In Madan Singh versus State of Bihar (2003/04), the Supreme Court was justifiably harsh on terrorism, describing “acts of terrorism veritably as ‘peacetime equivalents of war crimes’”. But once the headlines fade, do we take terrorism that seriously? India is variously described as a soft state, unlike hard states like US or Israel. The only way to make these terms tangible is by bringing in costs, especially of anti-terrorism measures.

The short-term cost of a terrorist incident of the individual variety isn’t much, not unless weapons of mass destruction are used. Yes, there is a loss in human lives, perhaps even physical capital stock (buildings and the like). There are other direct short-term costs that are often sector specific (tourism, insurance, stock market). For Bali 2003 and US (9/11) there are estimates ranging between 0.5 and 0.75 per cent of GDP for one-shot terrorist incidents. These are probably over-estimates, because money not spent on visiting Hyderabad will be spent elsewhere.There is a difference between a macro cost and expenditure switching.

These one-shot cost estimates are also distinct from larger costs involving more permanent and continued terrorist violence, usually of the collective variety. That is what is meant when the Strategic Foresight Group tells us conflict within South Asia leads to annual GDP losses of between one and two per cent. Without downgrading the importance of human lives, the point is that economies, especially those that are diversified the way India is, can handle these one-shot costs and move on. Of greater importance is the longer-term cost of deterrence. More needs to be spent on law enforcement, intelligence gathering and security and some expenditure on security can also be private. Human rights and judicial independence are curtailed. There is a trade-off and one can’t wish it away. Transaction costs are imposed on travelers, visitors, external trade, capital and foreign exchange markets and even business. Resources that could have been used more productively are diverted to less productive uses. We spend more on protecting existing human and physical capital stock and less on enhancing growth potential. We pay more attention to security rights of citizens, less to human rights of suspected terrorists.

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