Jeremy Warner: Atrocities highlight fragility of India's economic miracle

Outlook No country is immune to terrorist attack, but this week's shocking events in Mumbai serve as a timely reminder that despite stellar rates of economic growth, all is not well on the Indian sub-continent. On top of all its other problems, India remains a tinder box of ethnic, religious, regional, caste and economic division.

This has so far not deterred Western business leaders, desperate for a piece of India's mouth-watering market potential. But that's possibly because they don't know an awful lot about it. Now that they have been directly targeted, albeit by terrorists from outside the country, they may have to think again. Never mind the direct psychological impact, these attacks have the potential to create a vicious and destabilising downward spiral of violence and social unrest.

They also come against the backdrop of a fast slowing economy. The decoupling theory, which suggested that India and other previously fast growing emerging markets might escape the economic malaise which is engulfing more advanced countries, has proved largely a myth.

In the last few months, the banking crisis has arrived on India's shores with crippling effect. Credit markets are frozen, businesses are struggling to get paid, large tracts of industry are at a standstill. With a general election looming, the attacks also have the potential to transform the political landscape, and almost certainly not for the better.

One possible consequence might be the further ascent of Narendra Modi, chief minister of Gujarat. A leading light in the BJP, he's a businessman's favourite with a reputation for getting things done by cutting a swathe through the leviathan of Indian bureaucracy and vested interest. Yet he's also thought of by political opponents as an extremist who has allowed mass genocide to take place under his watch. Were he to become Prime Minister as part of an incoming BJP government, he would split the country down the middle. Coming on top of the gathering economic crisis, the atrocities of the last few days are likely to have have far-reaching consequences.