NEW DELHI -- Soaring oil prices and the return of thousands of Indian workers from Kuwait and Iraq have sent shock waves through India's fragile, debt-ridden economy, provoking fears that the Persian Gulf crisis could reverse the subcontinent's slow march out of poverty.
As an estimated 25,000 Indians languish in Middle East refugee camps, short of food and desperate to go home, events in the gulf have also rattled India's minority government, which has been accused by opposition leaders and others of making a bad situation worse through inaction and diplomatic waffling.
With a debt load of $70 billion, a massive internal budget deficit and only enough foreign exchange on hand to pay for six weeks worth of imports, India has been badly hurt by the worldwide rise in oil prices since Iraq's invasion of Kuwait on Aug. 2.
The country's Finance Ministry estimates that the rise in oil prices caused by the Persian Gulf crisis could wipe out its foreign currency reserves by next year, which would force the country to add to its borrowings or stop imports, moves that could fuel inflation or trigger a recession. Indian Foreign Minister I. K. Gujaral is in Europe this week seeking emergency aid to dampen the impact of higher oil prices.
Before the invasion, India depended on Iraqi and Kuwaiti oil for more than 20 percent of its supplies. A large amount of Soviet oil also was directed to India through Iraq. Indian officials say they have been scrambling in the international oil market in recent weeks to make up for the lost supplies but have not fully succeeded.
Rationing measures to reduce gasoline consumption have already been implemented at home, but economists say the measures will not have much impact, partly because the bulk of imported oil is used to fuel industry or is burned as kerosene by poor Indians for cooking and light.
To survive the crisis, economists and bankers say India will likely have to add to its huge external debt by borrowing from commercial banks in Europe and the United States.
Its other choice is to choke off imports to hoard foreign exchange for oil purchases, a move that would likely quash economic growth and send millions to the unemployment lines at a time of widening political instability, reflected in caste conflict and separatist movements.
India's domestic oil production has been cut by 10 percent this summer because separatists in the eastern state of Assam have blocked pipelines and closed refineries there. Soldiers and civilians continue to die each month in separatist violence in Kashmir and Punjab, and a nationwide agitation over job quotas for members of lower castes appears to be gaining momentum.
The gulf crisis will only fuel these tense conditions. Thousands of jobless and destitute Indians, mainly from the southern state of Kerala, are already pouring home from Kuwait and Iraq, where before the Iraqi invasion they worked in unskilled and semi-skilled jobs and sent home millions of dollars that helped fuel the Indian economy and added essential hard currency to the foreign reserves.
Thousands of Pakistanis, Bangladeshis and Sri Lankans also are being forced from their relatively lucrative jobs in Iraq and Kuwait, with similar consequences for their native lands. Nearly 45,000 of the 75,000 Bangladeshis in Iraq recently have fled, for example.
Having left behind their savings in worthless Kuwaiti bank accounts and most of their possessions, the returning refugees will face long jobless lines in Kerala, a state with one of India's worst unemployment problems. "Most of these people are going to want jobs and work, and it will not be easy," said P. J. Kurien, a member of Parliament from Kerala.
Family members of Kerala natives trapped in Kuwait, newspapers and opposition politicians have blamed the New Delhi government led by Prime Minister V. P. Singh for some of their problems.
They said the government was unrealistic in the early weeks of the crisis, reporting on government-run television that Indians in Kuwait were all fine and failing to organize an effective evacuation of Indian nationals. When the government did act -- sending Gujaral to Iraq and Kuwait to negotiate the release of Indians -- it only made matters worse, these critics say.
Unlike many countries with embassies in Kuwait prior to Iraq's invasion, India announced that it would comply with an Iraqi request to shut its Kuwait mission by Aug. 24 and move its diplomats to Baghdad. Indian officials have said that while they support United Nations sanctions against Iraq and reject the annexation of Kuwait, the embassy closure was essential to safeguard the position of an estimated 180,000 Indian workers in Kuwait.
But some Indians returning from Kuwait said the decision has provoked the ire of Kuwaitis and endangered Indians, while extracting few visible concessions from Iraq. "The Kuwaitis now look upon Indians as ... hand in glove with the Iraqi invaders," reported the Week, a leading news magazine in Kerala, quoting refugees from Kuwait arriving in Trivandrum and Cochin. The magazine said Gujaral's trip had "only added to the misery of the Indian expatriates."
An Indian Foreign Ministry official rejected such criticism, saying it reflected "an incomplete understanding of the reasons for our move" and amounted to "deliberate misinformation to portray us as mealy mouthed."
The official said that while India had been cautious in the language it used to protest Iraq's invasion of Kuwait, the government had been "unequivocal, unswerving in our commitment to UN resolutions." He added, "I don't see why anyone should have any iota of doubt about the clarity of our stand."