Following Mumbai’s terror attacks, the chief concern plaguing investors, managers and business owners was this: Can the attacks derail India’s impressive growth story? Fact is, the attacks come at a time when the economy isn’t in shipshape due to the global credit crisis.
The government is grappling with not just a scarcity of liquidity, but also an increasing risk of delinquencies among individuals and corporates. Moreover, it has had to now divert its attention from the economy to issues of national security. Problem is, with the absence of a well-crafted monetary and fiscal stimulus plan, India runs the risk of plunging deeper into an economic abyss.
Substantial amounts of foreign money that went into the Indian market over the past several years have already been pulled out— FIIs have yanked back $12.5 billion from the Indian market this year, pulling down the Sensex by over 50 per cent. This trend is going to increase, says Jake Stratton, Head (Global Risk Analysis), Control Risks, a consultancy firm. “The attack was unprecedented in terms of international exposure it got.
We have got hundreds of queries from MNCs about the security condition in India. They have many of their people on ground here. There is a short-term shock”. More damagingly, foreign investments in capital expenditure, expansion programmes, and in setting up Indian outposts are expected to slow down.
To compound the country’s economic woes, India’s trade with other countries could also be affected because of the terror attacks. Exports, which have already dropped 12 per cent in the month of October, could take a further dive. Exporters are claiming that their order books have been significantly hit after the recent terror attacks on Mumbai. Says G.K. Gupta, President, Federation of Indian Export Organisations (FIEO): “A lot of buyers, concerned about the security situation in India, have cancelled their trips to the country. This has meant that exporters, particularly the medium and small units, have seen orders drying up. Our loss is now the gain of countries like China and Vietnam as orders are being diverted to them.” According to FIEO, export targets of $200 billion are unlikely to be met. The worst hit are labour-intensive industries like textiles, handicraft and gems and jewellery, which could see substantial job losses as well.