People have been debating about impact of last week's Mumbai attacks on the Indian economy. In the short run mostly the cinema and restaurant businesses will be impacted. However, in my view there will be no direct and immediate impact on the equity markets as there is no money left for the FIIs to pull out. In fact global investors such as Mark Mobius of Tempelton have reiterated in the last few days that India remains an investment destination despite the current turmoil.
The more major and indirect consequences are linked to the budget of 2009 in my view and here are my first thoughts:
1. If the defence budget was to increase to the detriment of infrastructure and education spend, then there will be a serious impact. These are the two most important sectors for economic growth and are screaming for cash. Not related to budget, the country needs to focus on investing in renewable energy from a long term and acquiring overseas carbon fuel sources for the short term, if we are to become an energy sufficient nation.
2. Any increase in taxes in the name of domestic security, will further reduce spending and hence cause a drain on the economy.
3. The biggest danger, however, would be an increase in the country's deficit due to increased or imbalanced defense budget. Then not only would the economy suffer directly but the sovereign credit rating would also be in jeopardy and that will cost India Inc as well.
1. If the defence budget was to increase to the detriment of infrastructure and education spend, then there will be a serious impact. These are the two most important sectors for economic growth and are screaming for cash. Not related to budget, the country needs to focus on investing in renewable energy from a long term and acquiring overseas carbon fuel sources for the short term, if we are to become an energy sufficient nation.
2. Any increase in taxes in the name of domestic security, will further reduce spending and hence cause a drain on the economy.
3. The biggest danger, however, would be an increase in the country's deficit due to increased or imbalanced defense budget. Then not only would the economy suffer directly but the sovereign credit rating would also be in jeopardy and that will cost India Inc as well.
