I don’t think there are long-term economic implications of the attack as long as Mumbai authorities put in basic security in key areas. In the Middle East, the big tourist hotels have metal detectors and security staff and concrete barriers that keep car bombs away from the building. Indian hoteliers may just have to go in that direction.
There have been past terrorist attacks of similar magnitude, as well as communal violence that had much bigger death tolls (Hindu extremists in Mumbai and elsewhere killed hundreds of Muslims during the aftermath of the destruction of the Babri Masjid in the early 90s (and were helped by Shiv Sena police in Mumbai), and more recently, in 2002, there was the pogrom against Muslims in Gujarat), in which the provincial government was implicated. These events do not interfere with an economy in the medium or long term. It is only if there is instability on an ongoing basis.
I once talked to a merchant in Cairo about this sort of thing. He said his bad years were 1956, 1967, 1973, 1982. They were the years of the Arab-Israeli wars, and he was glad to have peace. But in the years in between, business always recovered.
This Aljazeera English report from yesterday contains a radio statement from one of the terrorists explaining his motives.
He cited Hindu extremists’ attacks on Muslims, as in the Babri Mosque incident and in Gujarat.
This is typical hothouse crackpotism. Muslims are 13 percent of the Indian population. I lived in India for a couple of years, and my perception is that mostly people get along fine. There are Hindu-Muslim tensions (but so are there tensions between lower and upper caste Hindus, or between southerners and northerners, between Hindus and Christians, etc.), and occasionally they boil over. But aside from a relatively small number of Hindutva fanatics on the one side, and tiny Muslim terrorist groups in Kashmir (e.g.) on the other, there isn’t normally a big problem.
It would help if President-elect Obama would follow through on his stated commitment to finally getting a resolution of the Kashmir issue, since it generates a lot of the tensions.
CNN is reporting that two of the terrorists may have been Britons of South Asian heritage (about half of UK Muslims are originally from Kashmir). If true, that datum would make sense of some of the tactics used in Mumbai (concentration on Americans, British and Israelis or Jews), since many young British Muslims view Anglo-American actions in Iraq and Afghanistan as a genocide against Muslims, and Israeli actions in Gaza and the West Bank as a slow genocide against Palestinians. In their fevered imagination, Hindu India is an ally in this generalized persecution of a harmless and righteous community.
In fact, the ruling Congress Party generally attracts the Muslim vote and in turn New Delhi does favors for the Muslims.
My suspicion is that a US withdrawal from Iraq will lead to fewer such incidents (The Iraq War was cited by the perpetrators of the bombings in Madrid and 7/7 in London, and it is probably implicated in this one too. Fallujah is a rallying cry).