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Business News/ Opinion / The 26/11 reminder about cost of doing business
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The 26/11 reminder about cost of doing business

Large-scale terror attacks shake overall business confidence

Shyamal Banerjee/MintPremium
Shyamal Banerjee/Mint

It is human tendency to muffle times of distress in insulated sheaths so that the heat of such episodes does not cause further burns. But it is also human strength to emerge stronger and wiser armed with lessons and renewed zeal for the future scenarios. My personal recollection of operating during 26/11 attacks in Mumbai always reminds me that our focus should be on our vulnerabilities while our attitude remains positive. The Mumbai attack of 2008 serves the purpose of awakening us to the link between security and prosperity. While the typical, and more evident, fault lines impacting the Indian economy are de-acceleration of the growth numbers, large-scale terror attacks shake overall business confidence and it is important to note that their impact is not so apparent.

The direct impact not only makes ongoing business suffer but also hints at the lower probability of new businesses being initiated in the future. 26/11 stands as an example of not only how the best of the business centres are affected, but also the aftermath across all domains. Worldwide, top corporate houses consider three basic factors while considering a country for new investment—applicability of laws, its financial structure, and internal security-risk framework. An attack like 26/11 stands to influence all these three factors for an affected country from a short- to mid-term future evaluation.

In response to such attacks, legislators struggle to implement newer and more stringent laws that would deter such acts in the future. But a result of such steps is often that the rules laid down for investments and foreign capital inflow are made more stringent, which deters entry of foreign businesses.

High security risks have not only an adverse impact on return on investment but also have implications of loss of capital. The Mumbai attacks took place at a time when the global economy was under stress and India could have stepped up its position to enhance capital inflows. Reality was, however, different with India’s absolute percentage of growth dropping by almost two scores after that day. The share market, too, displayed a downward trend after 26/11, indicating a shaken investor confidence. The attacks caused the S&P BSE Sensex to re-open the next day 1.5% or 137 points down. While the share market dropped, India witnessed foreign institutional investment worth $159 million come in through stocks and bonds in an attempt to capitalize on the market’s bearish trend. The succeeding month of December also witnessed a higher inflow of $589 million into investments, all purposefully designed for short-term gains rather than to establish long-term business units.

While studies in Israel have helped compute how the country lost approximately 15% of potential gross domestic product (GDP) in 2004 due to terrorism, in India, even though the numbers are considerable, sadly no formal studies exist.

This lack of confidence was also reflected in the dipping numbers of foreign footfall in the country, with both tourism and business visits showing a considerable fall in numbers post the attack.

An attack like 26/11 bears down heavily on the cost of doing business in the home country and, in fact, gives rise to a ‘snowball effect’ scenario that often takes a long time to control. From an enhanced security perspective, the cost to secure vital installations, spending on security of business, cost to create new infrastructure, buying insurance, and other aspects, show a steady and ever increasing upward trend.

For example, the rise in insurance cost of airlines, courier services, logistics companies and others end up making all related activities such as travel, imports and exports costlier. Research indicates that post the attacks, insurance companies had to disburse approximately 500 crore in claims and this, in turn, led to a 25% increase in premiums for all future and existing customers.

We have indeed walked quite a few miles in the past six years and the prevailing business environment in India is positive with possible political support from many developed countries. While there have been stand-offs with neighbouring countries in the recent past, large-scale terrorist attacks have not taken place. This has definitely abetted reposing of confidence, but the bigger concern now is to focus on new risks that are burgeoning rather than being ‘too happy too soon’.

The world still stands to view us as a country that is unable to protect information and is affected by business espionage—a clear message on the stimulus, encouragement and support required to catapult India into a new age.

Half a decade later, we might have doused the fire, but the chars remain to be picked up. Those couple of days taught us how a terror attack can impact the economy as a whole and set back a progressive model of growth. However, most importantly, it taught us how the government needs to shake hands with companies and together provide the world the confidence of 26/11—never again.

Garry Singh, vice president, Pinkerton.

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Published: 25 Nov 2014, 07:06 PM IST
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