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Friday, 21 September, 2001, 17:19 GMT 18:19 UK
War fears hurt Indian economy
Indian software programmer
Fears that the software industry could be affected
By Sanjeev Srivastava in Bombay

Indian stocks crashed to a eight-year low on Friday as jittery investors dumped shares amidst fears of an imminent US strike against Afghanistan.

The Bombay Stock Exchange index tumbled 161 points and closed at 2,600 points, down by nearly 6%.

Almost 50% of bookings have been cancelled in the past few days

Travel agent Kavi Kohli
With Friday's fall the Indian stock markets have fallen by nearly 20% since last week's terror attacks on the US.

Market analysts say a conflict in the region will adversely affect an economy already in the midst of a slowdown.

The Indian Prime Minister Atal Behari Vajpayee and his finance minister issued statements earlier in the week warning of tough times ahead.

Software scare

One of the areas badly affected is the Indian software services sector which has a big presence in US markets.

A boom in software services exports in recent years has played a vital role in the Indian economy.

Bombay broker
Indian stock markets are down nearly 20%
It has helped maintain a healthy foreign exchange reserves position, which currently stands in excess of $40 bn.

With the US economy now showing signs of a recession, analysts fear American companies are likely to cut spending.

This in turn is expected to have a negative impact for the bottom line of Indian companies.

Feroze Vandrewala, chairman of India's apex software services and exporters body, says that Indian companies are almost certain to take a hit but this could be confined to the short term.

"Unless the situation deteriorates further Indian software exports should still be in line to meet their long term target of reaching the $50bn mark by 2008," he said.

Travel and tourism

While the manufacturing and auto industry is also likely to suffer, it is the air-travel and hotel industry which has been badly hurt.

Tourism season in India - which peaks between October and March - appears to have ended even before it began.

A Japanese tourist in India
Tourist arrivals have been badly hit
Travel agents and hotels across the country have been flooded by calls from American and European tourists to cancel their bookings.

Kavi Kohli of the Indian Travel Agents Association says the average occupancy rate in some leading hotels is currently at 25-30 %.

"This in a season when most good hotels in the country normally have an occupancy rate upwards of 65 %," he said.

"Almost 50% of bookings have been cancelled in the past few days and if a conflict actually starts in the region the industry might as well close shop for this season," Mr Kohli said.


But there are some who see an opportunity for India in the present scenario and feel the pessimism is being overdone.

John Band, chief executive officer of an international brokerage house, A S K Raymond James, told the BBC that the Indian economy was a resilient one and should be able to tide over the present crisis.

"It's not the first time there is a possibility of a conflict in the region. In fact India itself has been involved in wars in the past. The country also has a lot of experience of natural calamities and knows how to deal with destruction," he said.

Also the Indian economy is still fairly inward looking and this should also help the country remain insulated to some extent from the goings on in the rest of the world," he added.

See also:

21 Sep 01 | Business
Week of turmoil for Asian markets
17 Sep 01 | South Asia
Indian markets crash
21 Sep 01 | Americas
Tourism shocked to the core
21 Sep 01 | Business
US slump could be 'steep but short'
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