India Deals With Economic Crisis
OLD DELHI, INDIA
JEWELER and gold-trader Naresh Khanna says India's recent gold sale to bridge deepening economic troubles is akin to selling the family jewels.India's sale of a small amount of gold last month to raise desperately needed hard currency sent ripples through the country's business community - nowhere more than in the narrow back streets of Old Delhi, where Mr. Khanna and dozens of other jewelry and gold traders feed the country's traditional demand for the precious metal. "It's created some panic. People are asking why they are selling gold. They are losing faith," says Khanna in his shop full of glittering jewelry displays. "Traditionally in India if someone takes out the gold, that means there's nothing else left to sell." India, for years an economic bedrock in the third world, confronts its worst economic crisis in four decades of independence. The brunt of these troubles is hitting the country's newly elected government, which is struggling to get off the ground. A day after being sworn in as the new prime minister, P. V. Narasimha Rao warned the country of hard times ahead. In a challenge to India's long-standing policies of rigid socialist controls, economic self-reliance and a heavily protected domestic market, Mr. Rao said in a televised address his government would pursue free-market proposals to revitalize the stagnant economy. India, he said, would welcome foreign investment, promote exports, streamline industrial and licensing procedures, and encourage more involvement from overseas Indians, long viewed with suspicion back home. "There is no time to lose. The government and the country cannot keep living beyond their means year after year," said Rao. "There are no soft options left. We must tighten our belt and be prepared to make the necessary sacrifices to preserve our economic independence." Political analysts say making hard choices will be tough for the new government formed after the Congress (I) Party won the most seats in a recent national election but failed to achieve a parliamentary majority. Rao has until late this month to line up enough parliamentary backing from other parties for what will likely be a minority government which will rule with outside support. Political observers wonder if the 70-year-old Rao, regarded as a gentlemanly politician and concil- iator, will be able to stem the unrest within his party and India. Even after Rao's government was sworn in, Congress members continued the infighting which has torn the party since party President and former Prime Minister Rajiv Gandhi was assassinated in May while campaigning.
Pawar remains at odds Differences continued with maverick Congress politician Sharad Pawar, former chief minister of Maharashtra State, who had also vied to succeed Gandhi before giving in to Rao as a consensus leader. Mr. Pawar remains at odds with the Congress hierarchy over ministerial appointments in the new government. Rao, a loyalist of the Nehru-Gandhi family, has pledged to implement Gandhi's election manifesto, which mixes Congress's traditional policies of social welfare and foreign nonalignment with plans to liberalize the deteriorating economy. The new prime minister pledged to take new measures to quell separatist violence even as the Congress, in a controversial move, forced cancellation of the turbulent but long-awaited election in troubled Punjab state. Political observers point out that Rao filled his cabinet with long-time Gandhi lieutenants at a time when the country needed new blood and new solutions to its widespread problems. "What India needs is not stability, but change," writes B. G. Verghese, a New Delhi political commentator. "To get caught in a time warp in the midst of a comprehensive national crisis that cries out for bold new initiatives on every front would be tragic." The economy looms as the most imminent problem. India still awaits a new budget. It has repeatedly been delayed this year by political maneuvering and squabbling that brought down the infant government of former Prime Minister Chandra Shekhar. A new budget will be announced in July, says newly appointed Finance Minister Man Mohan Singh, an economist and veteran bureaucrat. The Indian economy is already reeling from high inflation, severe import curbs, drastic limits on short-term borrowings and cash flow, and virtually depleted foreign exchange reserves.
Sale of confiscated gold The Chandra Shekhar caretaker government's sale of 20 tons of gold confiscated from the pervasive black market provided some funds to meet interest and repayments on India's $71 billion foreign debt. But the move raised a political outcry in a country which is the world's largest consumer of gold and where gold, often held as jewelry, is the major investment of most every family. Analysts say that reaction could portend the potential political uproar to come as India is forced to turn to the International Monetary Fund for a debt bailout. India, whose foreign debt tripled during the last decade, hopes to get $2 billion by this fall from the IMF and $5 billion over the next three years. In return, the international lending agency is pushing for major reforms in India's over-regulated economy, including budget deficit reduction, dismantling licensing and other regulations, autonomy and even privatization of some public sector units, cuts in subsidies, and changes in the banking system. Although rival politicians are hesitant to pull down the government and face the election-weary and antagonistic voters again soon, political analysts say Rao will have to skillfully handle the fallout from political rivals as well as the ponderous bureaucracy.