ANPARA, INDIA -- At dawn in this remote and smoky industrial town, a steel skeleton rises in the half light, the beginnings of an $850 million, 1,000-megawatt electric power generating station being constructed by Mitsui & Co., the Japanese trading giant. The plant, which will pump power across India's densely populated north, was made possible by a record $600 million, low-interest-rate loan from the Japanese government.

To Japanese officials, the plant is a symbol of Tokyo's new place as the leading philanthropist in the Third World, a position it assumed at Washington's urging. But to some resentful Western aid officials, the symbolism is very different.

While the United States slashes its foreign aid budget and rethinks its international assistance, they say, Japan is using its bountiful aid coffers to develop Third World markets for the 21st century -- in many cases using development aid explicitly to promote Japanese companies against Western competitors.

As it did with the power plant under construction here, Japan often links large loans and grants to poor countries with procurement of Japanese equipment and technology, an approach that not only enriches Japanese firms in the short run, but also provides them with a strong marketing edge once an aid program is finished.

Japan's seemingly clear-eyed emphasis on its economic self-interest contrasts with a U.S. aid program that appears to be in a state of confusion, shrinking in size and uncertain of its purpose.

Nowhere is this more obvious than in South Asia, a poor but steadily developing region with more than 1 billion people and a growing penchant for market capitalism. In the region's three largest markets -- India, Pakistan and Sri Lanka -- Japanese bilateral assistance now far outstrips that of the United States, amounting to more than $2 billion annually.

The vast majority of Japan's aid comes as low interest rate, or "soft," loans for big infrastructure projects such as power stations, telecommunications systems, and energy and transport, and the Japanese loans have strings attached: U.S. and European companies are largely excluded from participation in the projects, permitting Japanese firms to make immediate profits, establish their technologies in nascent industries and develop future markets.

As one Western aid official noted: "Once a user becomes familiar with Japanese equipment and technology, they'll keep using it."

It is a self-interested aid philosophy that "is skewed in a manner to promote Japanese interests to the great detriment of the development needs of the recipient country," said another Western aid official.

In the U.S. approach, on the other hand, this official argued, "There is a dimension that goes beyond self-interest ... that is altruistic. This is an important part of American values."

In private, Japanese businessmen and officials scoff at American attempts to hold the moral high ground on aid.

They point out that "altruistic" programs, such as U.S. food donations to India, are protected in Washington by corporate farm and shipping lobbyists, whose clients reap millions of dollars annually from the program. They note that among developed Western countries, the United States is virtually alone in not linking economic aid to the explicit interests of its own companies. And they argue that the thrust of Japan's aid program promotes the goals articulated by the Reagan and Bush administrations: to encourage recipient countries to solve their problems of poverty and development through capitalism.

U.S. aid officials acknowledge that their own house is in a state of relative disorder. "Probably over the years we've had {on} a bit too many rose-colored glasses," said a Bush administration official. "We have to see that it's a different world and we have to adjust. ... I think we should be prepared to meet the competition in whatever form it takes."

Meet Fukuo Yamanaka Here is the competition: a round, bespectacled, unusually friendly Japanese executive named Fukuo Yamanaka, chief representative in India of Mitsui & Co., the Japanese trading giant. Yamanaka knows the United States -- he worked there for nine years -- and he remembers his time fondly. But his career provides a microcosm of how the nexus between government aid and private trade has changed in Japan and the United States during the past three decades, and how those changes are reshaping international economic competition.

Yamanaka's business is power -- the manufacture, sale and maintenance of electric power generating stations and their assorted industrial components. He first came to the United States in the early 1960s, when "made in Japan" was synonymous with "cheap and shoddy" and when the international electric power business was dominated by U.S. firms, particularly General Electric Co.

As an engineer and salesman, Yamanaka's job in those days was to acquire and sell GE power turbines to Japanese users, often municipal governments and other utility authorities. No company in Japan could make turbines as well as GE, so Mitsui in those days made its money brokering American exports to Japan.

Because of the huge sums involved in building a power plant, and because governments are almost always involved in the business, it is typical for large deals to be supported by government credits or low-interest loans. Back in the 1960s, Yamanaka's job was made easier by the favorable financing he arranged with the U.S. Export-Import Bank. In those days, Japan was a big recipient of U.S. economic aid designed to rebuild its war-shattered infrastructure and to reinforce prosperity, democracy and political stability.

When Yamanaka returned to the United States during the 1970s for his second tour as a salesman, Mitsui had redefined his responsibilities somewhat. Now Japanese companies allied with Mitsui made some turbines and other heavy industrial equipment in competition with U.S. manufacturers. Yamanaka still used Ex-Im Bank credits to sell GE turbines to Japan, but he also sold Japanese products to U.S. companies, taking advantage of favorable public and private financing arranged by Tokyo.

By his third and final tour, during the mid-1980s, the tables had turned completely. Now 95 percent of Yamanaka's time and energy was absorbed by selling Japanese turbines and industrial equipment to U.S. users. It was a good business, and many of the Japanese products were considered superior.

As for GE's business in Japan, Yamanaka notes dryly that, "These days, Japanese customers don't need any economic aid."

Today, Yamanaka is posted on Mitsui's next frontier: the developing world, where demand for electric power far outstrips supply, and where governments are anxious to build plants quickly on favorable terms. GE is still one of Mitsui's competitors, but in India and elsewhere in South Asia, the contest isn't very close.

One big reason: Japanese government aid, in the form of "soft" loans from its bulging Overseas Economic Cooperation Fund (OECF), has made Mitsui pretty much unbeatable by U.S. companies in South Asia.

Mitsui's biggest project in India today is the construction of the two 500-megawatt electric generating facilities at Anpara. Mitsui won the lead position on the contract after outbidding a single Japanese competitor.

The deal was clinched by a $600 million OECF loan carrying a 2.5 percent annual rate of interest, a 10-year grace period and a repayment period stretched over 30 years.

Like many Japanese, Yamanaka is sensitive to any implication that Japan is cynically using its aid budget to a poor country like India to promote the prosperity of Japanese corporations. The OECF loan restrictions excluding Western companies from competing "is of course a mixture, the political decision, the business decision."

As for Mitsui's goals, they are twofold, he said: to make immediate profits by winning contracts, and to build for the long run by using government-financed deals to introduce technologies and find partnerships with Indian companies.

Virtually all OECF loans to this region bar U.S. and European companies from competition, as was the case with the Anpara loan, but companies from developing countries are permitted to compete. In the rare instances where they beat out a Japanese competitor, negotiations later still often result in a tie-up with a Japanese company.

There are dozens of deals pending or underway in South Asia where Japanese firms have won contracts to build infrastructure projects using restrictive OECF loans or outright grants from Tokyo. Grants require 100 percent procurement from Japan.

A particularly vivid example of how such assistance promotes Japanese exports is visible in Sri Lanka, the island nation off India's southern tip. In the early 1980s, Sri Lanka had virtually no television facilities. With soft loans and grants, Japan donated state-of-the-art broadcast and transmission equipment, constructing a powerful network.

Today, Japanese manufacturers dominate Sri Lanka's booming market for color television sets -- a market that hardly existed 10 years ago.

Despite a gradual relaxation of the exclusive conditions, Japan's aid to developing countries retains "a very, very close connection with private business," said a Japanese source who asked not to be further identified. This situation arises in part from a shortage of government staff devoted to managing the huge aid program overseas. As a result, "the role in identifying projects is played by the big trading houses in Japan, and they encourage the {recipient} government to submit a proposal."

The system "is not necessarily a bad thing," this Japanese continued. "Our companies are very efficient and are able to identify projects that will help the recipient countries. But our companies can make money under our system."

In India, where the government tends toward xenophobia even in the best of circumstances, there is a voluble debate about whether the Japanese aid system is as good for India as it is for Japan. Some accuse Japanese firms of taking advantage of their quasi-monopoly status in big projects to charge exorbitant prices. Others worry that Japan doesn't do enough to involve Indian companies in development work.

"One thing is very clear: The bulk of the OECF money ultimately goes back to Japanese companies," said Naresh Minocha, an Indian financial analyst. "And the Japanese companies quote higher prices than they would in full global competition."

Rethinking the Purposes of Aid It now is clear that Japan's aid program in South Asia and much of the developing world dwarfs that of the United States and helps Japanese companies secure a toehold in markets where they might otherwise be left behind. But these truths do not necessarily mean that the United States will be less competitive than Japan in Third World markets during the 21st century, some economists and business officials say.

That is one reason specialists in Washington are today unsure about what the purpose and character of U.S. aid to poor countries should be.

U.S. aid policy remains driven by diverse impulses: to shore up friendly governments in strategic regions, to promote the spread of democracy and capitalism generally, and to provide direct relief to those living in the depths of Third World poverty.

The promotion of economic competitiveness has joined that list of goals during the Reagan and Bush years, but some U.S. aid workers say the idea has been slow to take root in an aid bureaucracy populated by people who see their careers as being devoted to altruism, not economic nationalism.

Some economists and government officials say the United States should try to best Japan not by imitating its approach to foreign aid, but rather by exploiting U.S. "comparative advantages" against Japan.

The biggest of these advantages, they say, is a relatively open U.S. immigration policy that encourages the development of international family-run businesses with a strong anchor in the United States.

For example, there are now about 26,000 Indians attending U.S. colleges and universities, according to U.S. officials. Presumably, some of them will start trading and making money on their own when they are finished with school, as thousands of Indians before them have done, building up two-way trade that totals billions of dollars annually.

Still, some U.S. officials argue that Washington should do much more to integrate the specific needs of U.S. businesses into its foreign aid budget, particularly in areas of the world where markets are young and Japanese and Europeans are working aggressively.

"If the Japanese companies have been so successful {in South Asia}, it is because of the close linkage between industry, banking and the government," said V. Krishnamurthy, former chairman of the Steel Authority of India and a key architect of Japan's aid and trade relationship with India. "If you had gone to the American embassy in {New} Delhi, or to the government in Washington with a proposed deal, they would not" have provided much guidance or assistance.

The U.S. government is trying to change that, but the pace is slow. U.S. embassies now have instructions to integrate more closely the work of Commerce Department officials and representatives of the Agency for International Development (AID), which administers most U.S. aid to poor countries.

Last year, AID established for the first time a $300 million "war chest" to help U.S. companies arrange competitive soft loan financing against Japanese and European firms. But the amount available for such loans is relatively paltry. And during the same period, Congress defeated, at AID's urging, a bill that would have directly linked U.S. aid donations to procurement from U.S. companies.

"The goals remain the same -- to improve the quality of life for poor people in developing countries," said a U.S. aid official. "We're also interested in developing an environment conducive to U.S. investment abroad ... but we're not the instrument for U.S. business."

Krishnamurthy, recalling the days of the Kennedy and Johnson administrations when India was plagued by famines and the U.S. government boldly led a rush of charitable donors onto the subcontinent, said the U.S. aid philosophy has been well-intended but ultimately unprofitable. "Looking back, U.S. aid was directed in the right places" to alleviate poverty, he said. "But it was not aid that had a commercial future."