Economic cost 'in excess of pounds 260m'

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WITH INDIA now in effective quarantine from the rest of the world, the plague epidemic is claiming another victim: the country's economy.

Indian ships and airlines are banned from the Gulf countries; European, American, and East Asian tourists are cancelling their holidays just as the winter season is beginning; and prospects for India's pounds 2bn-a-year diamond exports are dimming with workers in Surat abandoning their polishing wheels to flee the plague. It seems that only modern-day Pied Pipers - rat killers and pest control companies - are not losing money.

However, while some countries complain that India was sluggish in combating the plague when it was first detected, New Delhi retorts that other nations are 'over- reacting' to an epidemic which, thanks to modern drugs, is no longer a feared killer. Only about 50 people have died, even though nearly 1,700 suspected cases are recorded.

India's finance minister, Dr Manmohan Singh, said in London: 'There will be some dislocation in tourism and certain other industries, but financial reserves are strong enough for our economy to take these problems in its stride.' Dr Singh is the chief architect of India's economic reforms, which since 1991 have have spurred faster growth and sharply increased foreign investment. The plague, he said, reinforced his view that the government should get out of industry and business and focus on providing basic services, such as improved health care.

Dr Singh was on his way to the International Monetary Fund and World Bank annual meeting in Madrid, where he intended to spread the message that his policies have prepared India for economic take-off during the rest of the decade. Although he argued yesterday that the reforms were irreversible, the reappearance of the medieval curse of the plague will undermine India's efforts to project a more modern image.

Cancelled holidays will cause a projected fall in revenue of pounds 12.6m this month alone, according to tourism officials in Delhi.

Even more harmful is the ban by Gulf states and Pakistan on all ships and flights from India. The Gulf countries are major buyers of Indian foodstuffs, electrical appliances and clothing, which will also be blocked by the plague embargo. Nepal and Bangladesh have also stopped flights.

The state carrier, Air India, has been forced to stop over 60 Gulf flights a week, nearly half of its international destinations, with losses of more than pounds 400,000 daily. Air India's managing director, Captain D S Mathur, said the ban was disproportionate. 'Taking precautions is one thing, banning flights quite another.'

In Surat, the gem and textile city that is one of India's fastest- growing industrial centres, the plague's impact will be felt for months after the epidemic is contained. 'It's the case of the boom city going bust,' said Mahendra Kajiwala, a leading Gujarat businessman, who calculates that plague losses so far surpass pounds 260m.