Global gloom

Manish Joshi

Terrorists on Tuesday struck America by crashing planes into the World Trade Centre that razed down the twin towers. Soon after, one more plane attacked the Pentagon, the defence headquarters of the US.

The magnitude of the disaster is such that it will take atleast a few months to get rid of the the fear psychosis. The attack has severe implications for airlines’ safety.

The occurrence of any such disaster hitting America is sure to have repercussion on the rest of the world, as it is the world’s biggest economy. Already, the ongoing US slowdown has been threatening to translate into a global gloom.

The recent crisis is bound to compound problems further. India cannot remain immune from this.

Indian stock markets reacted sharply to the news, as the BSE Sensex crashed to 3,032, down 117 points. Morgan Stanley, an FII, having considerable presence in the Indian equity market has lost around 50 floors it owned in the World Trade Centre.

It may remain low profile for some time and focus more on restoring normalcy in its US operations.

Perhaps, for India, the worst fallout may be on the most jinxed Air India disinvestment. First, Tata-Singapore Airlines, the serious contender, was almost close to clinch the deal but it could not.

After Singapore Airlines backed out of the consortium, United Airlines expressed its desire to participate in the divestment. Partly, because the second largest airline in the US, like many airlines in that country was not doing too well.

The global slowdown and the tardy tourist flow may have been the reasons. It was, therefore, natural for it to scout for new opportunities.

]The Air India divestment offered such an opportunity. It may be recalled that United Airlines has suffered heavily on Tuesday, as two of its planes were hijacked and used for the attack. The airline has suspended its other flights for the time being.

Although the amount of loss is not yet estimated, its India plans are sure to suffer a setback. And that is where the latest attack has serious implications for the country’s divestment programme, among other things.

More serious is the implication for India’s oil pool deficit. In all likelihood, America will retaliate after it locates the enemy.

An eventual attack on West Asia is not ruled out with serious implications for the crude oil prices and therefore for India’s petroleum scenario. Soon after the attack, crude oil prices have started to climb up in anticipation of worse things in the future.

Hence, crude oil prices that have gone up by as much as 10 per cent from $27 per barrel to $30 just after the attack, may go up further as uncertainty looms large. This means India with its rupee depreciating fast may have to foot a larger oil bill.

This could add further to the woes of the refinery sector. Since power and fuel accounts for a major portion of total costs in case of manufacturing companies, their cost of production could go up. There is a fear that it may translate into cost-push inflation.

It is a well-known fact that the Indian software sector owes much of its growth to USA.

Most of the on-site work of the tech companies is done by immigrants whose cost is comparatively lower. In a bid to beef up security, the US Government may think of tightening immigration procedures.

This could further affect the growth of the software sector, already hampered by the US slowdown.

The only sector whose stocks have gained post-attack is the oil and gas. ONGC, India’s largest producer of crude oil, flared up to Rs 145.85 in mid-trading. The company currently produces about 25 million tonnes of crude oil annually and caters to 30 per cent of the domestic demand along with Oil India.

USA was making every effort to pull the economy out of the worsening slowdown. However, with the major commercial centres destroyed by terrorists, more resources may be diverted to address security issues by developing new weapons.

Meanwhile, India has to wait helplessly for the turn of events for the better.