Markets Keep Rolling.(International Edition; INDIA)

Byline: Jason Overdorf and George Wehrfritz

Terrorism hasn't yet derailed India's growth story.

You couldn't strike a blow closer to the heart of Indian finance. Mumbai's downtown waterfront--the setting of last week's terror attacks--has been the nation's economic gateway since the days of the British Raj: its stock exchange sits between the two hotels besieged by gunmen, and the country's largest business groups are all headquartered nearby. So one might imagine that the gunmen who besieged the city and killed 155 people last week had done grave damage to one of the world's fastest-growing major economies. But that assumption would be wrong. "There are far more important things going on in the global economy at the moment than terrorism in India," says Daniel Melser, senior economist with Moody's Economy.com in Sidney. As horrific as the attacks were, he adds, "the economic impact will be secondary."

In the coming days and weeks, India's resilience will be on full display. The show of confidence actually began last Friday, when Mumbai's main stock exchange--open even as Indian commandos were still clearing the area of terrorists--rose slightly on the day, in contrast to the NYSE post 9/11, or London markets after the 2005 bombings, which fell sharply. Of course, it may fall further as the full impact of these terror attacks--the worst to hit Mumbai since a coordinated bombing campaign destroyed the stock exchange, targeted the main railway station and killed some 250 people in a single day back in 1993--become clear. But most experts agree that the jitters will eventually subside. "In the short term I'd expect that the effect will be completely negative," said Saumitra Chaudhuri, a member of the prime minister's economic advisory council. "People who do business with India will think twice about visiting, and they'll also think twice about taking any Indian exposure. But all this will pass in a month or two, [and] I don't think in the medium to longer term there will be any lasting damage."

Last week's attacks, in short, haven't changed the India "story" that investors find so alluring. The country remains a standout among emerging markets for its large middle class, thriving service sector and low export dependency. Unlike much of the rest of Asia, its economy is driven mainly by household consumption, which makes it uniquely resilient in today's global downturn. And with growth centers in a variety of industries and geographic locations across the country, the economy isn't vulnerable to a knockout strike of the sort any terror group could deliver. All of which should keep domestic growth relatively robust and prevent foreign investors from growing too ...