Newspaper article The Christian Science Monitor

India Pursues Free-Market Reform ECONOMIC OVERHAUL

Newspaper article The Christian Science Monitor

India Pursues Free-Market Reform ECONOMIC OVERHAUL

Article excerpt

AS if Manmohan Singh doesn't have enough worries of his own, India's finance minister also frets about the Soviet Union.

Throughout India's 44 years since independence from Britain, Moscow has been New Delhi's major political ally, trading partner, weapons conduit, and supplier of industry and infrastructure.

Now, with India plunging into an economic overhaul and the Soviet Union tottering at the edge of disintegration, that old relationship is crumbling. The special rupee-ruble trade, under which India exchanged low-quality goods for Soviet loans, oil, and military help without draining scarce foreign exchange, is in trouble.

With both countries dealing with foreign currency shortages, Soviet turmoil is disrupting the flow of military and industrial spare parts, special metals, and other goods. On top of this, India, in the midst of a massive bailout by international lending agencies, is stuck with financing through credits a rupee trade surplus it can't reduce.

"We do worry because the Soviet Union is an important trading partner," Mr. Singh said in Bangkok recently at the annual meeting of the World Bank and International Monetary Fund (IMF). "Now Indian exports don't face a problem, but if the Soviet economy goes downhill, that has implications for trading partners of the Soviet Union."

After more than four decades behind a wall of socialist planning, protectionism, and self-sufficiency, the Indian economy is opening up to the international free market.

Where once India stood steeled and aloof against economic colonialism, the country's officials have now plunged into the capitalist thicket, lining up enormous loans, wooing foreign investors, cutting ponderous government controls, devaluing the rupee, and promoting trade.

Prime Minister P. V. Narasimha Rao, the political veteran who took charge of a tenuous minority government last summer, had no choice but reform, political observers say. Mr. Rao came to power in a tumultuous election overshadowed by the assassination of former Prime Minister Rajiv Gandhi.

With India battered by high oil prices following Iraq's invasion of Kuwait, Rao confronted a soaring budget deficit, an unserviceable foreign debt, and nearly empty foreign-exchange coffers. Still, in October India was enthusiastically applauded by international bankers for shedding its socialist orthodoxy and espousing economic reform. $2.2 billion IMF loan

The IMF is expected to approve a $2.2 billion, 20-month loan to India soon. World Bank officials also are sympathetic to India's request for $3 billion to $4 billion annually in aid over the next three or four years. Foreign commercial credits, suspended because of the growing external deficit, also are expected to resume soon.

India wants to attract more foreign equity capital than the $1. …

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