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The demise of expectations

The tragic episode in Bombay was profoundly shocking both in terms of its unexpectedness and intensity. On the evening of the 27th November 2008 a group of terrorists randomly fired at 13 locations including the main railway station, a cafĂ© frequented by foreign tourists and at two of the city’s leading hotel properties – The Oberoi and Taj Mahal. Dozens of people died and many more were severely wounded. The course of events subsequently evolved into a hostage situation at the two luxury hotels and a smaller guest house – the Nariman – frequented by low budget Israeli tourists. At the time of writing this piece, commando units from India’s elite National Security Guard were in the process of flushing them out.

Whilst details remain sketchy, the terrorists allegedly arrived in a boat, disembarking at two points on Bombay’s waterfront. The Indian Coast Guard has since apprehended the craft and discovered sophisticated equipment, most unusual in a boat of that type. An unknown organisation calling itself the Deccan Mujahadeen claimed responsibility for the events. Oddly, however, a few of those apprehended spoke with distinct Afghani and Northwest Frontier accents, and could therefore not legitimately be from Hyderabad as they claimed. The speculation in India suggests they would most likely have come from Pakistan and were a part of the Lashkar-e-Taiba, an affiliate organisation of the Al Qaeda. The sophistication, with which the entire operation was carried out, makes obvious the fact that it required months of planning and advanced paramilitary training.

The senseless killing of so many people will be recorded in history as one of Bombay’s worst nightmares. But the city, India’s leading commercial hub, will bounce back as it has done before and eventually it will be business as usual. But for those in India’s government, the events of the past few days will provide crucial lessons. The UPA administration has consistently been accused of being soft of terrorism with political compulsions undermining national interest. Over the past four years, over 12 serious terrorist strikes have occurred in different parts of the country. The Congress party will this time, in all likelihood, have to suffer electoral consequences.

Repercussions to follow

In the near term however, business will be impacted. A number of multinational companies have started evacuating expatriate employees and travel advisory warnings were issued by a few western governments. Reactions to incidents, that undermine human safety, are a lot tougher by foreign countries, than locals would suspect. The hotel and travel industry will take a blow resulting in a near collapse of occupancies especially in the luxury segments. Hotels have had the going great for several years with ludicrous room tariffs supported by high occupancies. A business cycle correction was due anyway, but the recent events bring with them a stern double whammy which will require many years to correct. In other areas too, the news is not good. Anecdotal evidence from discussion with our clients based at regional Asia headquarters, points to the fact that new investments, through potential production shifts from a high cost China to a more amenable India, will now be pushed back. Multinational companies believe that India is going to become a much harder sell at group headquarters. The India-Pakistan peace process will endure a setback and judging by the Prime Minister’s recent speech, New Delhi is expected to take a hard line against Islamabad.

The fact remains that the Manmohan Singh administration will now have a tough time explaining its dismal handling of internal security issues. Nudged along by human-rights groups, the Congress party constantly opposed the need for a new tougher anti-terror law. Actions by security and investigating agencies, needed to withstand the scrutiny of political correctness. Now the challenge for these agencies will be in restoring the faith of the Indian people in their ability to combat further terror. Possibly in the course of the next few months, the Congress may succumb to the pressures of wider public sentiment and begin the process of amending legislation.

In the final count, these developments could not have come at a worse time for the UPA government. At a forum of finance heads hosted recently in Bangalore a participant directed a pertinent question towards a policy adviser to the Government of India. “What expectations should we have of the Prime Minister in the event he is re-elected to office in May 2009. The question now seems irrelevant as the Congress party’s re-election to office appears most doubtful. Within large segments of Indian society there is a demise of expectations.

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