Yogesh Parikh stares forlornly at his prized possession. It's a German five-colour offset printing machine worth Rs 1.8 crore. Well, it was. It's now a blackened hulk of metal, like the camera and plate-making unit. Just so much scrap sitting inside his half-burnt factory at Vatwa, a grimy industrial suburb, 20 km from Ahmedabad. Parikh, 50, brought the machine costing Rs 1.8 crore in 2001 to profit from Gujarat's industrial boom: he used to print international quality packing material and publish local books. His only solace is that his entire staff of 70 survived-but that's only because Gujarat was shut down when the mob descended on his pride, profits and joy.

He's just totalled up his losses: Rs 2.7 crore. Insurance will cover Rs 1.32 crore, but his workers, both Muslim and Hindu, are only just trickling in, themselves traumatised. "It took me four years to build up to this scale," says Parikh softly. "But it took just four hours to destroy everything." Set up in 1964, Parikh's company, Gujarat Offset, had never witnessed problems in Gujarat's previous big communal riots of 1969, 1984 and 1992. "While there were Hindu-Muslim conflicts before, never have I seen a bitterness so all pervasive," says Arvind N. Lalbhai, Chairman of Arvind Mills.

"Business is down to 10 per cent of what it used to be during this peak season" Shah has lost sales worth 60 lakh in two months, and recovery will not happen until free movement of transporter, suppliers and retailers in possible Bharat Gopal Das Shah, 59, Textile Manufacturer

Both psychologically and socially, there has never been a more testing time for Gujarati businessmen.

Instead of the 72 hours that the Gujarat government claimed it took to subdue the riots, parts of the state continued to flare up 72 days later. And as the riots cleaved Gujarat's industrious society bloodily into Muslim and Hindu, thousands of businesses either burned to the ground or lost workers, orders-and credibility.

"I had built the business in the last four years and I lost it in four hours" Damage of Rs 2.30 crore. He's started work with some machines that his workers managed to save and is banking on insurance to rebuild everything from scratch. Yogesh Parikh, 50, Managing Director, Gujarat Offset

If you have to understand the future of business in Gujarat, here's the first thing to remember: don't believe the numbers. "The direct damage to industry will not exceed Rs 60 crore, at the most," declares R.J. Shah, Chief Industrial Advisor to the Government of Gujarat. His boss, Industries Minister Suresh Mehta, told BT (See ''Gujarat Is The Ultimate State For Investments Even Today'') that the effect on business has more to do with propaganda and less with reality. "The total damage in terms capital expenditure, production loss, and turnover loss is estimated to be Rs 664 crore, according to a survey that I commissioned in the fourth week of March," says Mehta dismissively. "It is negligible." And as he points out, the riots did not by any means ravage the entire state.

But by the government's own figures, made available to BT (See Ravages Of The Riots) by bureaucrats, the damage to thousands of small businesses that form the backbone of Gujarat's entrepreneurial society hasn't even been counted. Areas that have faced the worst ravages continue to be out of bounds for Gujarat officials. In fact, the Gujarat Industries Corporation office has already been attacked thrice, so data collection is a risky-and mostly ignored-proposition. And it's here that the maximum collateral damage of the bloodletting (the official toll is 900, but it could easily be more) was wrought-on small-time traders, shopkeepers, home industries and service providers like garage owners. ''The effect on large industries is negligible,'' confirms Sunil R. Parekh, Senior Director, CII. ''Smaller businesses faced the brunt.''

Gujarat's bureaucrats and politicians refuse to look beyond statistics to see the state's-and India's-bigger problem: its image as an industrial powerhouse and safe investment destination; the absolute communal divide that has formed in an economy where Hindu and Muslim (10 per cent of the population) are inextricably linked; and the fact that Gujarat's problems affect India's economic stability.

''If the riots stop right now, there is some hope of retrieving Gujarat's lost image,'' says Ganesh Nayak, Executive Director of pharma firm Zydus Cadila, which wasn't too badly hit, aside from having to send some shipments by air instead of road. ''Otherwise it will take a serious toll on (the state's) perception as a safe destination.''

Singed By The Fires

For upwardly mobile Ahmedabad, the bloody riots seem a distant memory. The crowds are returning to Fun Republic and its six cinema screens, department store and speciality restaurants on Satellite road. It is the first such mega-entertainment centre set up by the Essel group, which is taking the concept to 12 other cities. Of course Darshak Mehta, Business and operations Head of Fun Republic, will tell you how his revenues took a hit as the multiplex and its 400 staffers were idle during four of the worst blood-soaked days, and how visitors are down to, oh, just 1,000 a day (from 7,000 on week days, 12,000 on weekends).

Ahmedabad's reputation as a hard-working, hard-playing city-and the Gujarati's reputation for bouncing back from earthquakes, cyclones and riots-is legendary. Nowhere is this more evident than at the city's spanking new 175-seat McDonald's (the launch was on April 21, delayed by 21 days because of the riots), already drawing customers on a daily basis. "I think people have been coming here to cheer themselves up given the gloom due to the riots," says Amit Jatia, Managing Director, Hardcastle Restaurants.

But behind the veneer of normality-sometimes bizarre-there are hundreds of businesses struggling to stay afloat, hidden from the casual visitor's eye. "Our industry has been virtually wiped out," says Jahangir R.J. Cama, Managing Director of the Cama Group and owner of the 110-year-old landmark, Cama Hotel. His occupancy rates hover between 15 to 20 per cent. Obviously, visitors are few for now. Many Muslim-owned hotels were of course simply razed.

Apart from these and numerous roadside businesses, the greatest immediate impact is on the industrious little factories that have made Gujarat India's number one in exports.

About 60 per cent of textile industries, which exported Rs 2,425 crore ($5 billion) last year, are located in and around riot-hit Ahmedabad areas. Most of them will tell you how workers, mostly from the tense walled-city areas, simply aren't turning up. Orders have been cancelled because raw material supplies have been set back by more than a month. Raw material fabric prices are rising because of a terrorised transport sector, and worse, foreign buyers aren't coming to India, not even to Mumbai and Delhi, putting a big question mark on future earnings. Numerous countries in the neighbourhood and as far afield as Latin America are waiting to fill the breaches.

The core of Gujarati enterprise-the small-scale sector of 2.65 lakh units-was the very badly hit, but only 128 damage claims have been filed so far by owners too busy or traumatised to do so. Many of these units manufactured chemicals, pharma products and dyes. "The riots were a nightmare for us," says Satish Shah, Managing Director of Indocol Chem, a 100 per cent export unit making dyes and dye intermediates. Shah believes his sector will earn Rs 600 crore less than the Rs 3,000 crore it exported last year.

"Gujarat Is The Ultimate State For Investments Even Today"

Suresh Mehta, Industry Minister, Gujarat A seemingly eternal No. 2 in any BJP ministry in Gujarat, moderate Suresh Chandra Roop Shanker Mehta, a former Chief Minister and now Industry Minister has always spoken up. His latest was to urge Narendra Modi to crack down on the endless rioting. Nevertheless, he firmly dismissed all visions of doom in an interview with BT's Vinod Mahanta. Here's what he said: On the impact to Gujarat's image: There is more propaganda and less reality. The adverse publicity has affected Gujarat's economy more than the riots. But the impact is short term; sooner or later the world will know the reality. Even today Gujarat is the ultimate state for investment. After the initial four days of rioting there has been no targeting of industry. There is a liquidity crunch as within Ahmedabad the walled city is the heart of business. So due to tension, the circulation of money is constricted, and that has brought down a slowdown in the local economy. On foreign caution: These governments have their own agenda. They have formed an impression that if their nationals invest in Gujarat, their investments will be hurt. They will then have to pay for the insurance of these investments. On the financial burden of the earthquake and riots: The earthquake was a blessing in disguise. Kutch has developed from an industrially backward area into an area with potential, after the Centre and the state government announced sales tax and excise incentives. There has been a rousing response from industry. And the communal scenario will not be a problem for the state either. On Modi's right to remain as chief minister: (smiling) Narendra Modi is our leader. On where Modi has failed: (laughing) If I tell you this, I will be saying it all. No comments. On repairing the damage: First of all let the situation calm down. Then let people think without prejudice. Gujaratis are Gujaratis. Time will prove that Gujarat is a state with its own glory.

Not only did exporters fail to fulfil export obligations because of transport disruption and absent workers, raw material prices shot up by as much as 25 per cent. Even if the tenuous peace holds, many foreign customers may already have signed up with competitors on the Pacific Rim.

Disquiet Beyond The Embers

Gujarat has some big-ticket investments lined up-and they aren't going anywhere (one reason of course being that given the locational advantages, there's nowhere else to go). Rs 5,200 crore is coming from the Royal Dutch Shell Company at Hazira Port; Rs 500 crore by General Motors, British Gas is coming in. Production hasn't been affected at all at biggies like Essar Steel, Reliance, IPCL.

As the Gujarat government so shrilly likes to point out in full-page newspaper ads-which routinely accuse the media and unnamed enemies of propaganda-life goes on. Indeed it does. Apart from a four-day shutdown at GM's plant in Halol and a few Corsas burned, heavy industry was largely untouched.

So why do so many see a problem in the future for both Gujarat and India?

"Pictures of marauding mobs looting and burning shops even in distant Ahmedabad is enough to scare away the bravest of investors because it is perception that drives investments," says C. Jayaram, Executive Director of Kotak Mahindra Finance in Mumbai. "The situation is such that investors have to explain to their managers why they are not getting out of India before others do," says Surjit Bhalla, President, Oxus Fund Management, Mumbai. Uttam Dave, CEO, PKF Consultants, points out that the typical foreign tourist-the riots occurred in the off-season months-who can barely distinguish between neighbouring countries is unlikely to distinguish between Gujarat and India. ''The damaging images of Gujarat are hardly likely to enthuse the foreign tourist to come to India on vacation," says Subhash Goel, Chairman, Stic Travels, dryly. The tourism sector was going through a crisis because of instability in India's neighbourhood over the last year. There's little doubt that Gujarat will further impact tourism arrivals in India.

''The events in Gujarat have overshadowed the reform process,'' says Shelly Shetty, Director, Fitch Ratings. Shetty, who draws up ratings for India, says Gujarat, combined with the high and persistent fiscal deficits, ''will continue to have an adverse impact on business confidence, potentially holding back rapid economic growth''. Any slowdown in economic growth, say experts, will have adverse repercussions for governments revenues. Gujarat comes at a very bad time. Already FDI inflows fell from Rs 1,766 crore in March 2001 to Rs 329 crore in March 2002. April has seen a net investment of Rs 140 crore, indicating a continuing nervousness on the part of foreign investors.

Gujarat's politicians, bureaucrats and businessmen understand the power of perception only too well. In order to maintain the façade that things are back to normal, many business houses in Gujarat even hide their real losses. Many whom BT contacted were unwilling to speak out, admitting there was tremendous pressure from the government to underplay violence and losses.

The Importance of Community

Perception is important. But more important is reality. And the reality is that whatever the previous ill-feeling and violence, Hindu-Muslim economic bonds were never broken. Now, with the steadily hardening religious divide and segregation, the business community is only just beginning to realise the consequences of broken bonds.

Rajesh Gandhi, Managing Director of the Rs 150-crore Vadilal Ice Creams, knows just how deeply Hindus and Muslims are intertwined, how violence against one affects the other. He lost 100 ice-cream vending machines when at least 90 restaurants of the non-controversial Shia Chelia community were targeted by rioters Ahmedabad.

The Chelia community often run restaurants with names like Tulsi and Radha, but none of that mattered. The lists of Muslim-owned businesses were methodically drawn up. "This is the first time we were targeted economically as well," says Naseer Khan, a Chelia, who lost one of three hotels to arson. He says he cannot even think of rebuilding until peace is restored and the threats recede. Here's the irony: almost all his staff consisted of Hindus, Rajasthani workers who fled or migrated to other cities. So too with owners of the burned out hulks of the "Edwards" stores, quiet Dawoodi Bohras who used the name as a common brand for their dry cleaning stores.

At the other end of the spectrum is Nimish Patel, owner of Shri Somnath Carriers, a transport company forced to sell 10 of his fleet of 60 trucks because this terrified drivers-most of his drivers and mechanics were Muslims-haven't yet reported for work. "If the problem continues for some more time, we will be out of business," says Patel.

The transport sector continues to bleed even though the riots have subsided. More than 500 trucks have already been burned, mostly on highways, resulting in what R. Seshasayee, Managing Director of Ashok Leyland, says is "a fear psychosis among truck drivers, mostly Muslim". Ahmedabad's biggest transport companies are now moving office from the riot-racked, old-city areas to industrial suburbs, but they haven't yet figured out how to get support services like mechanics-again, mostly Muslim-to move there.

The one sector that is realigning itself to the polarisation is real estate. Property rates are falling in the old-city areas-warrens that easily become battle grounds-and rising in areas where migration is going on, Hindu and Muslim. If the process of tearing apart Hindu and Muslim societies spreads through other sectors of the economy, expect some serious displacements and rising costs.

But the truth is that whatever happens, the economy will bounce back-eventually. Only, there will be a few bitter, and brutal, new truths to live with.

additional reporting Abir Pal, Moinak Mitra, and Subhajit Banerjee