India has to show it is safe for business

India has to show it is safe for business
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First Published: Fri, Nov 28 2008. 11 03 PM IST

Updated: Fri, Nov 28 2008. 11 03 PM IST
India’s terrorist attacks are a watershed moment in the subcontinent’s fragile history—and perhaps for global markets. It doesn’t look like the Mumbai massacre—which has killed more than 100 people and injured nearly 300—will cause the Indian stock market to collapse, but the extremists have targeted tourists and the financial district critical to India’s growth and international standing.
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Investors have long downplayed geopolitical risk. Stocks plummeted after the 2001 World Trade Centre attacks in New York. But since then politics have hardly shaken the market march to global prosperity. Even the assassination of Pakistan’s opposition leader Benazir Bhutto in December 2007 barely moved stocks in a traditionally volatile market.
But security is often a weak point in developing countries—and the fear of violence can derail otherwise sound economies. The Mumbai attacks add more than political instability to the investment equation. They will make foreigners think four or five times before visiting India. Traders can work from anywhere, but international banks and businesses need people on the ground. Visiting bigwigs will now be less willing to stay at high-end business hotels like the Oberoi and Taj Mahal, which were at the heart of the attacks.
Investment equation: Firefighters battle a blaze at the historic Taj Mahal Palace and Tower hotel in Mumbai on Thursday. Ruth Fremson / NYT
Worse, the turmoil comes just as friendly overtures from Pakistan had raised hopes that one of the subcontinent’s main fault lines might be healing. The Indian government is being careful not to blame its Muslim neighbour for the latest atrocity, but relations are still at the mercy of a potential flaring in Hindu-Muslim communal tensions.
International investors and businessmen can’t expect the Indian government to create perfect religious harmony, but they will want to see that the authorities are fighting back with some success. India has its work cut out to demonstrate that it’s still an attractive place to do business.
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First Published: Fri, Nov 28 2008. 11 03 PM IST