Under the UN umbrella, there are at least 12 conventions and protocols on terrorism and, ad nauseam, UN documents tell us lack of consensus on defining terrorism inhibits adoption of an international comprehensive convention. In 1937, League of Nations did attempt a definition, but nothing much came of that proposed convention. ?All criminal acts directed against a State and intended or calculated to create a state of terror in the minds of particular persons or a group of persons or the general public.? In 1988, AP Schmidt put together a long definition that reflected consensus: ?Terrorism is an anxiety-inspiring method of repeated violent action, employed by (semi-) clandestine individual, group or state actors, for idiosyncratic, criminal or political reasons, whereby?in contrast to assassination?the direct targets of violence are not the main targets. The immediate human victims of violence are generally chosen randomly (targets of opportunity) or selectively (representative or symbolic targets) from a target population, and serve as message generators. Threat- and violence-based communication processes between terrorist (organisation), (imperilled) victims, and main targets are used to manipulate the main target (audience(s)), turning it into a target of terror, a target of demands, or a target of attention, depending on whether intimidation, coercion, or propaganda is primarily sought.? His 1992 proposal to UN Crime Branch was short and crisp. An act of terrorism is the peacetime equivalent of a war crime. That?s the one India?s Supreme Court adopted in a 1993 ruling (Madan Singh versus State of Bihar). Whatever the definition, there is no question that Mumbai was an act of terrorism. These were no one?s freedom-fighters.
India may not be the country worst-affected by terrorist acts, but it has had its fair share in 2008 and December isn?t over yet. If one leaves out acts attributed to Maoists, there was Jaipur in May (63 dead, 213 injured), Bangalore (2 dead, 20 injured) and Ahmedabad in July (49 dead, 160 injured), Delhi in September (30 dead, 90 injured and 3 dead, 23 injured in a second incident), Gujarat and Maharashtra in September (8 dead, 30 injured), Agartala in October (4 dead, 100 injured), Guwahati in October (5 injured and 84 dead, 470 injured in a second incident), Srinagar in October (4 injured) and Mumbai in November (160 dead, 327 injured). There is a Worldwide Incidents Tracking System (WITS), with a broader definition of terrorism. Between 1 January 2004 and 30 June 2008, this database reports 4115 terrorist incidents for India. 4814 people were killed, 10658 injured and 2497 taken hostage. These figures are colossal and include less-visible incidents too.
Some costs of terrorism are obvious?loss and damage to human life and to property and short-duration dislocations in economic activity. India?s economic growth is already on a downward cycle. Tight monetary policy induced a slowdown and this was reinforced by global financial crisis. We will probably never know why Mumbai was targeted. But one hypothesis floating around is this was an attempt to derail India?s economic engine. Hence, target the IT capital of Bangalore and the financial capital of Mumbai. Beyond, short-term loss and dislocation, there is thus the question of longer-term impact. If GDP growth in 2009-10 was destined to be 6.5%, will it now slow down to 6%? In principle, terrorism increases uncertainty, risk perceptions and insurance premiums. It can disrupt trade, investment and tourism flows. Resources may have to be diverted from more productive avenues to anti-terrorist activities. Understandably, these effects are more serious for a country attempting to globalise than for an insular economy.
Several studies float around, seeking to estimate economic costs of terrorism, especially for US and East Asia. Though not quite terrorism, one interesting study (Douglass North, winner of Economics Nobel in 1993) computes gains from elimination of piracy between 1814 and 1860. Shipping costs declined by more than 80%. Shipping industry?s productivity increased by 500%. Ships no longer needed cannons and that much manpower and these resources could be used elsewhere, in building ships better designed for carrying cargo. Decline in piracy was thus directly correlated with explosion in international trade in 19th and 20th centuries. It isn?t surprising Somalia?s pirates are able to extract ransoms for non-piracy. Studies on economic costs of terrorism are a little more difficult to pin down, since they often tend to be instance-specific. For instance, after the Bali incident, Indonesia?s GDP declined by 1%. Or terrorism reduced Spain?s Basque region?s per capita GDP by 10%. Cross-country studies over longer time-periods offer better indications and there are around five such papers floating around. With all their warts and blemishes, these find exposure to terrorism reduces GDP by between 0.5 and 1%. Stated differently, confronted with a terrorist threat, there can be that amount of GDP gains through investing in security measures.
How should this be interpreted for Mumbai? One can?t apply this to Mumbai, which represents a specific incident. The continuous exposure to a terrorist threat may well have reduced India?s GDP by 0.5% a year for several decades. However, Mumbai is different. Unless the trend continues, initial fears about permanent economic dislocation tend to be over-exaggerated. It was no different for 9/11. Beyond immediate loss of human lives and property and temporary dislocation of economic activity, 9/11 left no economic scars, because it didn?t recur. But the words ?didn?t recur? are the key. Yes, human lives have been lost in Mumbai. Yes, some of those would have earned incomes. Yes, there will be increased health expenditure. Yes, there has been physical damage to property. Yes, anti-terrorism measures will increase transaction costs. Yes, some cricket matches may no longer be played. However, even in such cases, it is important to ask what would have happened to these resources otherwise. But is this likely to lead to a decline in foreign direct investments or institutional investments? Will tourists head to other destinations? They might do so for other reasons, but not because there was a terrorist attack in Mumbai.
What?s more important is the terror threat interpreted as a continuum, not just as Mumbai. For instance, a slightly dated (2004) publication by Strategic Foresight Group computed what it called Pakistan?s GTP (gross terror-economy product) and conflict economy (GTP + military expenditure). The former was 6% of GDP and the latter 10%. Is it surprising Pakistan is bankrupt? India?s numbers are nowhere near that scale. But for want of better numbers, it is plausible India loses 0.5 to 1% of GDP every year because of terrorism, perhaps with 0.5% for a narrower definition of terrorism and 1% with Maoist incidents thrown in. Therefore, it makes sense to invest an incremental 0.5-1% of GDP on anti-terrorist activities, ignoring for the moment questions about efficiency of this expenditure and form this expenditure takes. Since resources are scarce, would we have been better off with this expenditure or with the Sixth Pay Commission, which will also eventually cost 1% of GDP? This is the trade-off that is taught in under-graduate economics courses. Does an economy produce butter or guns? The UPA government?s choice was clear. It opted for butter rather than guns and what better example than Afzal Guru? But once temporary anger passes, the country?s choice is yet unclear.
?The author is a noted economist