Terrorism has long lasting impact on Indian economy: Moody's

07 Oct 2015 Evaluate

Moody's in its study has said that the terrorist attacks significantly weaken the economic activity of the country with long-lasting effects. India facing fourth largest number of terror attacks across the world in 2013 is having a negative impact on the economy. The effect on economic activity and investment was significant and lasted several years. The study measures the impact of terrorism on a country's economic growth, investment growth, government expenditure and government cost of borrowing.

Moody’s further stated that an additional terrorist attack in a country with high incidence of terrorism would likely have a lower impact than if that same attack were on a country with zero terrorist events. Moody's in its study said that terrorist events reduce economic activity and investment in mature economies. Moody's estimated that owing to the same terrorist episodes, investment growth takes an even greater immediate hit, declining between 1.3 percentage points and 2.1 percentage points.

Earlier in 2013, the terrorist attacks in just four countries contributed more than 60 percent of all the terror attacks. The countries include Iraq with 24 percent of terrorist incidents, Pakistan with 19 percent, Afghanistan with 12 percent and India with around 5.8 percent. India faced 690 terror attacks while Iraq being on the top with 2,852 incidents, followed by Pakistan with 2,212 attacks and Afghanistan with 1,443 incidents. Meanwhile, 10 countries most affected by terrorism took an immediate and significant hit to growth, dampening GDP between 0.5 and 0.8 percentage points. Terrorist attacks are diverse in terms of the personal and property damage inflicted.

Moody's study consisted of a sample of 156 countries between 1994 and 2013. In order to properly measure the impact of the terrorism on the economy ,Moody's constructed an index of terrorism as a weighted average of the total number of terrorist incidents, the number of fatalities, the number of injuries and the property damage inflicted by the terrorist event. Besides, the index also accounted for the size of the countries.

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