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Further Shocks Will Cripple Economy, Industry Warns

March 20, 1993

NEW DELHI, India (AP) _ Bombay, India’s financial hub, is humming again just a week after powerful explosions ripped through the city. But businessmen warn that more shocks in a city already churning with violence could cripple the country’s ambitious free-market reforms.

Forty percent of Indian exports are made in Bombay and one-fifth of the country’s bank deposits are in the city. The Bombay stock exchange handles three-fourths of the trade volume from India’s 19 stock exchanges - $30 million daily.

On March 12, 13 bombs blasted the 29-story Stock Exchange Building, three hotels, apartment buildings and some of the swankiest corporate offices in the country. More than 300 people were killed, and the city came to a halt.

The panic of the unprecedented terrorism in Bombay widened when a powerful explosion in the eastern metropolis of Calcutta killed 86 people on Wednesday. Friday, an explosion in Calcutta’s main railway station killed two people and injured 13.

Although this type of widescale terrorism was new to Bombay, the city is no stranger to violence, and that is where the danger lies, businessmen warn.

The blasts tore through the sprawling metropolis of 12 million people just as it was recovering from devastating Hindu-Muslim riots that had paralyzed the city for 10 days in January.

In December, an earlier round of communal violence, touched off by Hindu fanatics who destroyed a Muslim temple, brought commerce to a standstill. During both spates of rioting, offices, factories and the nation’s biggest ports were closed.

Narendra Jadhav, an economist of the Reserve Bank of India, the country’s central bank, said foreign investors will not be deterred by India’s recurring problems.

″Short-term aberrations do not impede foreign investment flows,″ he said.

But leaders of private industry are concerned about overseas confidence if India fails to curb the violence that seems to erupt monthly.

Jamshed Irani, president of the Confederation of Indian Industry, said the violence would slow investments, and therefore production.

″The coming year will be difficult for the country and the economy,″ he predicted.

Rahul Bajaj, chief of Bajaj Automobiles Co., said: ″Foreign direct investment may be delayed or diverted and India may lose about half a billion dollars annually.″

But Bajaj did not think the violence would affect growth figures for most companies.

Vital S. Palekar, managing director of the Indian branch of Johnson & Johnson, was more optimistic.

″We have been tracking our sales in Bombay and the violence hasn’t affected our business for the last 10 days,″ he said.

″India’s resilience must be very good or the country’s sales penetration must be so low that it went up no matter what happened politically or socially,″ Palekar explained.

India is in dire need of foreign investments to buoy its economy. The country is borrowing close to $3 billion annually from the World Bank and its affiliates, and it can only repay the loans if foreign currency begins to flow in from investments and export earnings.

In the past 20 months, Finance Minister Manmohan Singh has begun unshackling state controls to prod industry to grow annually by more than 4 percent after years of stagnation.

″The real task is to go sufficiently ahead with the reforms and if we do it in right earnest, the world will realize that India does have the capacity and the resilience to get over its problems,″ the finance minister told The Pioneer newspaper.

India’s plans to attract foreign money began to fall apart, however, after Hindu zealots destroyed a 16th-century mosque in the northern town of Ayodhya on Dec. 6. About 2,000 people have died in Hindu-Muslim violence since then.

Tourism has taken the worst battering since December’s nationwide riots. Thousands of people who planned to travel to India this winter canceled their airline and hotel reservations, cutting the number of tourists by 40 percent.

Tourism promoters from the Asia-Pacific region also canceled a meeting they had planned in New Delhi in April.

The direct financial costs of the violence are staggering.

Bombay will need billions of dollars to fix more than a dozen office buildings, said Prafulla Mogre, secretary-general of the Indian Merchants Chamber.

Losses to the economy since December are around $5 billion, Mogre said.

However, large companies with big stakes in India are likely to ride through the storm.

John Hamilton, chief of the Indian branch of the U.S.-based agricultural seed company Cargill Ltd., says his expansion plans won’t be affected. ″We are a very resilient lot and I am not willing to change any plans.″

Resilience was also the operative word at the Bombay stock exchange. The blast there first looked like a death blow. Three floors of the building were destroyed and telephone lines were torn up.

But the newly computerized exchange moved back to its old annex and was operating late Monday, having missed just half a day of business.

Still, Mogre said that although the exchange bounced back, trading is low. More than 30 companies that had scheduled new issues to raise about $43 million have delayed going public.

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