Mon, Dec 01, 2008 page11

• Mumbai attacks chill India’s economic prospects: analysts

  • AFP
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  The deadly Islamist militant strike on India’s financial nerve center clouded the future of Asia’s third-largest economy at a time when it already faces a significant slowdown, analysts said.

  Gunmen stormed luxury hotels, including the iconic Taj Mahal Palace, a landmark restaurant and the main train station, killing at least 195 people in a brazen attack that paralysed Mumbai for 60 hours.

  The murderous rampage, which Indians are calling their own Sept. 11, was clearly intended to “destabilize markets and scare off tourists,” said Nikhilesh Bhattacharyya, an economist at Moody’s Economy.com.

  

  Indian paramilitary soldiers stand guard as people walk past the Taj Mahal hotel in Mumbai, India, on Saturday.

  PHOTO: AP

  The attack — which also saw the gunmen single out Americans, Britons and Israelis — “signifies an attack by extremists on India’s economic success and its closer and warmer economic and diplomatic ties with the West,” said Deepak Lalwani, India director at London’s Astaire and Partners.

  And the timing of the attack, the most devastating of a string this year, was “abysmal” from an Indian economic viewpoint, he said.

  The stock market was down 55 percent this year, banks are facing a huge fund outflow due to the global financial crisis, the rupee is at record lows and growth has slowed significantly amid a widening global recession.

  “There has been a continuing attempt to undermine India’s economy over the past four or five years and this [attack] is part of it,” said Ajai Sahni, head of the New Delhi-based Institute for Conflict Management.

  The images of gunbattles between militants and commandoes “flashed around the world are not going to be helpful,” said a Singapore banker on condition of anonymity.

  “The effect on investor sentiment and tourism will be pronounced,” he said.

  Indian Finance Minister Palaniappan Chidambaram conceded the attacks could have a “negative” short-term impact but insisted the economy would “overcome” it.

  “Investor sentiment will be affected. But within a few weeks or months it will recover,” he said. India remains “an attractive investment destination.”

  He expected growth of at least 7 percent for this year to March after three years of at least 9 percent expansion. However, economists forecast growth as low as 6 percent this year and 4 percent for next year.

  In the immediate aftermath, the attacks will scare away tourists and business travelers, analysts say.

  “The singling out of American, British and Israelis as hostages indicates a new and worrying action by terrorists as this indicates an international agenda being fought on Indian soil,” Lalwani said.

  “The impact on tourism will be horrible. People will be scared, worried,” said Vijay Prakash, manager of a posh Mumbai restaurant.

  Foreign investors would “likely be worried about the safety of their employees and establishments,” said Rajeev Malik, economist at Australia’s Macquarie Research.

  But in the longer term, as long as there are no major follow-up attacks, the impact should recede, analysts said.

  The “negative effects of the current attacks on tourism, investor confidence, rupee and equities will probably turn out to be temporary,” Malik said.

  Also “what the Islamist terrorist movement has been able to demonstrate in the past few years there is no place you can that is completely safe,” said security expert Robert Ayers at London’s Chatham House, an international affairs think tank.

  “If people made inward investments based on the fear of terrorist attacks, there would be no investments … in all sorts of the places,” he said.

  However, Sahni said: “If we keep seeing attacks of this magnitude, perceptions of India’s security are going to shift and it will impact directly on investment decisions.”
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