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COVER STORY: ECONOMY
$30 Billion And Counting
That's an early estimate of
the loss to the US. The damage to India will be less, but could still
be crippling.
By Rohit Saran
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THE LOST
EMPIRE: Losses at the World Trade Centre could add up to $20
bn
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If there is something
that matched the suspense about the men and their motivation behind the
destruction of the twin symbols of American capitalism, it was the confusion
about the economic loss the devastation caused. Everybody from RBI Governor
Bimal Jalan to top global financial analysts had one refrain: "It's
too early to make a guess." Understandable, after all even the fires
at Manhattan and Washington were still burning 48 hours after the attack.
By the third day of America's biggest manmade
disaster, its economic fallout had begun to crystallise. The estimates
ranged between a direct loss to the US economy of $30 billion and a total
loss of $90 billion (Rs 1,42,500 crore and Rs 4,27,500 crore). Ajay Shah,
professor at Mumbai's Indira Gandhi Institute for Development Research,
calculates the total economic loss to the US to be 1 per cent of the country's
$9.1 trillion (Rs 4,32,25,000 crore) gross domestic product-about $90
billion.
At just 5 per cent the size of the US economy,
India's economy will not be so directly impacted. At least that's what
Finance Minister Yashwant Sinha meant when he said on Wednesday that he
does not expect an "adverse impact as Indian economy was of continental
size and developments in domestic front are far more important than in
international economy". But the US is disproportionately important
to India. It has more than one-fifths share in India's exports and is
the largest foreign investor in the country. If the US economy does slip
into a brief recession and pulls down the European and Japanese economies
with it, India's already tottering economic growth would be crippled even
more. Explains Shah: "The big question is what happens next? If there
is more violence and revenge to follow, economic consequences would be
much grimmer than they appear today." There are four major sectors
of the economy where the fallout will be most evident:
Stock markets & FIIs: On September 13, the
BSE Sensitive Index (Sensex) closed at its lowest level since December
1998. Losing 163 points in two days, it dipped to 2,987 on Thursday. That
itself may not be worrisome because stock markets have been falling intermittently
since March this year. What's ominous is that after pumping in dollars
since January, foreign institutional investors (FII) have started pulling
out of India. On September 12, FIIs sold securities worth $38 million
on stock markets. This sale was net of the purchases they made. Though
John Band, country head of the FII ASK Raymonds James, feels that India
will remain an attractive destination for foreign investors and the current
sale could be attributed to administrative reasons, most FIIs are not
sure of what the future holds. Says Shitin Desai, MD of DSP Merrill Lynch:
"It's too early to say anything. We will have to wait for the US
stock markets to resume trading."
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