Mumbai Attacks to Hurt Indian Economy

"Investor sentiment will be affected," Chidambaram admits. (Reuters)

"The impact on tourism will be horrible," Vijay Prakash, manager of a posh Mumbai restaurant, told Agence France Presse (AFP) on Sunday, November 30.

"People will be scared, worried."

At least 195 people, including 22 foreigners, were killed and nearly 300 injured in the attacks, which began when militants fanned out across Mumbai on Wednesday to attack sites popular with foreigners.

It was only 60 hours later that Indian commandos were finally able to overcame militants who had taken scores of people, mostly westerners, hostage.

The three-day long siege left a trail of destruction in the 105-year-old Taj Mahal Palace, a Mumbai's flagship.

Troops carried out a room-by-room sweep in the 565-room Victorian building, in many cases triggered shootouts and small explosions.

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."

Rajeev Malik, economist at Australia's Macquarie Research, predicts the attacks will have a negative impact on foreign investments as well.

"(Foreign investors) will likely be worried about the safety of their employees and establishments."

Temporary 

Deepak Lalwani, India director at London's Astaire and Partners, notes that the timing of the attacks was also "abysmal".

The stock market is down by 55 percent this year, banks are facing a huge fund outflow due to the global financial crisis.

The Indian currency (rupee) is at record lows and growth has slowed significantly amid a widening global recession.

Economists predict an economic growth as low as six percent this year and four percent for next year, compared to three years of at least nine percent expansion.

Analysts also warned that if any major follow-up attacks take place, the impact would be disastrous.

"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," said Ajai Sahni, head of the New Delhi-based Institute for Conflict Management.

Finance Minister Palaniappan Chidambaram admitted the attacks could have a negative impact on his country's economy, but insisted it will temporary.

"Investor sentiment will be affected. But within a few weeks or months it will recover," he argues.

"(India will remain) an attractive investment destination."

Malik the economist, shares the same assessment.

"(The) negative effects of the current attacks on tourism, investor confidence, rupee and equities will probably turn out to be temporary."

Global credit ratings agency Standard and Poor's said Friday it had no plans to downgrade India's rating as long as the attack was "an isolated case."