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Is India really affected by it?
Aftab Dewani 39 Ankur Kalani 42 Azim Samnani 44 Sanif Momin 43 Siddharth Gandhi 40
e would like to express our profound gratitude to our project guide Prof .Manasi, who has so ably guided our research project with his vast fund of knowledge, advice and constant encouragement,
which made us, think past the difficulties and lead us to successful completion of the project.
We have tried to cover all the aspects of the project & every care has been taken to make the project faultless. We have tried to write the project in our words as far as possible and simplified all the concepts by presenting it in a different
We’ll be looking forward in future for such type of project. We are eagerly waiting for fruitful comments & constructive suggestions.
Mumbai attack and its aftermath ...................................................................5 26/11 a deliberate plan to hit Indian economy ............................................. 10 The Impact of 26/11 on the Indian Economy ............................................... 13 26/11 and after effects on tourism in India ................................................... 17 Mumbai Terror Attacks ............................................................................ 18 Tourism Industry ...................................................................................... 18 Terror Tourism! ........................................................................................ 19 Terrorist Attacks Will Further Weaken a Slowing Indian Economy ......... 21 Political Fallout .........................................................................................22 Global Implications ................................................................................. 24 Gloom and Doom ..................................................................................... 25 Impact on Industries ................................................................................30 TERRORISM IS HOLDING BACK INDIAN ECONOMY ............................34 A] SHORT-TERM IMPACT ...................................................................... 35 1) Loss of Human Capital .................................................................... 35 2) Investor Behavior............................................................................. 35 3) Short Term Financial Loss .............................................................. 35 4) Retrenchment effect on Specific Industries ..................................36
B) LONG-TERM IMPACT ........................................................................36 1) Political Instability ...........................................................................36 2) Global Implications ......................................................................... 37 3) Long Term Financial Loss ............................................................... 37 Post 26/11, India turns to Russia for small weapons ....................................38 Post-26/11, US more committed for biz with India .................................... 42 Security market soars after Mumbai attacks .............................................. 44 Stepping up security ................................................................................ 45 Investors worry about another attack after Mumbai ................................. 49 STOCKS RESILIENT? ............................................................................... 51 India faces growing Chinese hostility after 26/11 ......................................... 53 US-China relationship ............................................................................. 54 Mumbai attacks costs insurers Rs 500 crore: IRDA .................................... 57 Terror cover premium hiked by 30% .......................................................... 58 Conclusion ..................................................................................................... 61 Bibliography .................................................................................................. 62
Mumbai attack and its aftermath
he recent terrorist attack on Mumbai is being called India's 9/11. In sheer audacity of
design, that is true. The US, whose mainland has never been attacked, could not have imagined that a set of planes could be transformed into enormous bombs. Nobody in India thought of a sea-borne invasion of Mumbai- the attackers are said to have hijacked a fishing trawler, steered it towards the Mumbai coast and then landed on motorised dinghies. Not just out-of-the box thinking but meticulous execution has been in evident in both the cases.
The Taj burning as a result of a series of blasts inside the building
In 9/11, the attackers targeted the World Trade Center, beloved symbol of
America's financial capital. In the Mumbai attack, the targets were two high-profile hotels and a Jewish centre in India's financial capital. The objective was the same: to cause dislocation and mayhem in leading financial centers in ways that would capture the world's attention. Smoke billowing out of the WTC is one image that is etched in our minds; so will that of the Taj Hotel in flames. The Mumbai attackers have certainly met their objective. 9/11 changed America. Unilateralism and the doctrine of
9/11 changed America.
pre-emption became central to American foreign policy. There was
the bombing of Afghanistan and invasion of Iraq thereafter. Also less noticed transgressions of international law such as a missile attack on Sudan, the bombing of a suspected nuclear site in Syria and missile and bomb attacks on terrorist hideouts in Pakistan. The US has made clear that it will not be bound by the UN or international law when it comes to the protection of its interests. The US has also gone after terrorists in several countries and spirited them to other locations for interrogation and incarceration. It did this in Italy a few years ago- an Imam was
seized by CIA operatives. An Italian judge has issued arrest warrants for the CIA operatives, a warrant that has no chance of being enforced. Within the US, the full financial might and technological capability of the country has been brought to bear on preventing infiltration of terrorists. The issue of visas has become more stringent, there is far greater scrutiny of visitors (including strip searches) at airports, stepped up surveillance at home and abroad and an abridgement of civil liberties under the Patriot Act. These have ensured that no terrorist attack has occurred in the US after 9/11. There have been comparable measures in the UK after its own 7/11. Surveillance through closed circuit TV is so pervasive that the Orwellian prediction of 1984 seems to have come true in the UK. On top of this, tapping of phone calls and monitoring of email has been stepped up- the American journalist Seymour Hersh has said that he would never use pay phone in the UK because there was little chance of the call being confidential. One other country that has had success in the war of terror- in the sense of limiting attacks on its soil- is Israel. But Israel is unique. Not only can it pour huge financial and technological resources towards securing itself, it is willing to use the most draconian methods. A whole wall has been created between Israel and the occupied territories and entry through it into Israel tightly regulated. Palestinians have been beaten into quiescence in the most brutal ways. Above all; there is the intense determination of the Israeli people, military conscription for all young people and the fact that Israel is a small country. Where does India stand after the Mumbai attack? One, there is no question that security measures in key places, including hotels, will be at a higher
level hereafter, causing no small inconvenience but that is something that people will come to accept. Two, it's hard to see how the pressure to enact tougher terror laws can be resisted- even PM Manmohan Singh had to mention this in his address to the nation after the attack. This does mean a certain curtailment of civil liberties. Three, there will be profiling of communities and a crackdown on suspects within these. These will create more alienation and hence a greater susceptibility to domestic terrorism. Will terrorism decline in India in response to strong-arm measures as happened in the US and Israel? One must be sceptical. We do not have comparable funds or technology but that is not the only problem. We must reckon with the country's size and diversity. Above all, there is the problem of corruption and poor governance. Key institutions of the state, notably the police and the judiciary, suffer from both corruption and poor governance. Strong anti-terror laws, in such a situation, will simply become weapons for persecution and extortion. Vulnerability to terrorism, it is worth pointing out, is an aspect of corruption and an indifference to the rule of law. The political class will not prosecute or pursue high-profile cases of terrorism; businessmen will maintain links with the underworld; the police is more concerned with collecting bribes than with maintaining law and order; the media has no qualms about lionising celebrities who have been convicted in important cases. When a political party moots the idea of giving a Lok Sabha seat to the key suspect in the Malegaon case, which is confirmation that India in many ways has the traits of a banana republic.
Without an overhaul of governance, without greater accountability, it is hard to see how terrorism can be fought effectively. It is the democratic process and the rule of law that need to be strengthened for these to happen. Unfortunately, the knee-jerk reaction to heightened terrorism is in the opposite direction- the abridgement of liberties, greater powers to the police, contempt for politicians and the political process. On TV, I saw a bunch of ad-men pouring scorn on politicians and asking them to keep their hands off the lawenforcement machinery. That is a prescription for fascism. The gloomy conclusion that emerges is that India will try to emulate the tough methods adopted by countries such as the US and Israel without having the commensurate governance or enforcement capability. This can only lead on to a downward spiral where terrorism is concerned.
26/11 a deliberate plan to hit Indian economy
Remembering the Martyrs
Hours before Islamabad publicly admitted to terror emanating from its soil, President Pratibha Patil said here on Thursday that India expected Pakistan to take “decisive and credible action” against all terror groups operating from its territory.
In her customary address to a joint sitting of Parliament, Patil called the attack in Mumbai as a deliberate plan to retard India's economic progress and pointed that terrorists from Pakistan have continued to attack India despite
solemn commitments made by Islamabad that it will not allow its territory to be used against India in any manner.
In her more than hour-long address, the President also touched upon the global economic downturn but expressed confidence that the Indian economy would grow at a relatively high pace of 7.1% in the current financial year. Recounting the record of the government in the last nearly five years,
looking back, we see hope. We have not
only withstood the challenges but also emerged stronger.
Cautioning that the nation faced multiple internal security challenges, the President said the country witnessed terrorist attacks in several cities with growing levels of sophistication and assistance from outside the country. “Several innocent lives have been lost. The terrorist attacks in Mumbai as well as the terrorist incidents in Delhi, Ahmedabad, Hyderabad, Jaipur, Bengaluru and Assam and before that on our embassy in Kabul were an assault on all the values that our country stands for,” she said.
Asserting that one of the landmarks achieved by the government was the signing of Indo-US nuclear deal, she said that India now looked forward to working with the new Obama administration to the mutual benefit. Touching on economy, the President said government’s policies have ensured that even as India
faces an economic slowdown along with rest of the world, its fundamentals are much better.
The President said India’s domestic demand could inject fresh momentum to the economy while the Indian banks were well capitalised and faced no threat that many of their counterparts faced in other parts of the world. Referring to the economic stimulus measures taken by the government, Patil expressed confidence that they will drive the demand for goods and services, reviving production activities in the manufacturing as well as services sectors.
Even in the prevailing adverse global economic environment, she hoped the Indian economy would still register a relatively high growth rate. The President said the sharp increase in global commodity prices, especially those of petroleum and food, have an adverse impact on the economy....
The Impact of 26/11 on the Indian Economy
Before analyzing the impact of the Mumbai terror attacks on India’s economy, we must understand how 26/11 was different from any other terror attack on the country.
God Helps Those Who Help Themselves
There is no denying that the attacks were the most audacious of its kind ever in India. But this assessment of the tragedy is based more on the way it was executed, than on the actual number of victims it claimed.
If you jog your memory back to the serial bomb blasts in Mumbai, 1993, where about 250 people were killed, you will realize that the city has witnessed tragedies of this magnitude before.
However, the attacks were unique, in a rather dubious way, as it was perhaps the first instance where a small group of highly motivated terrorists held an entire nation and its defence forces to ransom for over three days.
Coming at a time when the world was experiencing economic turbulence, it triggered fears that the Indian economy would be adversely affected.
The last point is of particular significance in these difficult times. Should an atrocity like 26/11 essentially have a negative impact on the economy? As it turns out, this is not the case.
The impact could have been termed negative, had the following cases been true: 1. First Case: There was heavy foreign investment in India in the months before the attacks. 2. Second Case: Foreign investment showed a dramatic decline following the tragedy.
Let us examine the first case:
1. The first case is certainly not true. In the wake of the global economic crisis, foreign institutional investors (FIIs) were tripping over each other in their hurry to pull money out from the Indian markets in the months before the terrorist attacks. 2. In the process, they pulled the rug from under the feet of the sensex, sending it crashing nearly 12,000 points in eleven months.
Let us now examine the second case: 1. Even as the attacks were unfolding in Mumbai, the markets were witnessing something totally unexpected. Instead of a massive outflow of funds from the Indian markets, money was actually flowing in. So, the second case is also not true.
As you can see, the impact was actually favourable. But how did this miracle happen? As S.A.Aiyar points out in his column in the Times of India, the answer is fairly simple. The FIIs saw a big opportunity to buy shares and invest in equities when the market was low. When the markets reopened a couple of days later, the sensex actually registered a gain. It has kept up this trend ever since.
The events worked in India’s favour in other ways too. US intervention has forced Pakistan to crack down on terror outfits operating out of its territory. With the possibility of a confrontation between India and Pakistan waning, this can only have a positive effect on the Indian economy.
Anyone who hoped to shake the foundations of the Indian economy with this act of terror must be feeling very foolish indeed.
However, it would be wrong to say that the attacks had no impact whatsoever on the Indian economy. 1. It affected tourism and hotels, with many tourists cancelling bookings. 2. The global economic crisis had already hit tourism and 26/11 only made things worse. But tourism contributes a very small part of the GDP. It is not something that will seriously impair the progress of the economy.
26/11 and after effects on tourism in India
Incredible !ndia no matter what
It was exactly a year ago the gateway of India - Mumbai was under the siege of terrorists. 26/11 in 2008 is a day of horror in the minds of Mumbaites. The World saw the terrorists’ activities and the commando operations live on many channels. The burning picture of Taj Hotel symbolizes the terror unleashed in the Mumbai coast. The 60 hr long battle saw the terrorists galloping at-last and equally with great sacrifices of Indian warriors. More than 160 people lost their lives and few hundreds were injured.
Mumbai Terror Attacks On this day, the great Indian symbols were attacked. Gateway of India, Taj Mahal Palace, Oberoi Hotel and Nariman House were some of the important monuments attacked by the terror networks. It was not the first time these patriotic monuments were aimed by miscreants. The terrorist bomb attack on August 25, 2003 near the Gateway of India killed nearly 50 people and left hundreds injured. Tourism Industry The monuments were damaged, the lives of many were shattered and many establishments were under threat. 26/11 affected the life of common man all over the country, especially in major urban cities like Delhi, Bangalore, Kolkata and Chennai apart from Mumbai. All ways of life were affected. Travel and tourism was also not an exception. It was a major casualty.
26/11 in 2008 had happened just at the beginning of the India’s best tourist season in the decade. It was expected to cross the great landmark of 5 million foreign travellers in the year. 26/11 became the bottleneck for the miraculous growing of tourism industry in India. In fact the tourism sector was not sound enough to absorb such an impact as it was already affected by the economic meltdown. Inflow of foreign travellers was reduced and local tourists avoided big cities. Mumbai especially saw the significant reduction in the number of tourists in the first three months after 26/11. The major casualty is the tourism ministry’s
projection of 10 million tourists by 2010. It is perceived that the target would be difficult to achieve!
However, the concentrated efforts of industry and the Government are now bringing fruits. They could mobilize voices of many world-wide agencies like National Geographic to endorse and assure safe tourism in India for the travelling community and promoted India as a must see destination. Thanks to the confidence building measures and the great support by the Government machinery, Indian tourism regained its lost glory by mid of 2009. Terror Tourism! At the other end, Mumbai has seen the arrival of a new set of tourists. Travellers flock to this place to view the monuments like Taj hotel, Gateway of India, Cama hospital and Nariman house, which were under terror attacks. Local tourists and foreign travellers’ inflows to Mumbai have been on increase on account of this new found ‘terror tourism’. Bullet marks on walls, windows and roofs, damaged regions and reinstated structures are all very inviting for the tourists visiting here. Tourist guides and agencies give elaborate descriptions on the events and showing various places under the siege. You can get details of the past terror and bomb attacks at this place from these guides.
The surge of travel and tourism industry in the country in 2009 is a pointer towards the great confidence the travelling populaces and vacation tourists in safe Indian Destinations. Statistics points to the fact that there was a dwindling of about 8% in the number of foreign tourists to India in 2009 comparing with the
corresponding numbers in 2008. This 8% is pretty small considering the real facts about the economic recession and the fear spread due to the H1N1 flu. It just tells that the terror attacks or security threats has not much affected the tourism industry in India.
It is predicted that Mumbai is going to witness a surge in tourists as the economy regains and the business travels increase. You can go anywhere in India. You can be assured of extra secure tourist activities in the picturesque, inviting and breathtaking Indian hot spots. http://www.youtube.com/watch?v=z-Sk75MScBM http://www.youtube.com/watch?v=KPpLeXa5-6s
Terrorist Attacks Will Further Weaken a Slowing Indian Economy
The Belvedere is an exclusive club at Mumbai's Oberoi hotel. Along with its equivalent at the Taj Mahal -- The Chambers -- it is a popular watering hole for India's business barons and CEOs. According to an estimate by business magazine Business Today, the members of the Belvedere alone account for more than 80% of the market capitalization of India's publicly listed companies. In late November, both clubs were savagely mauled in the terror attacks that rocked the city and shocked people around the world. During a 60-hour siege at the two hotels and other locations, terrorists took hostages and ran riot with grenades, assault rifles and bags of RDX, a powerful explosive. Ashok Kapur, chairman of Yes Bank, was among the 170 people killed in the attacks. The terrorists did so much damage that the two hotels could be closed for six months to a year.
Small Things Happen In Such Big Cities
The Oberoi and the Taj are not just places to strike deals. Events held here routinely host the rich and famous. The presentation ceremony of The Economic Times Awards for Corporate Excellence was to be held at the Trident -the companion hotel to the Oberoi which was also attacked by the terrorists -- on November 29. Prime Minister Manmohan Singh was to preside over the event. Practically every CEO of India's leading companies would have been there. Perhaps presciently, The Economic Times reported on November 11: "Given the high profile nature of the event, the security agencies have already begun scouting the location for D-Day." The three-day terror attack, which is now known as 26/11, put an end to the celebrations.
The ripples have not been felt in India alone. "There will hardly be a Fortune 500 chief executive who has not lately stayed in the Oberoi or the Taj Mahal, and the impact of this attack will be felt in boardrooms around the world," wrote The Economic Times.
On the political front, the siege of South Mumbai has already taken its toll. Union home minister Shivraj Patil -- responsible for the nation's security -has resigned. Former finance minister P. Chidambaram has taken over that job. Prime Minister Singh has taken charge of the finance portfolio. But the finance ministry, in today's global crisis and domestic slowdown, is a fulltime job. Some observers believe that Singh may not be able to do justice to it, given his other responsibilities.
In the state of Maharashtra, too, of which Mumbai is the capital, heads have rolled. Chief minister Vilasrao Deshmukh has been forced to resign. The last straw was his going to visit the ruined Taj with a filmmaker who specializes in disaster movies in tow. The press dubbed it "terror tourism" and the Congress leadership in Delhi sacked Deshmukh. The state deputy chief minister and home minister R.R. Patil, who belongs to Nationalist Congress Party, a partner of the Congress party, told a press conference that "small incidents like this [the Mumbai terror attacks] do happen in big cities". He, too, had to step down after a public outcry.
What will happen in the medium term is debatable. General elections are due by the middle of next year, and it is possible that the opposition Bharatiya Janata Party (BJP) may cash in on the widespread public anger. "This has undoubtedly given a shot in the arm to the BJP," says Rajesh Chakrabarti, a professor of finance at the Hyderabad-based Indian School of Business (ISB). "It is an anti-incumbent advantage. Any opposition party would have benefited, but the BJP benefits because it has been trying to project itself as being tough and has been blaming the government for being soft on terrorists. How well it will be able to hold on to this until election time and translate it into votes and seats remains to be seen."
Political implications are also apparent at the international level. One of the terrorists' targets was Nariman House, a Jewish centre, and as a consequence, India and Israel are moving closer. India has also moved closer to the U.S., which sent Secretary of State Condoleezza Rice to visit the subcontinent. After visiting both India and Pakistan in an effort to avert armed confrontation -which many in India called for, especially since the media labelled the terrorist attacks as "India's 9/11" -- Rice urged Pakistan to cooperate with India in nabbing the terrorists. (The terrorists are alleged to have been recruited in Pakistan.)
"At such times of crisis, the positive aspect is that not only do we see all the political forces internally standing up as a single force to face the situation, but internationally as well there is solidarity in the fight against terrorism," says Bundeep Singh Rangar, chairman of the Delhi-based IndusView, a research and advisory firm. Chakrabarti of ISB adds: "I don't see serious international fallout. There will be some diplomatic efforts at trying to pinpoint Pakistan and some pressure will build up on Pakistan. There has been talk in Washington about reacting to the Mumbai event as a multi-country initiative rather than treating it as just an India-Pakistan affair. But the problem, ironically, is that Pakistan now has an elected government and they can't come out looking like they are giving in to India's demands even if they believe that India's demands are right. For decades, public opinion in Pakistan towards India has been negative. The perception of
public approval of terrorist activities targeted at India must change before politicians can change. The Mumbai incident by itself will have only a temporary impact. But if the talk of a military solution between India and Pakistan aggravates then that can have a worse effect on capital flows than the terror attack."
When it comes to economic issues, Mumbai -- the country's financial capital -- is likely to feel the impact of the terrorist attacks, much as New York City did after September 11, 2001. "Mumbai brings in 40% of foreign trade, 60% of customs duty collections, 40% of income tax collections, 20% of central excise collections and $10 billion in corporate taxes," says Rangar of IndusView. Chakrabarti notes: "The Mumbai terror attack has been the most dramatic in a long series of terror events in India. It involved foreign hostages and places where business leaders, executives and foreigners frequented. It has therefore been a much more potent media drama than any of the previous terror events. This grabbed worldwide attention and there is certainly a negative impact on India's risk and security perception. It will dent foreign investors' views of India. This will lead to a drop in investments, but I expect it to be marginal."
Gloom and Doom
The attacks came at a time when India's economy had already begun to slow as a result of the global recession. The widespread fear and anxiety have added to the gloom. According to recent data, in the second quarter (JulySeptember) of the current financial year, GDP growth has fallen to 7.6% compared
to 7.9% in the previous quarter. The growth rate in the first half of the year was 7.8%, compared to 9.3% for the corresponding period of the previous year.
The mood of business has turned highly bearish. Citibank estimates that GDP growth will be 6.8% in 2008-09 and 5.5% in the next fiscal year. Goldman
Sachs and Merrill Lynch expect 2009-10 growth to be 5.8%, Nomura believes it will be 5.3% and First Global puts it at a bottom-of-the-barrel 3.5%.
Exports are down. In October, they fell 12.1%. The $200 billion target for 2008-09 will most likely be missed. Manufacturers are pessimistic. The ABN AMRO Purchasing Managers' Index, an early indicator of the mood of manufacturing, is at its lowest since it was set up in April 2005. To take one specific sector, the Society for Indian Automobile Manufacturers estimates that vehicle sales could slide 25.5% in the last three months of the calendar year and more than 34% in January-March 2009. Real estate is also in the dumps. The Bombay Stock Exchange (BSE) Sensex has meanwhile been hovering around 9,000, a far cry from the 21,000 it had crossed in January.
These clouds do have a silver lining: Inflation, which was almost at 13% in August, fell to a seven-month low of 8.40% for the week ended November 22. This gives the Reserve Bank of India (RBI) the leeway to focus on boosting growth rather than fighting inflation. Indeed, on December 6, RBI governor D. Subbarao announced a 1% cut in the lending rate, effective December 8. The repo rate, the rate at which the RBI lends money to banks, now stands at 6.5%. Subbarao told a news conference later that growth would moderate "more than anticipated". On the flip side, inflation, too, would decline to below the estimated 7%. The government has meanwhile cut the administered price of petrol and other petro-products. The central government has also been announcing components of a stimulus package to boost the economy.
Still, many believe the terrorist attacks will hurt the economy at a time when it is weakening. The Indian Council for Research on International Economic Relations (ICRIER) has an estimate of the contribution of "external
shocks" such as the financial crisis and the terror attacks. The New Delhi-based think-tank recently completed a study on the effect of external shocks on the country's GDP growth rate. According to Rajiv Kumar, director & chief executive of ICRIER, "ICRIER has been forecasting India's GDP growth rate with the use of leading indicators. These are variables that are considered to have significant influence on the future level of economic activity in the country." The 10 indicators that ICRIER uses include production of machinery and equipment; sales of heavy commercial vehicles; non-food credit; railway freight traffic; cement sales; sales of
We will never forget
the corporate sector; fuel and metal prices; real rate of interest; the Sensex; and the GDP growth rates of the U.S. and Europe.
"Leading indicators can predict future growth based on what has already happened in the past but cannot capture the impact of sudden external shocks which may have an immediate impact on the economy," says Kumar. "Examples of such shocks in the past are the IT boom going bust [after Y2K], the crop failure in 2002-03 and the recent U.S. financial meltdown. The leading economic indicator index, with a five-quarter lag, and the shock represented by a dummy variable (equal to 1 with shock and 0 without) have been used to forecast India's future GDP growth."
Impact on Industries
That's the macro picture. A sectoral analysis sheds more light on the possible damage to different industries. "Terrorism's economic impact has normally been short lived," says a report titled, Economic Impact of Terrorism, by securities firm Anand Rathi Financial Services. "The immediate impact of terrorism is the loss of life, destruction of property and loss of man-days. Terrorist acts also cause uncertainty, which impacts economic activity. Tourism is one of the first areas to be hit, with hospitality and
Does that matter??
transportation feeling the pain the most. Gross earnings from foreign tourists are currently around 1% of GDP. A marked slowdown in tourism activity will have a perceptible impact on not only the hospitality and transportation sectors, but also on the overall economy.
"The impact on the earnings side (through lower room occupancy, depressed room rental, lower passenger traffic or lower air fares) may eventually reverse once the situation normalizes. On the expenditure side, though, the impact of higher costs from increased preventive arrangements and higher insurance premiums is likely to be more permanent." An important subset of tourism -- medical tourism -- is also likely to slow in the short term.
"Hospitality and tourism are two sectors that will certainly take a direct hit," says Chakrabarti of ISB. "This will be a gut reaction to the event and, if nothing else happens, then things will soon get back to normal." According to Rangar, "Estimates suggest that nationally hotels have seen about 60% booking cancellations." Holiday destinations such as Goa are feeling the pinch even more because of intelligence reports that they could be future targets for terrorists. Hotel occupancy in western India is down some 25% and rates have plunged. Civil aviation is another sector in the dumps. But it was already troubled before the attacks.
Rangar believes the overall damage to India's economy could be significant. "Analysts have already started giving initial estimates that suggest the loss in business due to the attacks would be about $100 billion, arising from crucial
institutions, such as the stock exchanges, commodities and money markets, and business and commercial establishments which remained closed," he notes. "There is also a hit of $20 billion on the foreign exchange front. But though the numbers are alarming, it is just a matter of time before the city and its people rise to face the situation."
Exports, already down, could be further hit as foreign buyers put off visits. "International clients prefer to stay at five star hotels such as the Taj and the Oberoi," says Ganesh Kumar Singh, president of the Federation of Indian Export Organizations. They now see a risk staying at any five star hotel. The U.S. commercial nuclear mission has put off its India trip as have delegations from several other countries.
The perception of increased risk in India could also impact the IT industry, which depends on client visits to seal deals. But the larger firms in the IT industry have already spread their risk; they have back-up operations in other countries such as China. The effect there will be only temporary. Some analysts, however, believe that the business process outsourcing (BPO) industry may not be so lucky. "Oil & gas and other large operations are vulnerable to attack," says the Anand Rathi report. Beefing up security will add to their costs. But these are strategic industrial assets for the country as a whole, and part of the expenditure is likely to be borne by the government.
Does anybody gain? Certain lines of IT, particularly those related to security, will get some benefit. "Companies catering to defense, security and
surveillance needs are likely to see a boost in demand," says the Anand Rathi report.
Rangar ends on a note of confidence. "Despite the slowdown -- and the recent incidents -- global companies are expected to continue to exhibit their confidence in India," he says. Adds Chakrabarti: "The confidence crisis is far worse in other parts of the world compared to India. Foreign investors need to put their money somewhere and India still looks very attractive. At worst we will grow at 6%. Most countries would die to grow at this rate at this point in time."
TERRORISM IS HOLDING BACK INDIAN ECONOMY
World in recent past, has witnessed several economies burning with disaster & crisis. Today every nation faces some or the other economic, social or communal unrest. Further, globalization has enabled the impact of these tremors to be felt even at remotest part of the world. India till FY 2008 had seen a steady growth with its GDP shining as high as 9.3%. Subsequently, the economy was hit with US Sub Prime Crisis, Satyam scandal & the Mumbai 26/11 Terrorist attacks.
Many believe that terrorism can't hamper ones economic activity as it only destroy a small fraction of the stock of capital of a country. However, a broader look at the geo-political & economical scenario can easily erode this misconception. India has been facing the terrorism threat as long as since 1970. Terrorism in India is primarily attributable to Islamic, Naxalite and various other radical movements. At least 232 of the country’s 608 districts were afflicted, at differing intensities, by terrorism. Over a period of time terrorism has severely affected Indian economy. Following are the issues that had been major hindrance for Indian economic growth:
A] SHORT-TERM IMPACT
1) Loss of Human Capital The human costs have been horrendous. Estimates are in past 5 years 4000+ were killed in terrorist attacks. This puts India next to Iraq both in terror deaths and terror incidents. The recent 26/11 Mumbai attacks itself left 257-300 dead and 700 injured which includes several high profile individuals such as Shri Ashok Kapur, chairman of Yes Bank who was killed in attack.
2) Investor Behavior Frequent attacks on commercial & government institutions shatter the confidence of the investors causing heavy investment drainage. One example of the same is the terrorist attack in Indian Parliament in 2001, which internationally provoked insecurity & discouraged the investors (FII's & FDI's), obstructing the economic growth. A heavy impact of this can be observed at the stock market that keep diving down post any major terrorist event.
3) Short Term Financial Loss In short term the obstacles like loss suffered due to the diversion of business away from the city to other locations, lost earnings of public due to disability and trauma among survivors etc. drains out the productivity levels & impact the respective economy adversely. Post 26/11 the Taj & Trident Hotels incurred heavy loss as operations were halted for 3-4 months. After 26/11 Mumbai attack Pak cricket team had to cancel its Mumbai tour due to which BCCI has incurred a loss to the tune of INR 120 crore. Another such incident was Post Ex-PM
Indira Gandhi's assassination 1984 riots which hit the economy severely especially the Agriculture & Transport industry that lost hundreds of crores.
4) Retrenchment effect on Specific Industries The Jaipur serial blasts, J&K Terrorism & Mumbai 26/11 attacks did have immediate and concentrated impacts on a number of industries: most notably, airlines, aerospace, travel, tourism, insurance, lodging, restaurants, recreation and related activities. Gross earnings from foreign tourists are currently around 1% of GDP. Post 26/11 terrorist attack estimates suggest that nationally hotels have seen about 60% booking cancellations. Hotel occupancy in western India is down some 25% and rates have plunged. These industries suffered concentrated economic and job losses. Of course, regions or localities with heavy concentrations of these industries suffered disproportionately as well.
B) LONG-TERM IMPACT
1) Political Instability The assassinations of 2 Ex-PM of India, Mrs. Indira Gandhi, and Mr. Rajeev Gandhi already had jolted Indian politics & economy at large. India had lost 2 of its strongest pillars which otherwise would have taken Indian politics, Business & industry at unimaginable heights. Recently speaking the siege of South Mumbai has taken toll as home minister Shivraj Patil, Chief Minister Vilasrao Deshmukh & Home minister R.R. Patil had to resign. This further unstabilized the Indian industry from a long-term perspective. The Political instability at times have also let to erosion of FII's & FDI's.
2) Global Implications India, post Kargil war then Attack on Parliament now 26/11 has lost millions of business as the trade link between the two countries are frozen during such period. Agri-Exporters in bordering states have taken heavy burns. This has resulted in unemployment in these regions, which in turn again triggers riots. 26/11 Attack involved foreign hostages and places where business leaders, executives and foreigners frequented. This will lead to a drop in investments.
3) Long Term Financial Loss The direct economic damage done by terrorist attacks: buildings and infrastructure destroyed, productive lives ended. The structural damages post 26/11 attacks was amounting to total of INR 500 crores, which subsequently took its toll on the insurance industry. Another form of longer-term costs security involves the opportunity cost of spending additional money to fight terrorism. Currently India ranks on 9th position in the world for highest military expenditure (2009-10), which amount to sum total of USD 32,700,000,000. Further, a variety of new spending on security occurred after this incident. As all this happens, economic resources will be directed to shoring up security and diverted away from more productive private sector activity.
To conclude with, let’s not forget that the enemies of our nation have vowed to "bleed India through thousand cuts". Even if terrorism represents a small fraction of the overall economic risk in India, it may have a large impact on the allocation of productive capital across the country.
Post 26/11, India turns to Russia for small weapons
India, which has been procuring fighter aircraft and missiles worth $1.5 billion annually from Russia, is now looking to buy small weapons too - like assault rifles, sniper guns and automatic grenade launchers - for its paramilitary forces, especially after the 26/11 Mumbai terror attack.
A Photo Which Depicts Everything But WE CANNOT CALL IT A KODAK MOMENT
So far, India has largely depended on Israel for sophisticated weapons, guns and equipment to meet the challenges of internal security.
According to Leonid Nikolay Skofenko, head of KBP Instrument Design Bureau in India, the firm was approached by officials of India’s elite commando force National Security Guards (NSG).
“Post 26/11, the National Security Guards approached us to buy automatic grenade launchers under direct sale. They had used the same in their Mumbai operations, but at that time they had taken it from the army,” Skofenko told IANS at Defexpo 2010.
“Earlier we had supplied the grenade launchers to the Border Security Force (BSF) and the Central Reserve Police Force (CRPF) under a contract in August last year. Now under the option clause we would supply the automatic grenade launchers to the NSG and the Indo-Tibetan Border Police (ITBP),” he said.
The KBP Instrument Design Bureau is one of the leading design companies in the Russian defence industry.
The 30 mm automatic grenade launcher is handy because of its light weight. One trooper can carry the grenade launcher and mount it. The rate of fire per minute is 400.
Skofenko said they would be bidding for the NSG tender for sniper rifles too. “The NSG has floated a tender for sniper rifles. We are pitching for our
anti-material rifle (OSV-96 sniper rifle). It can be used against troopers and is also designed to engage targets like light armoured vehicles at a distance of up to 1,800 metres,” he said. “We would also be supplying these rifles to Marcos (Indian Navy commandos),” he added.
Besides, his company is also bidding for a NSG tender for magazine grenade launchers - a hand-held launcher that can be used inside buildings during assaults.
“The NSG says they may consider buying our magazine shotgun,” he said.
Andrey Baryshnikov, of another Russian defence company Izhmash, said they have brought a series of AK assault rifles to India - AK-101 to AK 104.
“We intend to sell AK-101 to AK-104 rifles to India. These are technologically advanced rifles as compared to the AK-47 and AK-56 (Chinese). We are making a proposal to the Indian government that we can produce these rifles in India under a licence system.”
“We are also looking for joint ventures with India companies. The Indian Ordnance Factory Board is making Insas (Indian National Small Arms System) rifles. But they are not producing it in enough numbers and the quality of their weapons has to be improved. We are ready to meet all requirements,” he said.
Baryshnikov said around 60 countries, including Thailand, Vietnam and Indonesia are using their AK rifles. Russia does not sell weapons to Pakistan.
Post-26/11, US more committed for biz with India
Washington In a bid to restore investors' confidence after Mumbai terror attacks, the US-India Business Council (USIBC) has presented an optimistic assessment of the security situation in India, saying it is committed to doing trade with the country.
Government Security Officers from the American Embassy in India on Saturday shared with USIBC member-companies a cautious but upbeat assessment of the security situation in Mumbai, as life in India's financial capital returns to normal.
Representatives of the Taj Group of Hotels and Oberoi Group of Hotels, who also joined in the USIBC members-only tele-conference, indicated that sophisticated security measures had been put in place since the November 26 attacks on Mumbai, reassuring future visitors and hotel guests.
The Taj and Oberoi properties will reopen for business on December 21, it was reported, the USIBC, a premier business advocacy group, said in a statement."It is a testament to the resilience and courage of the people of Mumbai how quickly India's financial capital has returned to normal. It is equally remarkable how India has demonstrated such restraint in so far as its relations with Pakistan in the wake of the Mumbai attack. For USIBC, this must mean a re-
doubled commitment to doing business with India," Ron Somers, President of the USIBC, said.
"The correct response to this heinous act is for the US business community to get right back on jet planes as soon as possible to renew our engagement and partnership with India," he said.
We are safe till they are there
Security market soars after Mumbai attacks
India's IT sector has stepped up surveillance measures and introduced integrated security products as safety concerns rise across the country.
Earlier this month, Nasscom (India's trade body and chamber of commerce for the IT-business process outsourcing industry) sent out invites for the India Leadership Forum 2009, to be held in Mumbai in February. A note at the end of the invite said: "At Nasscom, we understand the security concerns that you might have following the unfortunate incident at Mumbai. In all our conferences, we ensure that the security measures are stringent and foolproof to the best of our ability."
V. Rajendran, vice president, HCL Securities, told ZDNet Asia, since the Mumbai attacks of Nov. 26 (26/11), "securing lives and property has emerged as a key concern in India". As a result, companies, hotels, retail chains and banks are seriously considering security products and services that offer enhanced security.
"After the recent terror attacks, there is growing emphasis on deploying technologically-enabled security systems both in the public and private sector," Rajendran said in an e-mail interview.
Sivarama Krishnan, executive director, PricewaterhouseCoopers told ZDNet Asia in a phone interview: "Post 26/11, companies and the government have begun to look beyond IT--at the physical infrastructure." Their focus is now on three key areas--security of the physical infrastructure, the resilience of the security system and the disaster recovery mechanism they have in place.
The IT industry is taking the security issue even more seriously. Raju Bhatnagar, vice president, Nasscom noted: "The added impetus for the IT sector is that it is a highly visible industry segment and very people intensive."
Stepping up security
The immediate impact of the Mumbai attacks is felt on the physical security at offices, malls and other public places. Krishnan said: "Earlier, anyone could walk into a commercial building. But today, there are several security checks. Guards are even asking visitors to show their identity cards."
In fact, Nasscom is in the process of collating some best practices that can be circulated to its members to help create awareness. According to Bhatnagar, companies have instituted three key security steps post 26/11:
1. Closer checks on vendors and suppliers visiting office premises. Such visitors are asked to provide adequate details so that the individuals can be identified when they are within the office.
2. Background checking on new recruits is being given a greater importance. The National Skills Registry system to ensure individuals employed by organizations have their background and antecedents verified to prevent the menace of fake resumes, is being made mandatory by many companies. 3. Entry and exit rules--such as recording one's arrival in the visitor's register-are being enforced more strictly. In many organizations, visitors are escorted from the reception to meeting place and then back to the reception.
Following the terror attacks, large IT companies had approached the Indian government for CISF (Central Industrial Security Force) protection to their facilities. CISF's role was to guard only public sector units. Recently, the Indian government (through an ordinance) allowed CISF to guard private installations.
On its part, the government too is busy exploring new systems for increased security. As per reports, scientists are evaluating a state-of-the-art embedded security system to safeguard busy railway stations across the country, some of which had been targets of terror attacks. The security system comprises 14 sensors that carry out surveillance and detection activities and would help do away with frisking of people. One sensor even detects explosive material using Raman Spectroscopy. New products hit the market Rising security concerns are boosting the demand for products that integrate the existing security systems to offer better surveillance.
Krishnan said: "In the past, there were technologies. But they were installed in a dispersed manner. Today, these are being integrated to offer more effective and real-time surveillance." Integrated security solutions leverage technology to analyze incoming video information from cameras, pinpoint potential threats, and escalate information through the established IP infrastructure to appropriate personnel or systems.
For instance, HCL Security recently introduced a unique concept-called "Safe State". It is an architecture leveraging technology to build a security framework that can safeguard life and infrastructure. It can help secure vulnerable areas such as hotels, hospitals, IT companies and outsourcers, educational institutions and railway stations. Rajendran explained: "Safe State integrates technology with the physical surveillance and security solutions, making them work together." While there is no official data available that could indicate the accurate size of the market today, Rajendran noted a study by Frost and Sullivan that estimated the security surveillance market at US$407 million to US$509 million.
Naren Nagpal, chief executive officer, ReadiMinds, told ZDNet Asia: "Post the Mumbai attacks the market size of the security products industry has probably seen a significant change." ReadiMinds specializes in transaction security, fraud prevention, real-time risk monitoring and mitigation, and emergency alert systems.
Prior to 26/11, ReadiMinds primarily served the BFSI (banking, financial services and insurance) industry. "Post 26/11, we have also introduced our real-time electronic surveillance systems in India for homeland security applications," Nagpal said in an e-mail interview.
Investors worry about another attack after Mumbai
The risk of militants striking again in India worries many investors who fear that a second attack similar to last year's Mumbai raids could shake what has so far proved to be a resilient economy. In some ways, last year's attacks in which Pakistani-based militants killed 166 people appear a distant memory. While they ratcheted up tensions with Pakistan, they failed in a principal aim -- to bring the two nuclear-armed foes to conflict. Foreign investors bought more than $15 billion in Indian shares this year, helping local stocks gain nearly 80 percent, in a vote of confidence for the trillion-dollar Indian economy. But the Mumbai raids forced investors to consider that any new attack could spark regional tension and panic in an economy that is just recovering from the global economic slowdown. "While India has made some improvements to its counter-terrorism capabilities, it remains vulnerable to terrorist activities," wrote Maria Kuusisto of Eurasia Group. "Another high-profile, mass-casualty attack would lead to intense domestic pressure on Delhi to adopt a more firm policy towards Pakistan and even retaliate, which would raise regional tensions." Businesses in Mumbai, which was also a target in serial bomb blasts in 1993, lost about $800 million after the 2008 raids. The stock exchange was shut for a day and hotels and airlines struggled as countries issued travel advisories.
Another strike in India could also prove a political distraction for a government that is gaining traction with financial reforms in such sectors as insurance and pensions. Companies are now spending millions on revamped security, adding to the costs of doing business in India. About 80 firms, including software exporters, hotels and energy companies have applied for paramilitary cover. "26/11 was big and we are constantly concerned about the safety of our facilities, our workforce," S. Mahalingam, chief financial officer of Tata Consultancy Services, India's top software exporter, told the Reuters India Investment Summit in New Delhi this week.
STOCKS RESILIENT? One follow-on militant attack nearly triggered war in 2002. India and Pakistan, which have fought three wars, initiated the biggest military build-up on their border in 2001 after an attack on the Indian parliament that New Delhi blamed on Pakistan-based guerrilla groups. But it was another attack on an Indian army camp in Kashmir five months later that raised real fears the two nations may be on the brink of war. Some embassies advised their citizens to evacuate New Delhi. A flurry of diplomatic peace missions led by the United States eased the situation. Indian markets have a mixed record of responding to attacks. In the limited three-month Kargill conflict with Pakistan in 1999, the main stock index actually rose -- by a third. In 2001, stocks fell 8 percent in the two tense weeks after the parliament raid but recovered losses in the next fortnight. After the 2002 army camp raid, stocks, already hit by uncertainty sparked by huge religious riots in Gujarat state, lost a tenth of their value in the following eight days and did not recover for the rest of the year until tensions began easing. Seven years on from that, investors are drawn to India's near 7percent economic growth and promise of stability after the Congress party-led government won re-election in May.
"The risk perception has certainly deteriorated. This, however, hasn't deterred investors from participating in, and benefiting from, the India opportunity," said Manoj Vohra, head of the Economist Intelligence Unit in India. Investors simply have to get used to the new reality, Kevan Watts, country head of Bank of America-Merrill Lynch, told the Reuters Summit. "It is the reality all across the world. So you put your business continuity plan in place, you put up as much physical security as you can, and you just get on with your business."
India faces growing Chinese hostility after 26/11
As China strengthens its navy with acquisition of aircraft carriers and nuclear submarines, India will soon find that unless it boosts its maritime muscle, it will be strategically marginalised and outflanked by an assertive and expansionist China, says G. PARTHASARATHY.
While India received overwhelming international sympathy and support during the 26/11 terrorist outrage, the Chinese reaction was one of almost unbridled glee, while backing Pakistani protestations of innocence. The state-run China Institute of Contemporary International Relations claimed that the terrorists who carried out the attack came from India. Moreover, even as the terrorist strike was on, yet another Chinese “scholar” gleefully noted: “The Mumbai attack exposed the internal weakness of India, a power that is otherwise raising its status both in the region and in the world”. Not to be outdone, the Foreign Ministry-run China Institute of Strategic Studies warned: “China can firmly support Pakistan in the event of war”, adding: “While Pakistan can benefit from its military co-operation with China while fighting India, the People’s Republic of China may have the option of resorting to a strategic military action in Southern Tibet (Arunachal Pradesh), to thoroughly liberate the people there”.
Rather than condemning the terrorists and their supporters, Chinese Foreign Ministry Spokesman Qin Gang urged India and Pakistan to “maintain calm” and investigate the “cause” of the terror attack jointly. The visiting Chairman of Pakistan’s Joint Chiefs of Staff General, Tariq Majid, was received like a state dignitary by Chinese leaders, with promises of support on weapons supplies ranging from fighter aircraft to frigates.
New Delhi should also have no doubt that China will exploit the American economic downturn and the pro-Chinese views of Secretary of State Hillary Clinton, to get the Americans to revert to the policies of the Nixon, Carter and Clinton Presidencies and to make common cause with it on issues like nuclear non-proliferation, the Comprehensive Test Ban Treaty and even on Afghanistan and Pakistan, while undermining Indian interests. Echoing the Pakistani line, the Communist Party mouthpiece, The People’s Daily recently suggested that for the United States to deal with problems in Afghanistan, it should not merely involve itself in the “Afghanistan problem” and the “Pakistan problem” but also in the “India-Pakistan problem”. Hillary Clinton has characterised the US-China relationship as the “most important bilateral relationship in the world in this century”. Her visit to China was followed almost immediately by the visit to Beijing of a senior Pentagon official, who joyously proclaimed the resumption of defence ties with China.
The Bush Administration had an overarching strategic vision of its relations with India, premised on India’s pivotal role in confronting terrorism, safeguarding the sea lanes of the Indian Ocean and in promoting “strategic stability” in Asia. With elections around the corner and the UPA Government in a “lame duck” mode, Washington is unlikely to take any interest in fashioning a larger vision for India-US relations. The challenge we face in coming months is on how we can pursue our interests in the aftermath of the 26/11 carnage, without making the Indo-US relationship exclusively fashioned by developments our western borders. The Obama Administration’s decision to curb outsourcing, without any prior consultations, manifests an American propensity to act unilaterally and peremptorily on issues of vital interest to India. The Prime Minister’s Special Envoy Shyam Saran recently noted “an apparent willingness on the part of the US to accommodate China’s regional and global interests as a price to be paid for China refraining from tipping the US into a full blown economic and financial crisis through its own policy interventions and, hopefully, supporting US economic recovery”. China appears set to exploit current developments to transform the American dominated unipolar world order by a bipolar world order in which it shares global hegemony with the United States. Saran perceptively noted: “This will imply a more energetic pursuit of our relations with countries like Russia and middle powers like Brazil, South Africa and Mexico. The European Union and, in particular, some of its individual members like France, can be useful political and economic partners”.
It remains to be seen if we can fashion imaginative strategies to deal with these emerging challenges.
Mumbai attacks costs insurers Rs 500 crore: IRDA
General insurers may suffer a loss of over Rs 500 crore due to the Mumbai terror attacks, according to the Insurance Regulatory and Development Authority (IRDA). “This is the biggest estimated loss to the Terror Pool since its inception in 2002 and Rs 50 crore has already been released,'' IRDA said in its annual report for the year 2008-09 which was released on Wednesday. The companies would also have to pay more for insurance under the terror pool as the rates were hiked on April 1, 2009. Claim settlements under the terror pool were very low at Rs 1.05 crore in 2007-08, while the premium collected was Rs 500 crore, IRDA said. Luxury hotels, the Taj Mahal Palace and Oberoi Trident, were targeted by terrorists on November 26, 2008, which claimed 200 lives besides damaged property.
Terror cover premium hiked by 30%
Beginning April 1 2009 companies have to shell out more to buy an insurance cover against terrorist attack.The insurance companies offering terror cover decided to increase the premium rates by around 20-30 per cent, from April. Claims against terror cover are paid from a pool made out of contributions from all general insurers. The pool is managed by the General Insurance Corporation of India (GIC Re). The terror pool has a corpus of around Rs 1,400 crore as on date. The pool provides cover for property loss or damage and business interruption claims arising out of terrorist activities. The decision to hike the premium has been taken keeping in view the depletion of the terror pool on account of the payout to Hotel Taj Mahal Palace and Tower and Hotel Trident-Oberoi in the aftermath of the Mumbai terror attacks, said Mr Gaurav Garg, CEO and MD, Tata AIG General Insurance. Tata AIG General Insurance is the lead cover provider to Taj hotel. The decision has been taken by the pool and approved by the regulator, said Mr Yogesh Lohiya, Chairman and Managing Director, GIC Re. The terror pool has a good corpus as there were not many claims prior to those by Taj and Oberoi. As more people are looking to buy a terrorism cover, the corpus of the pool should increase, Mr Lohiya said. An initial amount of Rs 25 crore was paid from the terror pool to both hotel Taj and hotel Trident-Oberoi as an initial payment before the final damage assessment was made.
The final payout is expected to be in the range of Rs 500-600 crore, including business interruption claims, Mr Lohiya said. The final payouts are expected to be released soon after the final survey and assessment are over. “We are awaiting the final report of the assessment, which is expected to be ready soon. The balance amount will be released only after the claim processing is over,” Mr Garg said. The Taj cover is provided jointly by three insurers — Tata AIG General Insurance (65 per cent share), ICICI Lombard General Insurance (30 per cent) and IFFCO Tokio General Insurance (5 per cent). In the case of HotelTrident Oberoi, the cover is provided by New India Assurance Company and United India Insurance Company.
“In any part of the world terrorism is unwanted as it not only kills the human life but also the infrastructure, industry ultimately shackling its overall growth”.
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