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 Date:1/14/2008

 

World News
India Undamaged
Analysts: No long term affect on Indian economy after Mumbai attacks.

Global business leaders and analysts believe that the recent coordinated terrorist attacks in India's financial capital, Mumbai, may have limited affect on the domestic stock market and tourism industry. Even as the deadly attacks may slow new investment in the country in the near term, it will not damage India's economy, analysts say.

Takahira Ogawa, the director of sovereign ratings at Standard & Poor's, told a wire service in Singapore that at this stage, “I don't think there will be any major impact on the macroeconomic or fiscal position of the Indian government.”

Likewise, says senior currency strategist Win Thin at Brown Brothers Harriman in New York in a research note, “It seems unlikely that the terrorist attacks will have much of an impact on the Indian economy.” However, he continued that it will certainly sour investor sentiment at a time when it was already poor. “And the attacks come at a time when the economy is slowing and is the most vulnerable it has been in years," he notes.

Kamal Nath, the Indian trade minister, said that he was confident the deadly attacks would not slow investment. "This does not have an economic component," he said.

His confidence was echoed by Jan Masiel, a member of the European Parliament, who has recently visited Mumbai with a trade delegation of eight members. "I don't think this affects India's image as a good place to do business in," Masiel said, adding, "Neither do we consider India to be an insecure or unsafe country to be in."

Similar views were also expressed by the U.S.-India Business Council, the business advocacy group, comprising several top U.S. companies.

The council said in a statement that the Nov. 26 terror attacks at Mumbai will not affect investor confidence in the country and the terrorists' aim to cripple India's economic rise will fail. The council said in a message to its members that it was "more than ever firmly resolute in our commitment to deeper U.S.-India commercial ties." The council added that it would stick to its plans to bring various business delegations from the U.S. to India.

The militants chose to attack the two Mumbai hotels, which are normally heavily used by foreign businessmen, even as gunmen were said to be deliberately targeting those with British and American passports. Importantly, the 10 Islamist gunmen struck at a time when Indian stock markets had already been down more than 60 percent for the year.

At least 195 people, including 22 foreigners, were killed and nearly 300 injured in the attacks, which began when militants fanned out across Mumbai to attack sites popular with foreigners. It was 60 hours later that Indian commandos were finally able to overcome militants who had taken scores of people, mostly Westerners, hostage. The three-day long siege left a trail of destruction in the 105-year-old Taj Mahal Palace, a Mumbai flagship.

India has been one of the stars of global economy in recent years, growing 9.2 percent in 2007 and 9.6 percent in 2006. Growth was supported by market reforms, huge inflows of FDI, rising foreign exchange reserves, both an IT and real estate boom, and a flourishing capital market. However, rapidly rising inflation and the complexities of running the world's biggest democracy are proving challenging. Some private economists and some government officials see growth closer to 7 percent in the year 2008. To address the concerns of sectors perceived to be slowing down the economy, the Indian federal government has also recently announced a package of monetary and fiscal measures.

Indian market experts say that the terrorist attack will definitely affect the domestic tourism industry, which employs 53 million people directly or indirectly and contributes 6 percent of the gross domestic product. According to reports, in the week after the Nov. 26 attacks in Mumbai, thousands of hotel bookings were canceled all over India. The dozen-odd advisories issued by foreign governments to their citizens against travel to India and the prevailing scare are also causing a perceptible fall in tourist arrivals.

Pakistan is also going to suffer after the Mumbai attacks. The Islamist country is not only under pressure from the United States, European Union and some big global financial institutions, but it is also likely to lose business potential within South Asia region.

Pakistani media has reported that the tensions between India and Pakistan in the wake of the Mumbai terror attacks have affected a unique form of petty trade transacted through people traveling between the two countries.

The practice – known as the "done-trade" business in Pakistan and involving the transfer of small quantities of items like nuts, cigarettes, betel leaves, sarees and cosmetics – has been hit hard by a drop in the number of travelers between the two countries.

Reports from Islamabad suggest that this form of trade, which has been in vogue for over two decades, depends on good relations among the nuclear-armed neighbors and any unpleasant incident especially in India, resulting in the suspension or slowing down of business.

Many persons involved in "done-trade" business at Karachi's Bombay Bazaar have either switched to other businesses or started selling 'jainamaz' (prayer cloth) and other religious items.

Currently, trade in only a few items like salwar suits and dupattas are being carried out by Pakistanis going to India. Earlier, Indian sarees would be brought in through "done-trade" but this has now stopped.

Moreover, the suspension of the Indo-Pak peace process after the Mumbai terror attacks has left Pakistani film distributors, exhibitors and cinema owners worried about their business, which was thriving on Bollywood flicks.

These exhibitors, distributors and theatre owners were among the biggest beneficiaries of the peace process, during which the Pakistan government lifted a 42-year ban on the exhibition of Indian films in cinema halls in 2007.

“There is nothing officially conveyed to us, but the Censor and Culture Ministry have not cleared any new Indian films for release after the Mumbai incident,” Nadeem Mandviwalla, a well-known distributor and owner of Nishat cinema in Karachi, was quoted by Pakistani media as saying.

Pakistani film goers-were eagerly awaiting for two of the biggest Bollywood releases of 2008: Shahrukh Khan’s Rab ne Bana di Jodi and Aamir Khan’s Ghajini, but the release of these movies has been put off due to the tense relations between the two countries.

Before the Mumbai attacks, the two countries had undertaken negotiations to remove bilateral trade barriers, which have increased the cost of doing business and led to trade being routed through Singapore, Hong Kong and elsewhere. Direct trade between India and Pakistan is not more than US$250 million a year of a total bilateral trade worth $2 billion.

The two countries were looking to raise bilateral trade to $10 billion a year after trade talks resumed between the two neighbors in 2003. The bilateral trade balance is strongly in favor of India, which exports 75 percent of the total and imports only 25 percent.

T.C.Malhotra is a journalist/photographer based in Delhi, India