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President Clinton, responding to India’s conducting nuclear tests,
imposed major economic sanctions on India. The sanctions halt credit,
guarantees or other financial aid by U.S. governmental agencies;
prohibit U.S. commercial banks from making loans to India’s government;
and ban the sale of weapons. It is estimated that the sanctions
will cost India about $20 billion of loans and economic assistance
from the U.S. and international agencies. How much damage this will
impose on India’s economy is uncertain. To a large extent it depends
on whether the U.S. allies follow the U.S. lead in imposing sanctions
and the extent to which the U.S. is successful in discouraging private
investment in India.
U.S. exports to India amounted to $7.7 billion last year. An additional
$7 billion was in the form of direct investment. The only export
sector directly affected by the sanctions is technology. It is argued
that computer technology could play a role in the design and execution
of weapons and there is a direct prohibition on the sale of weapons.
The World Bank has $2 billion of planned investment projects in
India for this year. Although the U.S. cannot unilaterally stop
the World Bank funding, it can solicit support from other World
Bank members. Japan has indicated that it will join the U.S. in
this effort. The U.S. Export- Import Bank will be forced to cancel
$500 million worth of pending loans to India and $3.5 in projects
being considered for approval. The sanctions also affect $10.2 billion
in insurance and finance by the Overseas Private Investment Corp.
While other countries have canceled planned aid to India, it is
not at all certain that these countries will impose as severe sanctions
as the U.S. has. The U.S. response will have an impact on India,
although the extent of the injury is not likely to be severe at
present.
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