Terrorism in Mumbai
Published by Current on 2008-11-14
It’s probably unwise, if not unseemly and unkind, to say it, but the terrorism that afflicted Mumbai these last few days is almost certain to have financial implications for India and the United Arab Emirates.
It isn’t untimely, however, to suggest that those implications could be negative and positive for both countries.
Let’s start with tourism, which accounts for nearly 6 percent of India’s trillion-dollar economy. In the short to medium run, tens of thousands of tourists who’d made plans to travel to the 61-year-old nation with a 5,000-year-old civilization are likely to change their itinerary. Already, travel agencies worldwide are reporting a cascade of cancelations. Depending on whose statistics you choose to believe, India gets about five million tourists annually; that figure almost surely includes non-resident Indians – the so-called NRIs, who constitute the global Indian Diaspora of nearly 20 million mostly affluent people.
Regardless of the ethnicity of that traffic, a formidable portion comes from the UAE, where there are an estimate 2.5 million people of Indian or Pakistani origin. The traffic from the UAE and the other five countries of the Gulf contributes mightily to India’s travel-and-tourism industry. But most Gulf-based Indians don’t stay in the 1,980 hotels that can cost upward of $300 a night; they either have their own homes, or they are put up by relatives peppered around the country’s 28 states and seven federal territories.
So the occupancy rate of 70 percent in the 109,000 rooms at Indian hotels – of which 27 percent are categorized internationally as five-star, 7.5 percent as four-star, and 22 percent as three-star – is going to be dramatically affected, at least in the immediate future. Contributing to the decline in tourist traffic will be a downswing in business traffic, as foreign dealmakers and entrepreneurs shy away – understandably so in light of last week’s events – from the possibility of suddenly finding themselves hostages.
Moreover, the Taj Hotel and the Oberoi Group’s Trident Hotel in Mumbai are likely to be shuttered for at least a year in order to repair the damage from the terrorist assaults. With a severe shortage of top-quality hotels in India’s commercial and entertainment capital, these closures mean that foreign businessmen will need to find alternative lodgings. But where?
The slippage in tourist and business traffic is certain to be reflected in shrinkage of foreign direct investment in India. Again, depending on whose statistics you believe, India received nearly $20 billion in FDI so far this year. (My own anecdotal calculus suggests about half that figure in FDI.) In addition, NRIs repatriated around $22 billion, about 50 percent of it coming from the UAE.
The latter sum may not shrivel. But a downward trend in FDI was already evident well before the terrorism of last week. This was on account of poor domestic infrastructure, corruption, mismanagement, and an inability of the Indian system to properly absorb foreign investment to grow the economy by creating much-needed jobs in manufacturing and in agro-businesses.
Coupled with a global recession – albeit one from which Indian officials puzzlingly claim immunity, for the most part – it is all but inevitable that India’s annual growth rate of around 9 percent will be adversely affected.
Here, then, is an entirely plausible scenario: India-bound tourist traffic from non-Gulf regions may well be detoured to the UAE. This isn’t to imply that the UAE is encouraging such diversion of tourist traffic from India, a country with whom the emirates have historically enjoyed strong trade and cultural ties. But UAE carriers such as Emirates Airline and Etihad Airways are in the unusual position of finding themselves with a strong natural constituency – Indians – whose visits to their homeland will not be cut back; and they may see an increase in tourist traffic from the United States and Europe, sources of lucrative supply of passengers.
At the same time, the UAE may well find itself receiving more FDI as foreign investors display some timidity toward India, at least in the short run. Investors are typically heartened by the modern infrastructure in the emirates, the relative ease with which new businesses can be established, and the enduring openness of Emiratis to trading with the outside world.
A report by Barclays Wealth, a part of the UK's Barclays Group, that was prepared before the current global financial crisis suggested that the UAE already seemed to be viewed with increasing favor by foreign investors. Total foreign direct investment inflow into the UAE is expected to nearly double from $59.2 billion in 2007 to $108 billion in 2011, the report said. The analysis was based on semi-official data, as the UAE does not ordinarily publish official FDI figures, according toAMEInfo, the much-trusted Dubai-based Web site. In contrast, the United Nations Conference on Trade and Development (Unctad) puts FDI inflows into the UAE at $12 billion in 2005 accounting for about 60 percent of total inflows into the Gulf that year.
It would be foolhardy to end this essay by leaving the impression that, however implicitly, the UAE might savor India’s anguish, both economic and societal, because it would somehow be salutary for the emirates. The UAE government, and, in particular, its vice president and prime minister, His Highness Sheikh Mohammed bin Rashid Al Maktoum – who is also ruler of Dubai – have offered outreach to Mumbai at this time of shock and grief.
It would be more appropriate to expect that the UAE’s rulers will want to expand trade and commercial relations with India, especially at such a traumatic time. UAE investors and transportation institutions might also want to look more closely at how to revive India’s tourism sectors. If there’s an UAE ethos that the world understands, it is that Emiratis have not only thick wallets, they have very large hearts.
This is a time to open those wallets; this is a time to feel India’s pain. And this is certainly the time to build on those relationships that have deeply enriched both cultures for hundreds of years.
Senior Writer and Global-Affairs Columnist