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TERRORISM IS HOLDING BACK INDIAN ECONOMY
 

TERRORISM IS HOLDING BACK INDIAN ECONOMY

anoopbopte ,  17-Apr-09
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.

Many believe that terrorism can't hamper ones economic activity as it only destroy a small fraction of the stock of capital of a country. However, a broader look at the geo-political & economical scenario can easily erode this misconception. 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 economic 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 Kapur, chairman of Yes Bank who was killed in attack.

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.

3) Short Term Financial Loss
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 Specific 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.

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.

3) 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 shoring up security and diverted away from more productive private sector activity.

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 ultimately shackling its overall growth.
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