No major immediate impact on economy - Sinha

By Alok Mukherjee

NEW DELHI, SEPT. 12. After an initial panic in the Indian stock markets following the terrorists attack in the U.S. on Tuesday, there was some recovery in the indices as a more calm analysis of the impact was made by investors. The Union Finance Minister, Mr. Yashwant Sinha, who is on tour to Mumbai, also cautioned against any panic as the immediate impact on the Indian economy was not expected to be substantial. This premise is based mostly on the fact that India has a little share in the global economy and, consequently, its share of distress could be proportionally low.

Economists analysing the aftermath of the New York and Washington attack feel that the immediate impact on the Indian economy could be restricted to the capital and stock markets and possibly exports. The capital and stock markets are likely to be affected because reports have come in that many of the top international financial organisations have lost their offices in the attack at the twin-tower World Trade Center and the nearby areas. One report indicated that Morgan Stanley had its offices in some 50 floors of the 110-floor towers which have now been reduced to a rubble. Other major foreign institutional investors such as Lehman Brothers and Merrill Lynch and some other organisations also had their offices in the World Trade Center. Similarly, the adjoining tower of the Solomon Brothers has also collapsed but detailed reports are awaited as to which organisations were housed there.

Now that most of these offices are destroyed, so have most of their records and other important data. These organisations are now likely to be pre-occupied in assessing the damage and salvaging their investments worldwide and hence many not make fresh commitments immediately.

About the medium-term impact, there are two aspects that are being considered. One is the retaliatory action that the U.S. is widely expected to take. Much would depend on the scale and duration of that action and the areas where it would take place to assess its impact on the world economy and the consequent effects on India and other economies.

The second aspect is somewhat incongruous during the current human tragedy that has taken place in the U.S. But, some economists feel that when the likely reconstruction and rehabilitation efforts start, there could be some pep up in the U.S. economy, apart from the fact that higher spending on security-related arrangements almost all over the world would lead to greater official spending. All this together could have some positive spin-off for the global economy.

In the final analysis, much would depend on how long the latest crisis continues and what shape global politics assume once the U.S. has identified the ``evil'' which caused it harm and what retaliatory action it takes.

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