INDIA goes to the polls in April to deliver a verdict on five years of economic reforms that have transformed the country's fortunes. Four decades of central economic control have been overturned in a sweeping liberalisation. Rules and regulations inspired by the self-reliant ideology of the independence era have been swept aside. Although foreign investors still complain about multiple shortcomings, they are queuing up to sign deals. But the changes championed by the business elite have not charmed the voters. The ruling Congress party has suffered a series of reverses in state elections and is not expected to retain enough seats in the general election to form the next government.
Corruption is the immediate issue on which the elections are likely to be decided. In its own version of Italy's 'clean hands' investigation, India's political elite is being accused of all manner of malpractice and prosecutions are being prepared. The issue came to a head in mid-January when the Central Bureau of Investigation, after a four-year inquiry, charged seven leading politicians with corruption. They include three ministers in the present government who are suspected of accepting bribes from a prominent businessman. All three have resigned and face probable indictment.
Another of the accused is LK Advani, the leader of the main opposition Bharatiya Janata party (BJP), who has also resigned to rebut the charges. The Hindu nationalist BJP has made corruption the main theme in its attacks on the Congress party and Indian commentators detect the hand of Prime Minister PV Narasimha Rao in the timely release of the inquiry findings, which should blunt the opposition campaign.
The fiery nationalism of the BJP feeds on latent suspicion about foreign investment and the fears aroused by reforms, even though the party officially favours many of the changes. Hostility to multinationals is widespread after the Bhopal chemical disaster. It is apparent today in environmental campaigns, attacks on KFC outlets by angry chicken farmers, and the demonisation of the Dabbol power project, in which the BJP played a leading role.
The Dabhol saga, in particular, strained the confidence of foreign investors and became a rallying point for the critics of economic reform. Having won control of the state of Maharashtra in March, the BJP/Shiv Sena coalition in August cancelled the Dabhol power project, India's largest foreign investment scheme and obliged the US consortium led by Enron Corporation to renegotiate the $2,800 million deal. Enron had already spent $300 million when it was forced to abandon construction but has since agreed to cut tariffs, reduce capital costs and boost output of the completed project to 2,450 MW. The changes were sufficient for the Maharashtra government to claim victory and in January it approved the revised package. In a further concession to economic realities over political rhetoric, it also approved a second power project in which the US General Electric holds a 33 per cent stake.
The revival of the scheme in Maharashtra, India's most industrialised state, suggests that the main thrust of the Indian reform programme will survive a change of government in Delhi. Finance Minister Manmohan Singh, the architect of the reforms, says he has completed about 80 per cent of his programme and in an interview with the Financial Times in October claimed there was a consensus behind the changes: 'Structural reforms like the reduced role of the public sector, opening up of the Indian economy, increased welcome for foreign investment - these are reforms which I think are secure.' Economic turnaround Forced into reform in 1991 by a fiscal crisis, soaring inflation and the prospect of default on India's external debt, Singh can now point to indicators that might even impress an IMF economist. Indeed, a recent IMF study noted approvingly the resurgence of private investment and the major investments planned in telecoms, power, petrochemicals and oil exploration.
The fiscal deficit is close to the target of 5.5 per cent of gross domestic product (GDP). Inflation has been reduced to 8.5 per cent. Industrial growth is running at 11 per cent while overall economic growth in 1995 was about 6 per cent. Exports have been rising at an annual rate of 29 per cent;
rising imports have been dominated by capital goods. In December Singh said that the current account deficit for 1995 was expected to be 1.5 per cent of GDP, which was 'entirely sustainable.' However, the IMF has warned that India must persevere with its reforms and achieve tighter fiscal discipline, bigger tariff cuts, further liberalisation of the labour market and more restructuring of the public sector.
The opportunities created by rapid economic expansion in a market of more than 900 million people has not escaped the attention of Middle East oil and gas producers, who are well represented among potential investors in the energy sector.
Abu Dhabi, Oman and Saudi Arabia are all pursuing refinery projects which will provide a secure long term outlet for their oil.
Oman is also pursuing an ambitious $5,000 million project to pipe gas across the Arabian Sea to the west coast of India. The subsea pipeline would be sunk to depths of up to 3.5 kilometres, which is deeper than any other wide-diameter gas pipeline in the world. The scheme faces huge technical challenges and is also in some doubt due to insufficient confirmed gas reserves in Oman. Longterm plans for Dabhol, which is to be naphtha-fired during its first phase, call for it to use liquefied natural gas (LNG) from Qatar.
These long-term energy schemes will expand India's generally harmonious ties with the Middle East. India still adheres to its non-aligned traditions and has not joined the US-inspired embargo of Iran.
In April last year President Rafsanjani made a state visit and signed a wide-ranging oil, gas and defence co-operation agreement. Relations with Pakistan have not improved and descended to a new low in January over Kashmir and Indian missile testing, which has rekindled the debate about nuclear weapons in the subcontinent. As India opens itself to the world economy, most economic relations with its closest neighbour remain firmly closed.
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