self-respect is more important than roads, electricity and water. Anyway, what did we do? We exploded our bomb. It was like shooting a gun off into the air. We didn't hurt anybody."What the Indians of Dasna don't understand, and what many officials of India's new Hindu nationalist government don't understand, is that since 1991 their country has opened its economy to global imports and investors, and made itself partially dependent on global capital to fuel its growth. If anyone forces India to put its nuclear genie back in the bottle, it's not going to be the United States, the United Nations, Pakistan or China. It is going to be the faceless gnomes of this global market. The Indians are about to learn a fundamental truth about globalization: Globalization does not end geopolitics. Nations, like India, will still defy international norms in pursuit of respect, or in response to real or imagined threats, no matter how integrated they are. But what globalization will do is exact a whole new price for that sort of defiance.
A team from the Moody's bond rating agency quietly slipped into India last week - about as quietly and secretly as India's nuclear scientists prepared their bomb. That Moody's team concluded that the Indian economy - in the wake of the government's new bloated, directionless budget, the Indian nuclear test and the U.S. sanctions - is heading in the wrong direction. As a result, on Friday, Moody's downgraded India's economy from "investment grade," which means it is safe for global investors, to "speculative grade," meaning investors beware.
This is far more important than any U.S. sanctions, because it will raise the cost of borrowing for every Indian company and state government seeking funds from abroad. And because India has a low savings rate, those foreign funds are crucial for its growth. Indian companies will now have to turn more to the Indian treasury for capital, and the Indian government, which is already engaged in far too much deficit spending, is either going to have to open up the money taps, and trigger inflation, or let Indian companies starve for cash. The Standard & Poor's rating agency also changed its outlook on the Indian economy from "stable" to "negative." This is a real blow to a country that needs $500 billion in new infrastructure over the next decade to remain competitive.
Said Tarun Das, director of the Confederation of Indian Industry: "There is something called sentiment in the world market. People put money where they feel good. Unfortunately, people are now worried about this part of the world. We are getting all sorts of hits on our Web site from foreign investors, who are asking us, `Are you at war?' "
No wonder that foreign direct investment in India, which was only $100 million when India opened its economy in 1991, then soared to $4 billion, has started to slow again. Foreign investment in the Bombay Stock Exchange is about $8 billion, a quarter of India's total foreign currency reserves, and those foreigners have been selling lately. The Bombay Stock Exchange Index - which had been resisting the Asian flu - has slid from 4,300 to near 3,000 since the nuclear test. The Indian rupee has lost 10 percent against the dollar, falling Monday to a record low.
"Indian society was so carried away with the euphoria over the nuclear test that it has not carried out a cold assessment of what the implications are," remarked Rajendra Pachauri, an analyst at the Tata Energy Research Institute. "I fear that there will be a sense of denial for a while that nothing is wrong, and then when something hits us, we will be totally unprepared. I fear that society could react in an unpredictably negative manner. There could be a real sense of trauma. We need to prepare Indian society for that."
New York Times News Service