Indian government engineers will restart production at Union Carbide India Ltd.'s pesticide factory here Sunday just long enough to use up 15 tons of remaining stocks of the lethal gas methyl isocyanate after evacuating up to 125,000 people from crowded slums near the factory.

The move reflected widespread concern among this central Indian city's residents about the poisonous gas left in holding tanks after a massive leak on Dec. 3 killed nearly 2,000 persons. There were incipient signs of panic, as rumors spread and residents began crowding the bus and railway terminals in an effort to leave town.

The chief minister of the state of Madhya Pradesh, Arjun Singh, said at a news conference that a foul smell might spread around the factory during the operation but that "this odor is not any indication of danger."

Singh said that extensive safety measures worked out by a team of Indian government scientists will be adopted, including a plan to spray water around the factory grounds from a helicopter as the process gets underway. Methyl isocyanate, used in the manufacture of the pesticide Sevin, degrades when it comes in contact with water in the atmosphere.

Singh said there would be "absolutely no danger" during the process, but he said that because of widespread apprehension, the government was prepared to evacuate about 125,000 people, mostly from densely populated slums adjacent to the factory that were hardest hit by the disaster. He said that if needed, Indian Army troops would be called in to assist in the evacuation.

The disposal operation is expected to take four or five days to complete, Singh said. Yesterday, the government closed all schools and colleges in Bhopal until Dec. 23.

Buses will transport evacuees from the slums to makeshift refugee camps until the operation is completed, and additional transportation will be made available for those wanting to travel to the homes of friends or relatives out of the area.

"These precautionary steps are being taken to remove all misgivings and fears from the public mind and to fully reassure them there is no danger. In a democratic framework, it is necessary for the government to make all the arrangements consistent with the expectations of the people," Singh said.

He said a separate camp will be set up for animals for those wanting to get their livestock away from the factory during the operation. Thousands of cows, water buffalo and other livestock perished during the gas leak.

Singh said the decision to restart production at the Sevin plant was made by a team of scientists headed by the director-general of the Indian council for scientific and industrial research, Dr. S. Vardarajan. "After a full examination, the scientists have come to the conclusion that since the gas leaked out of the factory while it was not working, the most practical and safe way of neutralizing the gas is by conversion into pesticide under the fullest safety precautions," he said.

Union Carbide officials had said there were only three possible ways to neutralize or dispose of the methyl isocyanate that remains in two tanks: treating it with a caustic soda wash in the same vent scrubber that apparently failed on Dec. 3, burning the gas in a flare tower or resuming production long enough to exhaust the leftover gas.

Company officials had indicated they favored resuming production, and the joint secretary of the Union Carbide workers' union, J.P. Gupta, said in an interview today that he favored that alternative.

Gupta noted that the flare tower has been inoperative because of maintenance work to pipes connecting it to the vent scrubber, and that even if repaired in time, rapid burning of the deadly gas might create dangerous atmospheric pollutants. Using caustic soda on such a large quantity of methyl isocyanate, he said, might create a waste disposal problem and further environmental damage around the plant.

Singh has said that after the process is completed, the pesticide plant never will be allowed to reopen at its present location. Six senior officials of the firm, including Union Carbide India Ltd. Board Chairman Jeshub Mahindra, remain under house arrest on charges of culpable homicide and negligence resulting in death, but the U.S. parent firm's chairman, Warren Anderson, last week was released on bond on the same charges.

In an apparent effort to instill confidence in Bhopal residents that the process will be safe, Singh said that he will be present in the factory throughout the operation and that other top state officials will be nearby.

Last night, jeeps and scooter rickshaws outfitted with loudspeakers drove through the city playing a message recorded by the chief minister in which he urged people not to panic or evacuate their homes. He promised to remain inside the factory. "This is not an act of bravado, but an act of faith, to assure the people of the city . . . . No mortal can play God, but we can certainly walk in the shadow of His grace and benediction fearlessly. Let us do so, with a prayer on our lips, courage and faith in our hearts and leave it to Him to tend to His flock," Singh's message blared over the loudspeakers.

However, even before Singh made his announcement this afternoon, thousands of Bhopal residents appeared to have decided to trust their fortune to their own resourcefulness instead, and began jamming the central bus terminal and the railway station to buy tickets out of town.

Long lines of cars and motorcycles formed outside service stations as residents filled their tanks for trips out of the area, and those who could afford it crowded the Indian Airlines office seeking to buy tickets to Bombay and New Delhi.