By IPS Correspondents
NEW DELHI, Jul 17 2006 (IPS)

If the perpetrators of Tuesday’s serial bombings in the financial hub and main port of Mumbai had hoped to apply the brakes on India’s fast-growing economy, they are bound to be disappointed. A day after the blasts, in packed suburban trains, the stock indices went up by three percent.

But, analysts said the spurt in militant activity in India may yet have a medium or even long-term impact on the economy by creating an environment of uncertainty and diminishing investor confidence – especially if the bombings continue.

Mumbai-based investment analyst Jawahir Mulraj told IPS that while the blasts may have no immediate impact on the markets or the economy, “I think many share my fear that tomorrow something much worse could happen.”

Some noted that the rise in stock indices was on account of the country’s software major Infosys announcing that its first-quarter earnings had gone up by 50 percent and the government reporting a ten percent rise in manufacturing.

That the series of eight blasts, which killed 200 people and injured more than thrice the number, was aimed at hurting the economy was clear from the fact that they were planted in the first class compartments, patronised by wealthier commuters.

”Markets seem to be reacting cold-bloodedly and are signalling they aren’t ruled by headlines but by bottomlines,” wrote Gautam Chikarmane in the “Indian Express” newspaper.

In an interview with IPS, Chikarmane said he perceived no pattern emerging from the way in which the stock markets reacted in the immediate aftermath of other terrorist attacks in India starting with the March 1993 serial bomb blasts in Mumbai right up to the attacks on the cities of Varanasi, Bangalore and New Delhi over the last twelve months”.

The 1993 bombings directly targeted the stock exchange building and the headquarters of flag carrier Air India but produced no discernible economic fallout. The markets fell marginally the day after the December 2001 attack on India’s Parliament. Late December, a terrorist attack on the Indian Institute of Science located in Bangalore, a global information technology hub and symbol of the country’s economic resurgence, also produced indifferent results.

“On some occasions the markets crashed while on other occasions, share values jumped,” Chikarmane pointed out, adding that the impact of the 9/11 attack on the World Trade Centre in New York “was different because it was not just spectacular but also a symbolic attack on American capitalism and hence, its impact was felt the world over and also in India.”

Market reactions to terrorist attacks show no definable trend. Although the reaction of the international economy to 9/11 was sharply negative, a similar reaction was not seen after the bombings in the London underground railway in July 2005.

“The aim of the terrorist attacks is to retard India’s economic progress by attacking the country’s financial hub, even if all that was achieved was disruption of normal life,” Afsir Karim, a retired major general in the Indian army and an expert on terrorism, told IPS. ”This could possibly explain why there have been a number of terrorist attacks in Mumbai, capital of the India’s prosperous western Maharashtra state”.

Not everyone agrees with this point of view. “It would be a reasonable conjecture on my part to say the blasts in Mumbai were not a symbolic attack on India’s economy but were instead motivated by other reasons, including the communal violence (against Muslims by the majority Hindu community) in (the neighbouring state of) Gujarat with the tacit support of the local government there,” said Shankar Raghuraman, senior editor, ‘ The Times of India’, the largest circulated English daily, to IPS.

India’s Finance Minister Palaniappan Chidambaram said investor sentiment should not be affected by the blasts. He told the media on Wednesday morning: “These cowardly and dastardly attacks cannot break our will and resolve or (that) of the citizens of Mumbai. Any attack in a city does give rise to grief and some concern…..(but) a solitary attack can’t set back economic activity in all of India or even in Mumbai. The India growth story is still intact”.

Chidambaram also said that the attacks would not affect the Indian rupee. “There could be an act of violence here and there but such acts of violence take place in other cities as well such as New York and London. Terrorism should not deter them (foreigners) from investing in India,” he said.

The Confederation of Indian Industry (CII) has called on investors to keep firm their faith in India. CII president R. Seshasayee said in a statement: “We are confident that the indefatigable spirit of India will win”.

“This kind of event is the cost of doing business in today’s international business climate,” Fred Burton, vice president at Stratford, a U.S. firm that offers private intelligence to companies with overseas operations, was quoted as saying by the Scripps Howard News Service.

Despite the fact that business activities in Mumbai have quickly returned to normal, Mulraj and Chikarmane both agree that an atmosphere of uncertainty would continue. “Markets don’t like uncertainty though there always a few people who gain a lot from an uncertain situation,” said Chikarmane.

More than the bomb blasts, Raghuraman felt the fact that the heavy monsoon rains that paralysed life in Mumbai earlier this month, for the second year in succession, had done more damage to the city’s reputation as India’s commercial centre. “If I were an investor, I would certainly think twice about setting up an office in Mumbai, if I had a choice of going elsewhere,” he said.

Apparently, few have lost confidence in the Indian economy that grew at an impressive clip of 8.4 percent last financial year (that ended in March). For investors, India’s democratic foundations, political stability and commitment to economic growth seem more important than terrorist attacks.

Said U. R. Bhat, managing director, Dalton Capital Advisers, an investment advisory firm: “Markets do not lose confidence as terrorism has become part of life across the globe. Such acts do not incapacitate the corporate world; they do not attack the roots of corporate profitability. To that extent, the markets are insulated from terrorist activities.”

Excerpt: