That won’t be easy. Gujarat is the second-most industrialized state in India. Its port network, good roads, reliable electricity and affluent, literate population of 50 million make it India’s top destination for foreign investment. But communal violence has done grave damage to the local economy. The anti-Muslim pogroms continued to rock a curfew-bound Ahmedabad last week. At least 40 people were burned, stabbed or hacked to death. The official death toll in nine weeks of strife is more than 900, but is probably much higher. Beyond lives, though, the cost to the state that provides 6 per cent of India’s GDP–and tens of thousands of jobs–is catastrophic. According the state’s chamber of commerce, Gujarat has suffered an estimated $2.3 billion in business losses in little more than a month.
The effects have spread far beyond the state. India’s ruling Hindu-nationalist Bharatiya Janata Party (BJP)–which also holds the reins in Gujarat–faces a potentially embarrassing censure motion this week in Parliament. Opposition parties, angry at the failure of central and state governments to curb the violence, forced the vote, though they can’t topple the ruling coalition. The prime minister, Atal Behari Vajpayee, fended off calls to sack Gujarat’s chief minister, Narendra Modi, and even suggested that Modi hold an early state election. Vajpayee may think that Modi can capitalize on the mayhem and possibly reverse a string of BJP electoral defeats. He may be right. One magazine-sponsored poll shows 52 percent of urban Gujarat would expect the BJP to win.
Businesses large and small have been hurt by the violence. GM’s Opel-Astra plant, in the town of Halol, suffered a 20 percent production loss last month when it was targeted by the gangs. Industrial estates that house many of Gujarat’s 185,000 small businesses were also attacked. More than 2,000 insurance claims–for losses totaling $20 million–have been filed in Ahmedabad alone. Gujarat Offset Printers, on Ahmedabad’s Vatwa industrial estate, is one of the claimants. The firm was burned by rioters, losing a sophisticated color printer along with its sales office and camera room. Owner Yogesh Parikh, 50, now has to find a way to pay 60 staff members. “I’ve got a new machine from Mumbai,” says Parikh, “but mechanics are too afraid to come and install it.”
Fear is exacerbating the crisis. Many trucks refuse to travel the state’s highways or to enter riot-hit cities like Ahmedabad and Baroda. Most drivers are Muslim, and many were dragged from their vehicles and killed during the initial violence. Many haulers have slowed or stopped shipments of finished goods to Gujarat’s 41 ports, which account for one third of India’s total exports. Bank shutdowns have led to a collapse of financial transactions, further strangling trade. It all adds up to a grim cash-flow crisis. “There’s a fear psychosis,” says Isolal Kania, economic adviser to Gujarat’s chamber of commerce. “Until confidence is restored, business can’t get back to normal.” That may take too long to save some firms. Jay Narayan Vyas, a business consultant and BJP legislator, says about 30 percent of Gujarat’s small businesses are on the brink of bankruptcy.
Gujarat’s government is scrambling to put a different spin on the mess. Last week Chief Minister Modi complained in newspaper ads that “malicious untruths”–one of them being that Gujarat’s economy was sinking–were “tarnishing the state’s image.” Critics counter that the government was slow to react. Truck convoys now get armed escorts. Payment deadlines for taxes and duties have been extended to ease the cash crunch. Foreign investors, who crave stability, may determine the extent to which Gujarat’s economy can recover. “There’s no doubt this violence will hurt Gujarat’s image outside, and that will translate into reduced economic activity,” says one state economic expert. For Ilyas, surveying the wreckage of his garment shop, the investment climate is already bleak. A paltry but elusive $1,400 would replace his stock and get him back on his feet. If only the violence would stop.
