Thursday, April 14, 2011

Americans at it again : Obama arm-twists Manmohan Singh

The Americans know that turning the screws on non-resident Indian accounts in Indian banks is a pressure tactic that the Manmohan Singh government will not be able to stand up to. India now ranks at the top of countries which have impressive foreign exchange reserves, but those reserves will significantly evaporate if American actions to curb alleged tax dodging by their citizens of Indian origin were to force Indian Americans to pull out their deposits from such accounts which constitute the bulk of India’s foreign currency holdings. 

The same applies to NRI stock holdings in Indian companies. In other words, the Obama administration has the wherewithal to turn India’s impressive foreign exchange reserves into hot money that can evaporate and push India back to the 1990s, when it virtually begged for foreign currency.

But it need not come to that. Indeed, it will not, given the nature and composition of the Indian power structure. The Americans have known for some time now that Indian Americans have considerable influence on their system. But the way NRIs in America were mobilized — first by the National Democratic Alliance government to thwart sanctions against the 1998 nuclear tests and then by the United Progressive Alliance government in support of the nuclear deal — has convinced Washington that NRI power is a double-edged sword: that it is a force which can be used to influence New Delhi as well.

Powerful Indian politicians and senior civil servants have their children, siblings and a variety of other friends and relatives in the US who have NRI accounts in Indian banks which are now under the scanner of Obama’s IRS.

Those who hold the levers of power in New Delhi and state capitals are not going to stand by and let the threat of prosecution — as in Dahake’s case — hang over the heads of their family members or cause them to lose sleep. That is how the Americans will secure orders for at least a significant share of the 126 medium multi-role combat aircraft, the biggest military aviation deal in history. That is how the Americans will secure other import orders and significant concessions from New Delhi.

If these orders and concessions are forthcoming, the threat to India’s foreign exchange reserves through withdrawal of hot money through the prosecution of NRIs in US courts will evaporate. In any case, the Americans will have proved that they can decisively influence the making or unmaking of India despite the illusion in New Delhi and Mumbai that India is a rising global power.

K P Nayar in The Telegraph. More Here

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