Very often security crises appear to be distant events. A hijacked ship off the Somali coast, or policemen killed in some remote hamlet in a faraway forest. Their costs are hard to estimate, if they are appreciated in the first place.
That is changing fast. Security failures are leading to escalating costs of doing business. While good estimates of business lost are hard to come by, insurance and reinsurance costs serve as a good proxy.
As reported in Mint on Monday, a ship venturing in the Indian Ocean or the Persian Gulf has to pay as much as $50,000-60,000 per trip for insurance, double of what it was last year.
The problem is not restricted to the high seas, but can be found on land, in India, too. As reported last month (“Essar may have to pay penalty for terror cover”, Mint, 25 May), steel manufacturer Essar Steel Ltd is in trouble over insurance costs for its iron ore slurry pipeline that runs from Balaidila in Chhattisgarh to Vizag in Andhra Pradesh where the firm has a manufacturing facility. The firm’s overseas reinsurer refused to renew its terror cover after a Maoist attack last year and a huge claim that resulted.
These are only stray instances of what is certainly a clear and visible trend. Any insurance is based on estimating the probabilities of losses/danger of loss. These are on the rise even if the number of actual attacks on installations, hijacking of ships may not be alarming. So even in the absence of physical damage to plant and equipment, higher costs become unavoidable.
This is the real cost of terrorism. What it does is to make entire swathes of territory in the country or oceans “out of bounds” for small- and medium-sized firms. Only very large firms can take the risks of doing business in the affected places and afford the high costs associated. This badly dents the economic possibilities of relatively underdeveloped states (Chhattisgarh and Jharkhand are two good examples) that badly need firms that can generate employment. It is such firms that are scared away first.
Unless a clear and coherent security strategy is put in place to arrest this situation, these costs will continue to escalate and dent the Indian economy in unforeseen ways.
Is the absence of security making business impossible in “difficult” parts of the country?
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