FLIGHT OF FEAR: Mistimed travel advisories and hysteria in foreign newspapers like the one below contributed to the exodus

The San Jose Business Journal isn't the newspaper people pick up to read about India in the Silicon Valley. That's why in June first week a visiting delegation of Indians to Stanford University was startled to find the newspaper's extensive reporting on India. But the journal wasn't the only publication focusing on India. From local television channels and newspapers to big papers like the USA Today, India was everywhere. The unprecedented coverage of the country greeted the delegation-which included former chief economic advisers Shankar Acharya and Rakesh Mohan and Planning Commission member N.K. Singh-on its way back to India. Britain's Daily Telegraph and Singapore's Strait Times were writing extensively on India. Only, the coverage wasn't cause for celebration but concern and enigma.

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THE DE-ESCALATION SMOKE WITHOUT FIRE: The panic started after de-escalation of tensions had begun on June 1 JUNE 1: General Pervez Musharraf tells CNN, "War will not be good for Pakistan or for India." JUNE 2: Vajpayee declares India will respond if Pakistan shows results on the ground. Fernandes says, "I don't see the likelihood of war." JUNE 8: Richard Armitage says Musharraf has promised to put permanent stop to terrorism. JUNE 10: India lifts overflight ban on Pakistani airplanes and recalls its warships to the ports. THE HYSTERIA June 11: Japanese Government airlifts 40 citizens, JAL stops flights to India. June 7: Panic spreads. Japan, France, Australia and other countries issue travel advisories. June 6: War insurance surcharge on ships coming to western Indian ports. June 5: US issues second travel warning. June 4: US and UK impose visa restrictions. May 31: Travel advisories issued to British and US citizens in India. THE BUILD UP May 30: Pakistan's representative to UN says his country would consider nuclear option. May 29: India will not put up with what it has for 15 years, warns George Fernandes. May 23: Prime Minister A.B. Vajpayee describes the border situation as "tense and challenging". May 22: It's time for a decisive battle, PM tells soldiers in Kashmir. May 21: Hurriyat leader Abdul Gani Lone killed in Srinagar. May 16: Time for action has come, says Army chief S. Padmanabhan. May 14: 30 people killed in a suicide attack in Kaluchak. FEAR FALLOUT TOURISM: Hotel reservations fall by up to 30 per cent. Tourism, transport and courier are hurt too. EXPORTS: Buyers cancel visits. Loss estimated at 20 per cent of exports in June and July-$800 million (Rs 3,920 crore). EXODUS: US Embassy staff cut from 400 to 80. Most western embassies trim staff. Expats in Maruti, Hero Honda, American Express, Marriott and BNP Paribas leave India. VISA: Virtual ban on visa to first time travellers to UK and US. Time taken in issue of H1B visa up from 3-4 days to 3-4 weeks. INVESTMENT: FIIs withdraw $53 million in eight trading days in June. JV agreements, conferences and workshops postponed.

When the foreign media was raising fears of a nuclear war, the probability of an India-Pakistan conflict was diminishing. Since June 1, both India and Pakistan had stopped the war talk. But unmindful of that, the US State Department issued a travel warning to Americans on May 31 and repeated it on June 5. US citizens were told to defer visits to India and those present in the country (some 60,000) were advised to depart. UK and 13 other countries followed with similar warnings, triggering a short-lived exodus. Adding to the panic was revocation of insurance cover on visiting foreigners-a direct consequence of the travel warnings.

Delhi did not know how to respond. The hysteria was vastly disproportional to the threat perception (see graphic). CII called it the "unofficial economic sanction against India". The Ministry of External Affairs not only expressed its dismay but some sources also hinted at the possibility of the warnings being a tactic for diplomatic pressure on India to restore normality. The US State Department refutes the allegation. It also doesn't foresee any fallout on US business sentiments. "This issue (of the travel advisory) is an immediate one, whereas investment decisions are taken with long-term view in mind," an official said. Diplomatic sources in Washington offer another rationale: the travel advisory was mandatory considering the US Administration is drawing flak for not being agile enough on matters of internal security before 9/11.

Whatever the provocation, Indian Inc. has borne the brunt. "The war scare has had an immediate and pronounced short-term impact. Foreign investors have postponed financial and physical investments," complains U.R. Bhatt, CEO, Jardine Fleming India. Exporters are badly hit. This is the time of the year when buyers come to India to book orders for delivery in August and September. The visits have been put off. Informs O.P. Garg, former chairman of Federation of Indian Exporters Organisation, whose four customers have cancelled their India visit: "Exports will be down by a fifth of their normal level." Many Indian businessmen are meeting their partners abroad and some are even considering opening overseas offices.

For the IT industry, there has been no fall in business as yet but concern about new customers persists. "I don't see any panic but the customers are concerned. We have shared our contingency plans with them," says Nandan Nilekani, ceo, Infosys Technologies. Post 9/11, it companies had prepared business continuity plans detailing relocation plans in case of an emergency. "In a way, 9/11 is helping it companies cope with the consequences of the fear in a better way," says Dilip Chenoy, CII director. Another mitigating factor is the reduced need for business travel thanks to the telecom revolution, points out Joydeep Mukherjee, director at Standard and Poor's, New York.

Thankfully, the fear hasn't struck the foreigners who have been in India for long. Fergus Fleming, CEO, ABN AMRO Asia Equities (India), and in India for five years has shot off a letter to the British Consulate stating, "I feel considerably safer here than I would in an American shopping mall. I do not intend leaving as a consequence of your warning and I believe it is a sad reflection of misguided British foreign policy." Explains Amit Mitra, FICCI secretary-general: "Business will pause for greenfield projects, and as tension eases, they too will get rescheduled." Agrees Ani Agnihotri, a Georgia-based industry representative who had been planning a business trip to India: "There will be no impact on American companies already in India. Those planning to visit India would rather postpone things."

Industry chambers have joined the Government in fighting the panic. In mid-June FICCI, CII and assocham dispatched teams of CEOs to the US and Canada to apprise senators and businessmen of the realities. For the fear-ravaged Indian economy, there are three positive signs: investments have been delayed not diverted, meetings have been postponed not cancelled and the economic consequences of a threat of war may actually prevent a war.

-with Anil Padmanabhan, Natasha Israni, Stephen David and Sandeep Unnithan