Economy set for rocky ride after quake

Although the full extent of damage is still unknown, the government and companies are saying relatively little was done to industrial facilities in Gujarat, as rural areas were the worst hit. Many leading companies — like India’s biggest petrochemicals maker Reliance Industries Ltd, the nation’s largest private oil refiner Reliance Petroleum Ltd and cement maker Gujarat Ambuja Cement — have said their plants in Gujarat had resumed normal operations.

But Kandla Port, the country’s busiest, was damaged and is likely to be closed for at least two weeks, according to the latest reports.

Markets shrug off initial quake cost fears:

After an initial nervous reaction on Monday when marketsreopened after the quake, share and bond prices have recovered while the rupee is firmer than before the disaster struck.

Traders said markets had recovered mainly on local and technical factors and because there were still no accurate estimates of the cost of damage. But Vyas warned that there could be a longer term impact.

"There has been substantial erosion of people’s wealth and this will affect their purchasing power, lowering demand in the state," Vyas said. International agencies have pledged aid, as have many countries and expatriate Indian groups, but the bulk of the cost of reconstruction is expected to be borne by the cash-strapped government.

Prime Minister Atal Behari Vajpayee said on Tuesday that the government would impose new taxes to meet the cost of rebuilding Gujarat. "If the revenue mopped up through the tax is spent by the government on rebuilding, then it could stimulate demand and have an expansionary effect," said Pradeep Srivastava, chief economist at the National Council of Applied Economic Research. No details on the nature of the proposed taxes are available.

Analysts expect it will be in the form of a surcharge on existing taxes and fear it will be mainly borne by the industrial sector. Services are largely untaxed and agricultural income is exempt from income tax. This will slow down the industrial sector, whose performance is already hampered by high oil prices and a flood of cheap imports. The industrial sector contributes slightly less than 25 per cent to national GDP.