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Short-term impact on economy: Economists

The terror attack will have a short-term impact on the economy, but sentiments could be given a boost in the medium- to long-term if the Govt responds by improving the law and order.

business Updated: Nov 30, 2008 14:12 IST

The terror attack on the country's financial capital, say economists, will have a short-term impact on the economy, but sentiments could be given a boost in the medium- to long-term if the Government responds by improving the law and order.

However, Chief Economic Advisor in the Finance Ministry Arvind Virmani said non-economic shocks of this nature generally have a very little direct impact on the economy.

Virmani said, "What actually turns out to be more important in the medium- to long-term is how the system responds and deals with it."

The reforms, he pointed out, have not only to be on the economic front but they have to be in law and order sphere as well. The confidence and sentiments, he said, depends less on one single event that happens in one or two days than what is the government's response to it.

Crisil Chief Economist Subir Gokarn said, "The terror attack will have a short-term impact, but it would be a positive thing if there is a policy response to it (by the government).

Gokarn said a policy response in terms of law and order and people's security needs to happen. The policies, he added, should be above party politics and not dependent on the party in power, he added.

Virmani said, "Governance is one of the fundamental public goods, and so is law and order. So, in some sense, law and order is a public good which is not adequately supplied."

Echoing a similar view, Prime Minster's Economic Advisory Council member Saumitra Chaudhuri said that the terror attack should have a short-term impact on the economy.

Also, Chaudhuri mentioned that the only hope at the moment is that the attack does not have a long-term impact, which could happen if there are consequent attacks in the future.