Professional Documents
Culture Documents
26/11 Mumbai Terror Attack: A Perspective of Indian Economy
26/11 Mumbai Terror Attack: A Perspective of Indian Economy
26/11 Mumbai Terror Attack: A Perspective of Indian Economy
economic
perspective
Is India really
affected by it?
Aftab Dewani 39
Ankur Kalani 42
Azim Samnani 44
Sanif Momin 43
Siddharth Gandhi 40
Acknowledgement
W
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.
Thank you
Mumbai attack and its aftermath ...................................................................5
2) Investor Behavior............................................................................. 35
Conclusion ..................................................................................................... 61
Bibliography .................................................................................................. 62
Mumbai attack and its aftermath
T
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.
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.
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.
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.
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
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,
1. 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.
2. 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.
3. 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.
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. In the process, they pulled the rug from under the feet of the sensex, sending it
crashing nearly 12,000 points in eleven months.
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.
2. The global economic crisis had already hit tourism and 26/11 only made
things worse.
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
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!
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.
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 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.
Political Fallout
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.
"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."
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 (July-
September) 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
A tribute
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.
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
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
"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.
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.
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.
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.
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.
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.
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
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 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
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.
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
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.
"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?
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.
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.
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.
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”.
US-China relationship
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.
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”.
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%
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.
not only kills the human life but also the infrastructure, industry
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