Destructive symbols.

Byline: Narendar Pani

THE rapidity with which Enron turned from a corporate leader to a bankrupt fraud is bound to have a far-reaching impact. The American economist Paul Krugman believes the impact of the Enron collapse on American society will be greater than that of 9/11.

Even after discounting the tendency for economists to exaggerate their pet beliefs there is little doubt that the collapse will have an impact on all countries that have had a significant relationship with the fallen power company.

Given our familiarity with controversies over Enron, Indians are bound to look out for aspects of the scandal that affect us. But the real lessons of Enron for India may go well beyond the scandal itself to the role the symbolism of a few projects has come to play in India's economic reform.

This is not to suggest that the direct impact of the scandal will, in any way, be negligible. Even before Enron collapsed the Dabhol power project had reached a point where it could not recover its dues. With Enron's employees and ordinary shareholders now crying for blood, the US government is bound to push for a settlement.

The problem is not just one of American pressure either. The Dabhol project has been financed largely by Indian financial institutions. The collapse of Enron, coming as it does at the height of the crisis in the Dabhol project, is bound to make these institutions nervous. The government thus faces the difficult task of not just resolving the problem at Dabhol but also ensuring that the benefits of this solution are not diverted to ease the pressures on Enron in the United States.

It is these pressures on Indian financial institutions that bring us to the larger problem with the reform strategy itself. One of the basic arguments for reform was that since India lacks capital it is imperative to attract foreign capital. But after years of negotiations Enron's project at Dabhol was built, to a significant extent, with capital from Indian financial institutions.