Effect of Terrorism on

Different Sectors of Economy

Presented By – Ishan Goel

18421058
Seminar Group
II
 What is Terrorism ?
 Terrorism is not new and even though it has been used since the early times of
recorded history, it can be relatively hard to define terrorism.

 Terrorism is not an ideology like communism or capitalism. Rather, terrorism is

a tactic – a strategy used to achieve a specific end.

 Terrorism is often used in when a weaker person, or group, is fighting against a

powerful nation-state. The violence is aimed at creating fear in the targeted
population and often provokes prompt and violent response from the state.

 Terrorism is, in its broadest sense, the use of intentionally indiscriminate

violence (terror) in order to achieve a political, religious, or ideological aim.
 Terrorism in India
• A terror attack on India is not a new story. India has been continuously attacked in
last year(2008).To count a few –Cannaught Place(Delhi), Mehrauli(Gurgaon) , Gaffar
market(Karol Bagh, Delhi), Varanasi (Uttar Pradesh). The places chosen by the
attackers were the most crowded places so as to kill the maximum people and
create panic in the society.
• But Mumbai attack on November 26,2008 has shocked the Indian economy. Attack
on five star hotels-Taj, Oberoi and Nariman House has raised a Question of security
for the elite visitors. The impact of Mumbai attack although will not only a long
term but definitely affected short term business of the country.
• These attacks has left its footprints especially on three industries-Tourism,
Hospitality and Medical. Tourism sector has come to stake- be it International or
domestic. Clients cancelled their tours by 25-35% because of security reasons
which has directly hit the Aviation and Hotel industry.
 Terrorism and Stock Market
 It has been found that attacks in countries which are wealthier and more
democratic are associated with larger negative share price reactions.
 Also, human capital loss such as kidnappings of company executives are
associated with larger negative stock reactions than physical loss such as
bombings on buildings.
 One reason could be investors considers tangible and intangible losses as
well as increased cost of doing business in new terrorism aware
environment.
 If we take the example of terror attacks of 9/11, it undermined the stability
of the US and international financial system.
 Terror Attack in Mumbai and
Stock Price
• Sensex almost down after a day, a big terror incident in the country took place. Due
to attack, financial capital of India has been hit by 4000 crores.

• Market reopened for trading on Nov 27, and Sensex opened at 1.5% or 137 points
down before regaining some of its customary defiance to terror and close
0.7%higher. Overseas investors have pulled out a record $13.5 Billions from Indian
Stocks in 2008 as of November 25 causing Benchmark BSE sensitive Index, to slump
56%.Taj Hotel saw a sharp dip of nearly 17% in share price to Rs. 40.20 marking a
new 52 week low. Jet Airways was down as Rs. 129 against earlier closing of Rs.
138. Kingfisher airlines came down to Rs. 27.50.
 Impact of Terrorism on Indian Economy
• Short-Term Impacts
1. Loss of Human Capital : The human costs have been horrendous. Estimates are in past 5 years 4000+
were killed in terrorist attacks. This puts India next to Iraq both in terror deaths and terror incidents. The
recent 26/11 Mumbai attacks itself left 250-300 dead and 700 injured.

2. Investor Behaviour : Frequent attacks on commercial & government institutions shatter the confidence
of the investors causing heavy investment drainage. A heavy impact of this can be observed at the stock
market that keep diving down post any major terrorist event.

3. Short Term Financial Loss : In short term the obstacles like - loss suffered due to the diversion of
business away from the city to other locations, lost earnings of public due to disability and trauma
among survivors etc. drains out the productivity levels & impact the respective economy adversely. Post
26/11 the Taj & Trident Hotels incurred heavy loss as operations were halted for 3-4 months. After 26/11
Mumbai attack Pak cricket team had to cancel its Mumbai tour due to which BCCI has incurred a loss to
the tune of INR 120 crore.
4. Retrenchment effect on Specific Industries :The Jaipur serial blasts, J&K Terrorism & Mumbai 26/11 attacks did
have immediate and concentrated impacts on a number of industries: most notably, airlines, aerospace, travel,
tourism, insurance, restaurants. For example, hotel occupancy in western India suffered by a drop of 25% and
rates plunged. These industries suffered concentrated economic and job losses.

• Long – Term Impacts

1) Political Instability : The assassinations of 2 Ex-PM of India, Mrs. Indira Gandhi, Mr. Rajeev Gandhi already
had jolted Indian politics & economy at large. India had lost 2 of its strongest pillars which otherwise would
have taken Indian politics, Business & industry at unimaginable heights. The Political instability at times have
also let to erosion of FII's & FDI's.
2) Global Implications : India post Kargil war, then Attack on Parliament, now 26/11 has lost millions of business
as the trade link between the two countries are frozen during such period. Terrorist attacks has resulted in
unemployment in these regions, which in turn again triggers riots. 26/11 Attack involved foreign
hostages and places where business leaders, executives and foreigners frequented. This led to a drop in
investments.
3) Long Term Financial Loss : The direct economic damage done by terrorist attacks: buildings and infrastructure
destroyed, productive lives ended. The structural damages post 26/11 attacks was amounting to total of INR
500 crores, which subsequently took its toll on the insurance industry. As all this happens, economic resources
will be directed to shoring up security and diverted away from more productive private sector activity.
 Categories of Business Targeted by
Terrorism
• Transportation Sector
Throughout the history of terrorism, the transportation sector has been among the most
frequent targets of terrorist attacks, as reinforced by recent terrorist incidents, such as the
bombing on November 24, 2015 by an ISIS affiliate in the Sinai Peninsula of the Russia –
bound Russian airliner in the mid-flight, killing all 224
people on board and the March 2016 attacks against
the metro station and airport in Brussels, Belgium .
Aviation transportation (airports and aircraft),
ground transportation (trains, subways and buses),
and maritime transportation (cruise ships and oil
tankers) are iconic targets for terrorists to cause
economic and psychological disruption because of
the potentially high kill rate.
• Aviation
The aviation sector has long been targeted by terrorist groups. In the 1970s and 1980s,
hijacking was a pervasive terrorist tactic. This tactic was transformed in 9/11 when the
terrorist goal was not to hijack and then land the aircraft but to use planes as bombs to
cause mass destruction. In response, as security has been hardened at airport terminals and
aircraft (especially by automatically locking cockpits), instead of hijacking planes, terrorists
have turned to other tactics such as firing shoulder-launched Stinger missiles at flying
aircraft.
• Maritime
The threat of maritime terrorism is particularly significant because just like ground
and aviation terrorist warfare, groups that engage in maritime warfare seek to
damage the overall economic well-being and sense of security of their state
targets. For example, when terrorists belonging to the Egyptian Al-Gama’a al-
Islamiyya (also known as Islamic Group – IG) attacked cruise ships along the Nile
River on four occasions from 1992 to 1994, tourists kept away from Egypt. In the
Philippines, when the Abu Sayyaf Group (ASG) attacks cargo vessels which abducts
foreigners from a tourist resort (as it did in
2001), it impacts on the entire country’s
trade and economy.
• Energy Sector
The energy sector, especially the gas and oil industries on which a nation’s energy supply is
so dependent, is perceived by terrorists as an important strategic target. Currently, the
Islamic State, represent the primary terrorist threats against the energy sector.
Related to the energy sector is the chemical industry – the companies that produce
industrial chemicals. In many port cities large quantities of toxic chemicals are stored and
transported by vessel, rail and truck, thereby also exposing them to potential terrorist
attacks. The December 2, 1984 accident at the Union Carbide pesticide plant in Bhopal
(India) in which water leaked into a storage tank containing more than 80,000 pounds of
methyl isocyanate, exposed an estimated
600,000 persons to toxic elements, resulting in
15,000 deaths over the years since
then. Although this was an industrial accident,
it illustrates the catastrophic death and injury
potential resulting from a terrorist attack that
exploits the location of lethal chemicals in
proximity to large population centres.
• Financial Sector
Financial institutions and banks have been directly targeted by terrorist groups for attack, as they
regard this sector as extensions of Western economic power and dominance. While no high profile
terrorist attacks against the banking sector have occurred in Western countries since this earlier
period, banks continue to be targeted. In a new trend, terrorist groups and their supporters have
attempted in several instances to conduct cyber attacks against their adversaries’ banking
institutions, such as the April 7, 2015 attacks by pro-Hamas Palestinian hackers against the website
of the Israeli stock exchange.
In another type of terrorist exploitation of the banking sector, such groups and their associated
business/charity fronts have reportedly used the international financial system for money
laundering or to move funds from one country to another, posing another substantial risk to the
financial sector.
• Tourism Sector
 The impact of terrorism on the tourism industry can be enormous. It can lead to unemployment,
homelessness, deflation and many other social and economic ills. The contribution of tourism for
any country is so great that any downturn in the tourism industry is a cause of major concern for
many governments.

 Terrorism does affect tourism industry but it also affects

those sectors of economy that are directly or indirectly
related to the tourism industry.

 Developing countries that are largely dependent on

tourism are affected more than countries which are not.
The psychological impact of terrorism, however, is sufficient
to disrupt tourism in most countries but the large countries
are able to absorb the damage to the economy which too
much ado. However, the smaller countries and developing countries that are completely dependent on
tourism can reach the point of collapse because of the effect of terrorism to the tourism industry, as was
evident after the Taj attack in Mumbai.
• Retail Sector
 A suicide attack on a single shopping mall would cause the public to consider all malls to be unsafe. At
the same time, however, although retail centres were not directly targeted, the detonation of the
pressure cooker bombs by the Starwave brothers on a block of Boylston Street filled with spectators and
runners near the finish line of the Boston Marathon on April 15, 2013 (killing 3 people and injuring 264
others), had an economic and psychological toll on the owners and employees at the stores and offices
in that area, some of which were shut down for several weeks afterwards.

 Other countries, however, have experienced mass

casualty terrorist attacks against their shopping malls,
notably the September 21, 2013 mass shooting attack
by al Shabbat gunmen at the Westgate shopping mall
in Nairobi, Kenya, which resulted in an estimated 67
deaths and more than 175 injured.
 Mumbai @ 26/11 Attacks
 Total loss- Rs. 4000 cr.
 Deaths- 179 people, including 22 foreigners & 6 americans.
 Around 50% drop in occupancy rate.
 Estimated drop in no. of foreign tourists to India- 30 to
40%
 In the first weekend after 26/11, Pantaloon (Mumbai)
observed 4.2% fall in overall sales.
 Multiplexes in Mumbai suffered 20% drop in seat
occupancy.
 What can be Done ?
• Support from Politicians
• Support from Police
• Creating Awareness
• Support from Different countries
• An intensified effort to bring terrorists to justice by
prosecution and conviction before court of law.
 Conclusion
To conclude with, lets not forget that the enemies of our
nation have vowed to "bleed India through thousand
cuts". Even if terrorism represents a small fraction of
the overall economic risk in India, it may have a large
impact on the allocation of productive capital across
the country. In any part of the world terrorism is
unwanted as it not only kills the human life but also the
infrastructure, industry ultimately shackling its overall
growth.