Weathering the Storm in India.(economic instability)(Industry Overview)

Industry Braves Asian Turmoil, Domestic Constraints

Any hope that india would snap out of its 1996-97 slowdown was dashed by the economic crisis that swept Southeast Asia in the second half of 1997. In his recent presentation of the 1998-99 union budget to Parliament, Indian finance minister Yashwant Sinha outlined the current economic realities: "Overall economic growth slowed to 5% in 1997-98; agricultural growth was negative; growth of industrial production slackened to 4.2%; export performance was weak for a second successive year; the fiscal deficit worsened to 6.1% of GDP; the capital market remained in the doldrums, and infrastructure bottlenecks continued to plague the economy."

India is also facing economic sanctions from the U.S. and other countries following the decision of the new government--a loose coalition led by the Hindu Nationalist Bharatiya Janata Party (BJP)--to carry out three underground nuclear tests on May 11. "While the people of India have reacted with pride over the events of May 11, some of our friends abroad have responded negatively. I am confident that these initial negative responses will be moderated as our position gets better understood and will not have any significant impact on our economic development," Sinha says.

The U.S., however, estimates its sanctions alone could cost India $2.5 billion/year. The day after the U.S. announced sanctions, credit rating agency Moody's downgraded India's sovereign debt from investment to noninvestment grade. International reaction to the nuclear tests, coupled …