Business and Management
Submitted By devesh
I express my sincere thanks to my project guide Mrs. for guiding me right from the inception till the successful completion of the project. I sincerely acknowledge her for extending their valuable guidance, support for literature, critical review for project and the report and above all the moral support she provided me with all stages of this project.
I would also like to thank the supporting facilities of my institute, department for their help and co-operation throughout my project.
Terrorism has given up as global threat and terrorists have free flow of information, communication, Information Technology and so forth. Threats from terrorist groups have grown alarmingly and pose a greater challenge to nations. Terrorists conduct their activities with the aim of destruction. The fear of terrorism is looming large in our daily life. There are innumerable incidents of such fear and insecurity.
Terrorists attacks has its impact globally –be it tourism, Gross domestic product, medical industry, productivity, aviation industry, stock market etc. Terrorism creates feeling of hatredness, frustration and panic in the society with the main objective of destruction in the opposition. Paradigm of Terrorism has seen a major change with terrorists remaining invisible and exhibiting cross nation spread using Internet as a main source of communication.
HISTORY Of TERRORISM
The word "Terrorism" has been derived from Latin word "Terrere" which means "To fight". This word was first used in Rome in a state of emergency in response to the approach of Warriors of the Cimbri tribe in 105B.C. Terror is used as a means of coercion. In simple words, Terror means all those acts which are done in order to create fear in the minds of the people.
Word "Terrorism" in modern times refers to the killing of innocent people by a private group in a way to create feeling of hatredness and panic among the common people of the nation. It is a word with negative connotations applied to one's enemies which are preferred to be ignored. "Terrorism" creates physical and psychological destruction. Common crowded places are the targets of these mindless brutalities- their ability to strike anywhere and at any time. Year-to – year changes in the gross number of attacks across the globe tells about the effectiveness of preventing these incidents and hence reducing the capacity of terrorists to advance their agenda through violence against the innocent.
CHANGING FACE OF TERRORISM
Terrorists groups are also equipped with latest technologies which are used by them for the attacks. If we take the example of attack on "TWIN TOWERS" we can recall that aero planes were used by the terrorist group. No one could even imagine that such techniques would been ever used in so powerful country like USA.
Taking another example of attack in MUMBAI on 26th November ships, Global Position Service data and wireless satellites were used for the attack on the luxurious hotels. Even the materials like Guns, Rifles, explosive material used were of the latest technology.
Recently came in NEWS that Osama Bin Laden followers have prepared capsules which contains poison so as to kill the Americans.
(elaborate that latest technologies are being used in the terror attacks).
MAJOR TYPES OF TERRORISM
States can use force or the threat of force, without declaring war, to terrorize citizens and achieve a political goal. Germany under Nazi rule has been described in this way. It has also been argued that states participate in international terrorism, often by proxy.
Bioterrorism refers to the intentional release of toxic biological agents to harm and terrorize civilians, in the name of a political or other cause. The U.S. Center for Disease Control has classified the viruses, bacteria and toxins that could be used in an attack. Category A Biological Diseases are those most likely to do the most damage.
Cyber terrorists use information technology to attack civilians and draw attention to their cause. This may mean that they use information technology, such as computer systems or telecommunications, as a tool to orchestrate a traditional attack.
Eco-terrorism is a recently coined term describing violence in the interests of environmentalism. In general, environmental extremists sabotage property to inflict economic damage on industries or actors they see as harming animals or the natural environment.
"Nuclear terrorism" refers to a number of different ways nuclear materials might be exploited as a terrorist tactic. These include attacking nuclear facilities, purchasing nuclear weapons, or building nuclear weapons or otherwise finding ways to disperse radioactive materials.
Narco terrorism has had several meanings since its coining in 1983. It once denoted violence used by drug traffickers to influence governments or prevent government efforts to stop the drug trade. In the last several years, narcoterrorism has been used to indicate situations in which terrorist groups use drug trafficking to fund their other operations.
TERRORISM IN INDIA
Mumbai has been the most preferred target for most terrorist organizations, primarily the separatist forces from Pakistan. Over the past few years there have been a series of attacks, including explosions in local trains in July 2006, and the most recent and unprecedented attacks of 26 November 2008, when two of the prime hotels, a landmark train station, and a Jewish Chabad house, in South Mumbai, were attacked and sieged.
Terrorist attacks in Mumbai include:
▪ 11 July 2006 - Series of seven bombs go off in trains, killing 209 ▪ 26 November 2008 to 29 November 2008 - Coordinated series of attacks, killing at least 172. ▪ 13 July 2011 - Three coordinated bomb explosions at different locations, killing 26
Terrorist attacks elsewhere in Maharashtra:
▪ 13 February 2010 - a bomb explosion at the German Bakery in Pune killed fourteen people, and injured at least 60 more
Jammu and Kashmir
Armed insurgency in Jammu and Kashmir has killed tens of thousands to date.
The existence of certain insurgent groups, like the CPI-ML, Peoples war, and MCC, is a major concern, as they frequently attack local police and politicians. Poor governance and the law and order system in Bihar have helped increase the menace caused by the militias.
The Sikhs form a majority in the Indian state of Punjab. During the 1970s, a section of Sikh leaders cited various political, social, and cultural issues to allege that the Sikhs were being cornered and ignored in Indian Society, and Sikhism was being absorbed into the Hindu fold. This
gradually led to an armed movement in the Punjab, led by some key figures demanding a separate state for Sikhs.
2011 High court bombing
Main article: 2011_Delhi_bombing
The 2011 Delhi bombing took place in the Indian capital Delhi on Wednesday, 7 September 2011 at 10:14 local time outside Gate No. 5 of the Delhi High Court, where a suspected briefcase bomb was planted. The blast killed 12 people and injured 76.
2001 Attack on Indian parliament
Terrorists on 13 December 2001 attacked the Parliament of India, resulting in a 45-minute gun battle in which 9 policemen and parliament staff were killed. All five terrorists were also killed by the security forces and were identified as Pakistani nationals.
Main article: 2010 Varanasi bombing
On 7 December 2010, another blast occurred in Varanasi, that killed immediately a toddler, and set off a stampede in which 20 people, including four foreigners, were injured.The responsibility for the attack was claimed by the Islamist millitant group Indian Mujahideen.
Northeastern India consists of seven states (also known as the seven sisters): Assam, Meghalaya, Tripura, Arunachal Pradesh, Mizoram, Manipur, and Nagaland. Tensions exists between these states and the central government, as well as amongst the tribal people, who are natives of these states, and migrant peoples from other parts of India.
Northeastern regional tension has eased of late with Indian and state governments' concerted effort to raise the living standards of the people in these regions. However, militancy still exists in this region of India supported by external sources.
The first and perhaps the most significant insurgency was in Nagaland from the early 1950s until it was finally quelled in the early 1980s through a mixture of repression and co-optation. The National Socialist Council of Nagaland-Isak-Muivah (NSCN-IM), demands an independent Nagaland and has carried out several attacks on Indian military installations in the region. According to government officials, 599 civilians, 235 security forces, and 862 terrorists have lost their lives between 1992 and 2000.
After Nagaland, Assam is the most volatile state in the region. Beginning in 1979, the indigenous people of Assam demanded that the illegal immigrants who had emigrated from Bangladesh to Assam be detected and deported. The movement led by All Assam Students Union began non-violently with satyagraha, boycotts, picketing, and courting arrests.
Tripura witnessed a surge in terrorist activities in the 1990s. New Delhi blamed Bangladesh for providing a safe haven to the insurgents operating from its territory. The area under control of the Tripura Tribal Areas Autonomous District Council was increased after a tripartite agreement between New Delhi, the state government of Tripura, and the Council. The government has since brought the movement under control, and the government of Tripura has so far succeeded to limit the terrorist activities.
In Manipur, militants formed an organisation known as the People's Liberation Army. Their main goal was to unite the Meitei tribes of Burma and establish an independent state of Manipur. However, the movement was thought to have been suppressed after a fierce clash with Indian security forces in the mid 1990s.
The Mizo National Front fought for over two decades with the Indian Military in an effort to gain independence. As in neighbouring states the insurgency was quelled by force.
Karnataka is considerably less affected by terrorism, despite having many places of historical importance and the IT hub of India, Bengaluru. However, recently Naxal activity has been increasing in the Western Ghats.
Also, a few attacks have occurred, major ones including an attack on IISc on 28 December 2005 and serial blasts in Bengaluru on 26 July 2008.
Andhra Pradesh is one of the few southern states affected by terrorism, although of a far different kind and on a much smaller scale.The terrorism in Andhra Pradesh stems from the People's War Group (PWG), popularly known as Naxalites.
The PWG has been operating in India for over two decades, with most of its operations in the Telangana region in Andhra Pradesh. The group is also active in Orissa andBihar. Unlike the Kashmiri insurgents and ULFA, PWG is a Maoist terrorist organisation and communism is one of its primary goals.
IMPACT ON GLOBAL ECONOMY
If we talk about the impact of Terrorism on the global economy, we all can recall how the attack on "TWIN TOWERS" affected not only the US economy but the economies of various other nations. Terror attacks from one country on the another country leads to the feelings of hatredness, revenge etc. leaving its impact on the business and relationships between the two nations. These attacks not only declines the economic growth of the nation which has been attacked rather the countries associated with it also.
US market is the hub of business for various nations like India, China etc. We saw how the attacks on "TWIN TOWERS" slowed down the business of theses nations as most of the business of these nations comes from US market. Economic impact includes cost of property, immediate affect on productivity, Gross domestic product, defense, security spending human cost etc. which is uncountable. The impact can also be observed on the financial markets globally.
We can recall how the attack on "TWIN TOWERS" increased the cost of Information Technology sector as almost whole of the data was lost. It took 10-15 days to recover that data slowing down the business all round the world.
The terror attacks also has impact on global supply chains as it becomes costly in terms of time and formalities at ports and land borders. It also increases the cost of nation attacked in form of security cost, political destabilization, public outrage and radicalization among their population.
EXPORTS-IMPORTS are also affected due to terrorism. The conditions of Northern parts of Kashmir are severely mercible. No trader wants to trade in such areas. Global terrorist organizations have set their eyes on the impact of attacks via cyber-space. There are more fears among nations that cyber warfare will be more pronounced that expected. Intelligence gathering and snooping technologies has become a force enabler via cyberspace and so the enemies also know about the network readiness of nations and entities. While a lot of awareness has been created in India, there have been little efforts to realize the impact of misuse of cyberspace on national security.
IMPORTS & EXPORTS
“THE MUMBAI 26/11 ATTACK AND THE WTC 9/11 AND THE LAHORE ATTACK PROVE THE INEFFICIENCY OF THE SECURITY AND GOVERNANCE SYSTEMS. INSPITE OF ALL THE NEW TRENDS AND NEW WAYS TO STOP THE ACTIVITIES OF TERROR, THEY HAVE BEEN ABLE TO FIND A LOOPHOLE IN THE MILLION DOLLAR ARRANGEMENT ALWAYS AN HALSO BEEN SUCCESSFUL IN UNDONE THE SYSTEM AND WAGE A SUCCESFUL ATTACK.
WORLD ,PARTICULARLY INDIA NEED TO REALISE AND UNDERSTAND SOME HEART PINCHING FACTS. IT IS FINE THAT WE HAVE STOPPED THEM FROM COMPLETE THEIR MISSION, BUT ONLY THIS MUCH OF DESTRUCTION HAS LED ALL OF US INTO A ZONE OF SHOCK. NOW TERRORISM HAS EMERGED AS ONE OF THE FRONTRUNNERS INT THE LIST OF OBSTACLES IN THE PATH OF WORLD OF DEVELOPMENT AND PEACE.”
The govt. needs to focus on it to play a leading role in the global cyber security efforts that are just beginning to attract-more attention. The countries in which there are a large number of terrorists, the possible declines of that economics become inevitable.
Impact of Terrorism on Indian Economy:
A terror attack on India is not a new story. India has been continuously attacked in last year(2008-2010).To count a few –Cannaught Place(Delhi), Mehrauli (Gurgaon), Gaffar market(Karol Bagh, Delhi), Varanasi (Uttar Pradesh). The places chosen by the attackers were the most crowded places so as to kill the maximum people and create panic in the society. But Mumbai attack in 2008-2011 has shocked the Indian economy. Attack on five star hotels-Taj,Oberoi and Nariman House has raised a Question of security for the elite visitors. The impact of Mumbai attack although will not a long term but definitely will affect short term business of the country. These attacks has left its footprints especially on three industries-tourism, hospitality and medical. It has also increased the cost of security especially on land and sea borders. Big and reputed Companies of India has also demanding for "Z" security. Not only these Companies rather say the citizens now are also seeking for "Z" security from the government. Tourism sector has come to stake- be it International or domestic. Clients have cancelled their tours by 25-35% because of security reasons which has directly hit the Aviation and Hotel industry.
These attacks will affect India not only domestically rather globally as most of its business comes from outside India. The target attack on foreigners will have a incalculable impact on Investment climate as well affecting the financial market of India. 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 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 Kapoor , chairman of Yes Bank who was killed in attack.
2) INVESTER 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 [pic]
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 certain 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.
“It’s a shaken reaction at this point of time; things have never been so uncertain. (But) over a period...(the attacks) will not be a big factor,” said:- Charanjit Banerjee, director general of the Confederation of Indian Industry (CII).
B. LONG TERM IMPACT
1) Political Instability
The assassinations of 2 Ex-PM of India, Mrs. Indira Gandhi, 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.
2) 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 private sector.
ECONOMIC IMPACT OF TERRORISM
1. Direct economic impact of terrorist attack
The direct cost of the September 11 attack has been estimated at somewhat over $20 billion. Paul Krugman cites a property loss estimate by the Comptroller of the City of New York of $21.8 billion, which he has said is about 0.2 % of the GDP for a year ("The Costs of Terrorism: What Do We Know?" presented at Princeton University in December, 2004).
Similarly, the OECD (Organisation for Economic Cooperation and Development) estimated that the attack cost the private sector $14 billion and the federal government $0.7 billion, while clean-up was estimated at $11 billion. According to R. Barry Johnston and Oana M. Nedelscu in the IMF Working Paper, "The Impact of Terrorism on Financial Markets," these numbers are equal to about 1/4 of 1 percent of the US annual GDP--approximately the same result arrived at by Krugman.
The direct cost of recent Mumbai attack has been estimated at somewhere Rs. 4000 crore with lots of property loss nd human loss of approx. 170 humans.So, although the numbers by themselves are substantial, to say the least, they could be absorbed by the American economy as a whole.
2. Economic Impact of Defense and Homeland Security Spending
Defense and security spending increased by a massive amount in the aftermath of the September 11 attacks. Glen Hodgson, the Deputy Chief Economist for the EDC (Export Development Candada) explained the costs in 2010:
The US alone now spends about US $500 billion annually--20 percent of the US federal budget--on departments directly engaged in combating or preventing terrorism, most notably Defense and Homeland Security. The Defense budget increased by one-third, or over $100 billion, from 2009 to 2010 in response to the heightened sense of the threat of terrorism – an increase equivalent to 0.7 per cent of US GDP. Expenditures on defense and security are essential for any nation, but of course they also come with an opportunity cost; those resources are not available for other purposes, from spending on health and education to reductions in taxes. A higher risk of terrorism, and the need to combat it, simply raises that opportunity cost.
Krugman asks, regarding this expenditure:
The obvious, but perhaps unanswerable, question is to what extent this additional security spending should be viewed as a response to terrorism, as opposed to a political program enabled by terrorism. Not to put too fine a point on it: the Iraq war, which seems likely to absorb about 0.6 percent of America’s GDP for the foreseeable future, clearly wouldn’t have happened without 9/11. But was it in any meaningful sense a response to 9/11?
3. Economic Impact on Supply Chains
Economists also assess terrorism's impact on global supply chains. (A supply chain is the sequence of steps that suppliers of goods take to get products from one area to another.) These steps can become extremely costly in terms of time and money when extra layers of security at ports and land borders are added to the process. According to the OECD, higher transportation costs could have an especially negative effect on emerging economies that have benefited from a decrease in costs in the last decade, and thus on countries' ability to combat poverty.
It does not seem entirely farfetched to imagine that in some instances, barriers meant to safeguard populations from terrorism would actually amplify the risk: poor countries that might have to slow exports because of the cost of security measures are at a greater risk, because of the effects of poverty, of political destabilization and radicalization among their populations.
4. Economic consequences of Terrorism.
Economic consequences due to terrorism include loss of money, loss of property and loss of human capital. The financial markets are also affected by it due rise or fall in prices. Terrorism in not only a threat to developing economies but can also be regarded as a threat to developed economies.
MUMBAI 2011 WHAT IS THE COST OF TERRORISM
India’s financial and commercial capital was once again a target .Three explosions killed almost 20 people and injured scores more. Once again, the attacks raise the question of whether an increased incidence of terrorism will be harmful to India’s economic trajectory.
Home Minister P. Chidambaram stated at a press conference that one of several major objectives of a terrorist attack is to try to damage India’s rising prosperity. While it’s evident that a terrorist attack has harmful short-term effects on economic activity, by causing death and destruction, what is much less clear is whether it has major long-term impacts as well.
After BOMBLASTS on Mumbai in 2011 by Pakistani TERRORIST — the stock market rebounded quickly and there’s no compelling evidence of a long-term effect on India’s rate of Gross Domestic Product growth. the stock market opened lower, but it’s obviously too early to predict any longer-term effect and as of mid-afternoon it was higher from Wednesday’s close.
However, this does not mean that an increased incidence of terrorist attacks won’t necessarily have detrimental effects in the future. For example, a study of the Israeli economy found that GDP was 10% to 15% lower than it would have been between 2008 and 2010 had there been no terror attacks there. The authors highlight both the direct costs of terrorism induced by the destruction of life and property as well as the indirect costs of diverting resources towards security away from civilian uses.
Arguably, Israel is a special case as a small state that has been highly vulnerable to a large number of terrorist attacks over many years. But using worldwide data spanning many developed and developing countries, researchers at the Milken Institute find statistical support for the proposition that an increased incidence of terror attacks is harmful to economic activity both in the short and long run.
In particular, they point to the detrimental effect on capital formation caused by the fear and uncertainty of a terrorist attack. Capital accumulation is a key driver of long-term economic growth.
While it’s early days, the experience of terrorist attacks in Mumbai suggests that people will board the local trains and come to work as usual. For many people, it’s not a matter of heroism but an existential struggle for survival.
In a poor country such as India, most people don’t have the luxury of grief but have to get back to work to feed themselves and their families. That is the economic core behind the resilience so often noted by commentators on the response of Mumbai’s residents to previous terrorist attacks.
This most recent attack will surely lead to even more stringent security, as 26/11 did before it. But as Mr. Chidambaram himself pointed out, you cannot lock down every inch of a publicly used commercial space in a democracy such as India.
Nor is it correct to say that the Indian security establishment hasn’t reacted to the threat of terrorism. Regardless, the tragic reality is that there are likely to be more incidents in the future and this is something that everyone, including investors at home and abroad, are going to factor in.
Israel, with perhaps the best domestic security and intelligence establishment in the world, has not been able to wipe out the threat of terrorism. And as the studies have shown, Israel has paid an economic price.
The threat of future terrorism, both in terms of quantity and intensity, more likely than not, is going to be a negative factor weighing on India’s long-term growth.
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.
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.
IMPACT ON ECONOMY AND BUSSINESS 1. POLITICAL FALLOUTS 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.
Political implications are also apparent at the international level. One of the terrorists' targets was Nariman House, a Jewish center, 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 labeled 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.) 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."
3. 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 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.
1. 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%.
2. 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.
3. 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.
Impact on business activities
I. IMPACT OF THE TERRORIST ATTACKS ON FINANCIAL
As noted above, financial markets have been directly and indirectly the victims of terroris attacks. Striking at the core of the world’s main financial center, the terrorist attacks of September 11 aimed at undermining the stability of the U.S. and international financial system. In the aftermath of the attacks, the financial markets were not only confronted with major activity disruptions caused by the massive damage to property and communication systems, but also with soaring levels of uncertainty and market volatility.Numerous key market players had substantial operations in or around the World Trade Center that were destroyed or damaged in the attacks, causing a widespread closure of the New York financial markets. Above all, the financial industry suffered a huge and tragic loss of life, accounting for over 74 percent of the total civilian casualties in the World Trade Center attacks.
Even though Mumbai suffers from a considerable poor population sectarianism, it has managed to transform itself from a city known for textiles and kitschy, to a powerful financial capital that serves as a gateway for India to the rest of the world. Mumbai’s economy, which contributes as much as 5% of India’s $1 trillion GDP and nearly a third of its direct taxes, stands as a beacon of India’s success in integrating itself in the global economy. In the recent past, this has made the city a more attractive target for terrorists that desire to shed India’s success. In 2003, 60 people were killed by car bombs, and in 1992 and 1993, Hindu-Muslim riots claimed another 1,000. In July 2006, 187 people were killed as coordinated bombs ripped through commuter trains in the crowded city.
As a result of the global financial meltdown, India’s economy had already started to contract prior to the November 29th attacks. GDP growth rates had already fallen from 7.9% in the first quarter of the current financial year to 7.6% in the second quarter. Moreover, the overall growth rate for the first half of the current year showed regressing figures (7.8%) when compared to the previous year (9.3%) . Fear had already spread in the city of Mumbai; fears of losing one’s job or home. Thus, the terrorists attacks of Mumbai arrived at a time when fear was already an epidemic in the city.
II. Terrorism and stock markets.
This year has been the worst time for India's financial hub. Analysts feel that the fear will continue to overshadow events for the long time. There would be incalculable impact on investors climates, tourism and hospitality industries. The stock markets bellwether Index, Sensex almost down after a day, a big terror incident in the country took place. Due to attack, financial capital of India has been hit by 4000 crores.
Market reopened for trading on Nov 27, and Sensex opened at 1.5% or 137 points down before regaining some of its customary defiance to terror and close 0.7%higher. Overseas investors have pulled out a record $13.5 Billions from Indian Stocks in 2008 as of November 25 causing Benchmark BSE sensitive Index, to slump 56%.Taj Mahal Hotel saw a sharp dip of nearly 17% in share price to Rs. 40.20 marking a new 52 week low. Decline was accompanied by an abnormal rise in volumes. East India Hotels, after opening weakly, share price dipped to a low of Rs.83 before recovery to close at Rs. 97.75. Volumes in share did not show any abnormal variation on BSE. Jet Airways was down as Rs. 129 against earlier closing of Rs. 138. Kingfisher airlines came down to Rs. 27.50.
Particularly 55% drop Indian equity Indexes, major mutual fund managers like Mark Mobius of Templeton Asset management and Devan Kaloo of Aberdeen Asset Managers have been insisting that India democratic traditions are strong enough to withstand terrorism. Periodic acts of terrorism will have a limited and temporary impact on Indian corporate spectrum. There is only temporary impact on Business confidence.
III. Investment risk/Fdi’s.
In the recent past, India has witnessed several terrorist attacks on its soil which could have a negative impact on investor confidence. Not only business environment and return on investment, but also the overall security conditions in a nation have an effect on FDI's. Though some of the financial experts think otherwise. They believe the negative impact of terrorist attacks would be a short term phenomenon. In the long run, it is the micro and macro economic conditions of the Indian economy that would decide the flow of Foreign investment and in this regard India would continue to be a favorable investment destination.
Investers hesitates in investing money in a country prone to terrorist activity because the rate of risk on return is more. The money they investing will give them how much return is not sure. So the risk on investment is high.
EFFECT OF TERRORISM ON DIFFERENT INDUSTRIES
1. TOURISM INDUSTRY
Tourism is one of the first areas to be hit, with hospitality and 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. 2. EXPORT INDUSTRY
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.
3. IT INDUSTRY
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." Beefing up security will add to their costs. But these are strategic industrial assets for the country. CONCLUSION
From the above research we can conclude that terrorism activity does not effect a country as a single entity. Through terrorism each and every section of a country is affected equally.
The need of an hour is to fight against terrorism. It cannot be wiped out by few hands or by force of arms. It has to be combated by combination of government governance, stringent laws, quick and firm system of justice that delivers harsh punishments to the victims. National strategy needs to spell out the threat and how It should be dealt at all levels.
The attacks also changed the way we think about terrorism and moved the topic to the front burner of academic and public attention. Various studies have been done to measure the magnitude of the effect of an unanticipated event Mumbai blasts.
To conclude with, lets 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. In any part of the world terrorism is unwanted as it not only kills the human life but also the infrastructure industry shaking its overall growth.
Economists and others have tried to calculate the economic impact of terrorism for years in areas beset by attacks, such as Spain's Basque region and Israel. In the last several years, most analyses of terrorism's economic costs begin with an interpretation of the costs of the September 11, 2001 attacks.The studies I examined are fairly consistent in concluding that the direct costs of the attack were less than feared. The size of the American economy, a speedy response by the Federal Reserve to domestic and global market needs, and Congressional allocations to the private sector helped cushion the blow.
The response to the attacks, however, has been costly indeed. Defense and homeland security spending are by far the largest cost of the attack. However, as economist Paul Krugman has asked, should the expenditure on ventures such as the Iraq war really be considered a response to terrorism, or a "political program enabled by terrorism."The human cost, of course, is incalculable.
Terrorism not only affects the particular sector of field, its affects the each and every sector of economy. Effect in the single economy can be seen in the other economies also i.e. effect in single countries economy can be seen as an effect on global level.
"India would have grown 7.5% this year -- a slowdown from 9% in 2007-08. "The crisis is likely to bring India's growth rate to below 6% in 2008-09. With the first-half GDP growth rate already known, this implies a sharp slowdown in the next two quarters. In the first half of next year, the economy would have grown below 7% in the absence of the external crisis. The global crisis may reduce the Indian growth rate to less than 4% in 2009-10." the terrorist attack is "one of the components of external shocks, in our assumptions we do not go into the details of the nature of the external shock itself."