Will terror attacks in Mumbai push up India's geopolitical risk perception and drive away foreign investors and business travellers? Will India be clubbed with the likes of Afghanistan or Pakistan in the minds of overseas investors?
While the massacre, which killed around 200 people, has understandably led to such fears being expressed in some quarters, the view among international risk assessment companies, security experts and overseas businesses of such things happening is a resounding no.
“We don't agree with that view,” says Jake Stratton of Brussels-based Control Risks Group. The group advises companies on political and security risks of doing business in various markets.
Some short-term flows into the country's stockmarkets, already under stress because of the global credit crunch, may dwindle further, but last week's attacks are unlikely to hit India's long-term risk perception or foreign investment flows - unless such attacks happen on a regular basis.
The rationale behind this thinking is clear - first, terrorism and security risks are a given across the world today. Next, given the recession in most western markets, foreign investment will still seek out India. Despite facing an economic slowdown, India remains an attractive emerging market with an economy forecast to grow nearly 7% this year, making it hard for investors to ignore.
The view among experts is that India is a large country, and given its history, there exists confidence globally in its resilience and ability to overcome such setbacks. “We assess this (Mumbai attacks) as a fairly short-term shock. It will not actually deter business travel or strategic business intent. We have seen that as long as there is a strong business case, large MNCs don’t change their investment plans. Businesses don’t have knee jerk reactions to situations like this,” said Mr Stratton.
But India does not have a blank cheque. “If we see it as a recurring pattern of continuous targeting of western companies, like we have seen in Pakistan or Saudi Arabia, then companies rethink their strategic plans,” he added.
Rahul Roy-Chaudhury, a senior fellow at the London-based International Institute of Strategic Studies, said the government needed to “clearly demonstrate that it is taking steps to try and minimise this happening again”. “This was a catastrophic event, like 9/11. Naturally it will take time for scars to heal. I don't think foreign confidence in India as a destination will be damaged in the long run. The sense I'm getting is that people will go back, even to Mumbai,” Mr Roy-Chaudhury said. Across the board, the feeling is that the global financial crisis will continue to be the main determinant affecting investment flows to India, and not any fallout of a higher perceived security risk.
Gareth Price, head of Chatham House's Asia programme, has been tracking India and Pakistan for years. “The bigger issue is how much investment flows into India might have been affected anyway, given that there is a liquidity crisis around the world. In Pakistan, for instance, which has seen a massive deterioration in law and order in the recent past, we have seen a clear drop in business confidence and a reluctance to travel. India is nowhere near there,” said Mr Price.
Countries like Turkey and Indonesia, for instance, have also had a series of attacks on hotels and against western targets. However, global business confidence in these countries has not suffered, says Mr Stratton.
“The India story is still very attractive at the moment. Again, tension between India and Pakistan is a given that we write in to our assessment. Our stress is that India-Pakistan tensions are nothing new, it has happened before. Even if the rhetoric level rises, there is an elasticity in that relationship,” he says.
Businesses, at least in the UK, believe that global confidence in India’s resilience and its ability to continue with its growth story is still high. After a high-level meeting in Downing Street on ,the overwhelming view among top executives of British firms was that it continued to be business as usual with India. “No one is backing off from India because of this,” said a person who attended the meeting. Sharon Bamford, chief executive of the UK India Business Council, UK's apex trade body for India, said if anything there is a sense of outrage at the deliberate attempt to destabilise India. “The overwhelming reaction is that we're not going to be deterred by this... There's a feeling of friendship. But it's also backed up by a strong economic rationale and business case. India is still a great destination for business, the growth story is still there.”
Others say deepening strategic and economic ties between India and the US was also a factor for comfort for many in the West. “India and Pakistan were on the brink after the attacks on Parliament, but India's growth story took off after that. In India, you always have to take the long view,” said Karan Billimoria, chairman of UKIBC and the founder of the Cobra Beer brand in the UK. As of now, it seems that the rest of the world isn't unduly perturbed. Until the next time, perhaps.
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