Ground zero within

Ground zero within the mood was unusually sombre. The brochures and other papers concerning development projects being run in India - unmistakable presences under normal circumstances - had been removed from the offices of several foreign funding agencies in the embassies in New Delhi's diplomatic enclave. Officials were remarkably reticent to furnish any details about the fate of these projects due to sanctions imposed by countries such as the us and Japan following India's blasting its way into the nuclear arena. Press information officers - welcome hosts to scribes who regularly haunt the corridors - were not available. "Do not ask us. We are awaiting our government's response" was the standard line. An employee at one of the embassies, a hospitable character who had been the "source" for many a story in the past, told a Down To Earth reporter: "Forget about the impact of sanctions. I am worried about keeping my job."

This underlines the panic and confusion regarding several development projects that survive on foreign aid. The governments of Sweden, Germany, Denmark, Switzerland, Australia and Norway have also announced sanctions against 'nuclear' India. The Indian government has been dismissive of the sanctions from day one. It was pointed out that bilateral loans and aid from foreign countries and development agencies amounted to Rs 9,899.35 crore, slightly less that one per cent of India's gross domestic product (gdp) at 1997-98 prices. However, figures and statistics hide something important here.

The Indian government has been generally thin on expenditure in the social sector and the environment. Much of the foreign aid goes into these areas. Even the government relies on foreign grants and loans in the above-mentioned areas, as can be seen in the case of the Union ministry of environment and forests which has a us $50-million-project of the World Bank (wb) for "capacity building". Government monies - both at the Union and state level - are mostly spent on retaining the bloating and infamously inefficient bureaucracy. Recently, in a overtly populist move, the retirement age of government employees was raised to 60 years from the earlier 58. Though the economic sanctions will not affect the bureaucracy, they will affect work in the social sector and the environment.

The fall-out

The development projects that might suffer due to sanctions

Initial days of panic after announcement of sanctions were followed by the financial markets settling down in the country. Living with sanctions, it became clear, will not be all that difficult for the stock traders on Dalal Street. The same, however, cannot be said about the development and welfare sector. The fate of many projects hangs in balance.

Japan and Germany are the biggest contributors of aid to India, accounting for more aid than that coming from all the other countries put together. Japan's aid to India is to the tune of us $ one billion. It contributes more than 80 per cent of all bilateral loans and has provided more than Rs 2,500 crore to sectors such as power transmission and generation, transport, water and afforestation. These two countries are a major concern. Japan is also the biggest shareholder in the Asian Development Bank (adb), a multilateral agency that is an important donor to India). Germany has frozen aid to the tune of us $171 million.

Denmark has decided not to increase its aid from us $28 million to us $53 million by 2002. Embassy officials in New Delhi refused to divulge any details on the impact of sanctions. If the Danish parliament decides to impose sanctions, all projects of the Danish International Agency in the primary education sector will be affected. Sweden has imposed sanctions worth us $120 million, which will affect forestry projects in states such as Orissa and Madhya Pradesh.

The impact on the states is bound to be serious. It has been seen in some states that the entire allocation of ministries and departments barely suffices for the salaries of their staff. Development and welfare activities depend heavily on foreign aid. Delhi's Rs 1,000-crore wb loan for improving water supply and sewage disposal system would be affected due to the sanctions, said a spokesperson of Delhi's finance department. The wb office refused to confirm or deny this, saying, "Till now the board has not taken up the issue and it is very difficult to say which project would be affected". Japanese aid for the Capital's metro railway project, worth Rs 5,000 crore, also hangs in balance.

The Gujarat government on May 21 acknowledged that projects worth Rs 82 crore funded by the us and Japan will be affected by the sanctions, while the projects funded by the wb and Asian Development Bank (adb) will not be affected. The procurement of Japanese turbines for the Sardar Sarovar Dam on the river Narmada will also be affected.

Investments by Japan, the Netherlands, Germany and us in West Bengal to the tune of Rs 2,858 crore are also at stake. The projects are in sectors such as power, urban development and health. The state government was expecting Rs 916 crore of Japanese aid for the Bakreswar thermal power plant. The Japanese government is now non-committal. Similarly, the Calcutta Metropolitan Development Authority, which was negotiating water supply and road schemes with the wb, has been told to defer a meeting in mid-July.

Orissa's Rs 415-crore wb health project, which was negotiated in April 1998, might be scrapped if the us and Japan use their vote against India in the wb board, according to officials of the state finance department. Spread over five years, the project was to take off from July 1998 and was to upgrade the health services in the state. As far as investments from the us, Japan and Germany are concerned, Orissa is going to be badly hit. There are memorandums of understanding worth Rs 95,000 crore in power and infrastructure sector with these countries. Sanctions would affect all of them as these projects are yet to be financed.

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