Expert view: India’s economy will rebound from this

As we try to come to terms with the vivid television images of the appalling terrorist attacks in Mumbai last week and the heartbreaking funerals of the victims held in India, Israel and elsewhere, it is difficult to visualise a time when India’s financial centre will return, once again, to something approaching normality.

Whilst our first thoughts must be with those who have been savagely murdered or injured, we cannot ignore the psychological impact these events will undoubtedly have on the wider Indian population, including those involved in business. The mixture of shock, anger and fear is palpable even from the relative security of London.

But Mumbai will recover. We only need to look at the recent experiences of cities like New York, London and Tel-Aviv to understand this. In some respects, it is quite unnerving how quickly people begin to put these kinds of events behind them, but that is a natural response as they try to get on with their lives.

In the short-term, there is no doubt that the Indian economy will be affected. According to the Investment Commission of India, travel and tourism accounted for US$41.8 billion of revenue in 2007, representing approximately 5.3 per cent of GDP. The latest reports suggest that 15 per cent of overseas visitors have already cancelled their trips to India. That number will grow. If people are reluctant to visit India, this is likely to affect investment decisions as well. Then, of course, there is the added impact of the global slowdown.

But we need to keep this in perspective. India remains one of the fastest growing economies in the world. In a client note issued this week, Kotak Institutional Equities, one of the leading institutional brokers in India, is still predicting that GDP will grow by 7 per cent in the 2008/9 financial year with the possibility of similar growth in the 2009/10 financial year.

There will be a new Indian Government following the general election, to be held in the first half of 2009. Despite the challenging economic times, the administration will, like its predecessor, face significant pressure to respond to the demands for improved housing and infrastructure from India’s growing middle class.

This will continue to stimulate the domestic economy. Abroad, Indian companies will still look for investment opportunities to the extent their banks are prepared to offer them finance. It would be very easy to write-off India and her business community. To do so would be a serious mistake.

Jonathan Morris is a partner at law firm Berwin Leighton Paisner LLP

    Last updated: 12:21pm, December 4 2008