Analysis: what next for the economy, Indo-Pak ties

RED FLAG UP: Pakistan under world pressure to cooperate with Mumbai probe.

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New Delhi: Here are some economic, geopolitical and political scenarios for India after the attacks in Mumbai, where 183 people were killed during coordinated attacks by militants.

Economy

The economy is already slowing and the pace of growth is expected to decelerate further due to high interest rates earlier in the year and the global financial crisis, which could dampen demand and hurt investment spending. Analysts say the coordinated attacks could hasten the pace of monetary easing as policy makers could try to counter negative sentiment generated by the incident.

The Reserve Bank of India expects the economy to grow 7.5-8 per cent in the fiscal year to March but many private sector economists see it expanding about 7 per cent, much lower than the sizzling growth of 9 per cent or above recorded over the last three fiscal years.

Analysts say the attacks are likely to have a temporary effect on tourism and may shake investor confidence and that could hurt the economy. The government's response to the rising threat of attacks is also seen as crucial to investor confidence, with a soft approach potentially damaging to foreign direct investment. FDI rose 137 per cent to $17.21 billion in April-September and the government expects it to exceed $35 billion this fiscal year.

Relations with Pakistan

In 2001, India blamed Pakistan for a militant attack on its parliament. The incident led to a tense stand-off between the nuclear-armed neighbours, with both armies facing each other "eyeball to eyeball" across the frontline. The Mumbai attacks bring tension to its highest level since Mumbai train bombings in 2006 blamed on militants, with India blaming Pakistani-linked elements.

Pakistan, while promising to cooperate in investigations, has also accused New Delhi of playing politics. Pakistan President Asif Ali Zardari has appealed to India not to punish his country for the Mumbai attacks, warning that provocation by rogue "non-state actors" posed the danger of a return to war between the nuclear-armed neighbours.