Maximum Impact

India’s worst terror attack will have a catastrophic effect on our economy and the functioning of its financial capital, says SHANTANU GUHA RAY

Battered Life The Oberoi Hotels will resume business only after a year Photos: Shailendra Pandey

THE TIP of Nariman Point in Mumbai is one of the best places for filmmakers to shoot climax scenes and for lovers posing together for pictures. And the neighbourhood, approximately a kilometer in radius, is arguably India’s most expensive residential and office address.

Here, standing on boulders meant to stave off marauding waves — especially during Mumbai's notorious monsoon — actors often speak of life and what it means to be both rich and famous in Mumbai. Across the road, heads of conglomerates conduct billions worth of business deals from their plush offices overlooking the Arabian Sea; often detouring in the evening to the comforts of the twin Oberoi hotels.

Expectedly, many of those who come to the city of dreams visit Nariman Point. It’s a place from where they can see the imposing skyline of the country’s financial districts glittering in the night, like a million jewels.

No longer. An eerie silence haunts the Nariman Point today: soldiers from the Indian Army, dressed in jungle fatigues brush shoulders with their khaki-clad counterparts from the city police. Thick ropes and plastic, yellow-coloured police warning strips checkmate those heading for the point. “We will remove the barriers only after a week, perhaps a fortnight. We do not exactly know when the orders will come,” says Suryakant Mohile, an inspector of the Mumbai Police, while instructing his juniors to keep blearyeyed television reporters — tired after non-stop coverage — as well as curious onlookers at bay. Nearby, several riot soldiers from the Rapid Action Force play cards, obviously tired after the three-day long ordeal that shattered the peace in India’s financial haven.

In fact, moments after he saw his battered Trident Hotel, PRS Oberoi, owner of the eponymous hotel chain, asked a confidant: “Have the offices next door started operations? And when do we start ours? Almost a year, right?” The 81- year-old, considered India’s top hotelier, had earlier shut himself up with his top executives after a senior Ernst and Young executive had whispered the bad news to him as he attended the annual achievement awards night.

The savagery of the attack also troubled Ratan Tata, whose majestic Taj Mahal Hotel was ravaged in the shootout. In fact, the Tata Group Chairman lamented to his friends that it was high time India got a crisis infrastructure in place, a process that could snap to attention as soon as something like this happened. “If we are living in this kind of environment, we need it badly,” Tata told reporters at Bombay House, the group’s headquarters.

AMITABH BACHCHAN, who is happy that he has lost nothing but his sleep, admitted being nervous in his blog, saying: “I have a .32 revolver under my pillow. I am scared.”

The mindset of India’s two corporate icons and a top actor reflected the state of affairs in Mumbai, where armed terrorists in a 60-hour slaughter at five-star hotels, the city’s main railway station, a restaurant and a Jewish centre, killed at least 195 people and injured over 300.

Experts agree that India’s deadliest terrorist attack in 15 years had left the financial capital shaken and shocked. As it is, the economy has now been growing at its slowest pace — nine percent — in the last five years. Initial, rough-andready calculations estimate that the business loss in the first two days of violence is close to Rs 50,000 crore and the foreign exchange hit is approximately $20 billion.

Mumbai, a city in lockdown, is critical to the India story. It’s among the top 10 commercial centres in the world and contributes about five percent to India’s GDP. It accounts for 60 percent of customs duty collections, 20 percent of central excise tax collections, 40 percent of foreign trade and income tax collections, and $8 billion in corporate taxes.

Battered Biz Ratan Tata assesses the extent of damage

It also accounts for 25 percent of the industrial output, 40 percent of India’s maritime trade and 70 percent of capital transactions in the economy. Mumbai's per-capita income is Rs 48,954 ($990), almost three times the national average. South Mumbai, targeted by the terrorists, is home to important headquarters like the Bombay Stock Exchange (BSE), Reserve Bank of India, the Mukesh Ambani Group, the Tata Group and a host of global corporations. In short, the city is the nerve centre of the Indian economy. “Mumbai is the nation’s pride and it has been dented,” P Chidambaram told reporters in New Delhi.

CHIDAMBARAM, THE new Home Minister who had earlier handled the finance portfolio, said economic growth this year will slow to 7.5 percent. Worse, overseas investors have already pulled out a record $13.5 billion from Indian stocks in 2008 (as on November 25), the nation's market regulator has said. Foreign investors bought a record $17.2 billion of local equities in 2007. The Sensex has slumped 56 percent this year.

Many have already compared the violence to the attacks on the World Trade Center in 2001. Work has slowed down at Nariman Point, as both Indian and multinational corporations have temporarily moved their operations away from the zone that houses the battered Oberoi-Trident.

Half a mile away, it is a similar scenario at the Taj Mahal Hotel, that overlooks the Gateway of India and the Arabian Sea. At the BSE, Asia’s oldest bourse, an average check-in takes more than three minutes as compared to the previous 10-second process. “Business is happening under the barrel of a gun,” quipped India’s top broker, Rakesh Jhunjhunwala as he watched elite Z category commandos providing security cover to the exchange. “This fear psychosis needs to go.”

But that will take time. For decades, the Taj Mahal and Oberoi hotels have been considered ubiquitous symbols of wealth and business in India’s financial capital. But now, both are expected to lose crores of rupees in revenue as the fire-ravaged properties will need to be closed for renovation.

Worse, the attacks came just ahead of what experts say are peak occupancy months for India’s hotels — especially luxury ones, as both domestic and international travelers head to India in the holiday season centered around Christmas and running well into January-end.

The Taj Mahal is a 565-room, Rs 400- crore turnover property managed by the Indian Hotels Co Ltd, while the 575-room Trident is a part of the Oberoi Group with an annual turnover of Rs 350 crore. “An attack on Mumbai is like rattling the nation’s spinal chord. Both Mumbai and India will take a long time to recover from this one,” remarked Hafeez Contractor, the city’s well-known architect. Agrees Jaideep Ghosh, a senior director at audit and consultancy firm KMPG Advisory Services Pvt Ltd. “It is not a blow to Mumbai. It is a blow to India,” he said.

A top tour operator, Subhas Goyal, laments the attack, saying the Indian tourism industry — despite an economic slowdown — was growing at about 20 percent annually for the last five years and accounting for about 6.3 percent of the country’s annual national income. India received around five million tourists in 2007-08 through March and was expecting to double the figure in a year and half. “Who will come now?”

Mumbai received 10,37,157 foreign tourists in 2006, second only to Delhi. With terrorists specifically targeting US and British citizens, the city’s dual image as the ideal business and safe holiday destination has already taken a severe beating. Incidentally, the two countries together send the maximum number of tourists to India. In this particular case, Israeli tourists have also been targeted, a fact that was previously unheard of.

The impact is being felt already. The International Herald Tribune’s annual luxury conference, to be held in Delhi in the first week of December, has been cancelled. Cairn India, a subsidiary of the UK-based hydrocarbon company, has decided to cancel its global board meeting in India. A global consulting firm that had planned to fly its senior partners from across the globe for an event in India on December 2, cancelled its plans. Two other corporations, whose Indian subsidiaries are due to host global board meetings in India this month, are reconsidering their plans.

International Herald Tribune’s annual luxury conference, to be held in Delhi in the first week of December, has been cancelled. Cairn India, a subsidiary of the UK-based hydrocarbon company, has decided to cancel its global board meeting in India. A global consulting firm that had planned to fly its senior partners from across the globe for an event in India on December 2, cancelled its plans. Two other corporations, whose Indian subsidiaries are due to host global board meetings in India this month, are reconsidering their plans.

TERRORIST ATTACKS will be a concern, especially for those who are concerned about the safety of their executives,” said Jairaj Purandare, Pricewaterhouse

No work Exports of Indian goods have slowed down

Coopers. He finds instant support from Apurva Shah, head of research at Prabhudas Lilladher, a brokerage firm: “It will have an incalculable impact on the investment climate.” Hong Kong’s Political & Economic Risk Consultancy, has already assessed India the riskiest of the 14 Asian countries, not including Pakistan and Afghanistan, which it had analysed for 2009.

That means India’s growing clout as a business destination could actually be in danger because unlike earlier attacks, terrorists this time specifically targeted Israeli, US and British nationals and killed many. “Global firms will think four times before planning anything in India,” said Arun Maira, former chairman and now senior advisor to Boston Consulting Group, which once played host to over 400 global partners for a meet, a first in the firm’s history.

This, in short, is bad news for international airlines: their business out of India has grown 12 to 17 percent annually for nearly a decade. Since one in five passengers into India fly through or from Mumbai, their business will suffer considerably. International passenger traffic, expected to grow almost 11 percent through March next, may now be limited to single-digit growth.

There are other tensions as well. Global investors, who fuelled much of New Delhi’s blistering growth, are expected to be much more cautious about their India investments. “Setbacks will be there,” said Hitesh Kuvelkar, associate director at First Global, a financial research firm that —even before the attacks — had predicted a six percent growth in 2009 and less than four percent in 2010.

When Kuvelkar had announced these figures, Chidambaram had called him a pessimist. Today, the minister at the helm of the nodal ministry that must deal both with the fallout of this attack and the one responsible for seeing that no other attacks occur, might find it difficult to see that Indian growth figures achieve even these levels.