NEW DELHI (AFP) – A year that had promised much for India ended in unimaginable trauma with blood on the streets of Mumbai and fears for the future as its high-flying economy suffered a steep loss in altitude.
India is no stranger to bombings and violence, but the sheer scale and audacity of the attacks in Mumbai at the end of November shook the country to the core and dented its new-found confidence on the international stage.
Only 10 Islamist gunmen took part in the assault, but careful planning and a willingness to fight to the death, saw them kill 163 people in three days of carnage across India's financial capital.
India blamed "elements" in Pakistan, and relations between the two nuclear-armed neighbours plunged to a new low.
The United States, already struggling to keep Pakistan on board as a key ally in the Afghanistan conflict, was forced to apply heavy diplomatic pressure on both sides to avoid any military stand-off.
The Mumbai carnage was the bloodiest event in a bloody year that witnessed a host of serial bombings, renewed tensions in Kashmir and attacks on Christians by right-wing Hindu groups.
In September, the capital New Delhi was hit by a series of bombs in crowded markets that left more than 20 dead. Those blasts were claimed by a group calling itself the Indian Mujahedeen.
Six weeks later, more than 60 people were killed and more than 300 injured in a dozen blasts that ripped through towns and markets in the insurgency-hit northeastern Indian state of Assam.
The violence triggered a flow of criticism about the state of India's internal security and intelligence gathering that turned into a torrent after Mumbai.
The carnage in Mumbai was all the more shocking for coming as India was still celebrating a landmark diplomatic coup that ended its status as a global nuclear pariah.
On October 10, US Secretary of State Condoleezza Rice and her Indian counterpart Pranab Mukherjee signed a pact to open up sales of civilian nuclear technology to India -- lifting a ban imposed after India's first nuclear test in 1974.
The agreement cemented India's shift to the high table of global politics and lent a new strategic element to its status as an emerging economic power.
Successive years of economic growth had seen India begin 2008 in bullish mood, but now it is eyeing 2009 with trepidation having finally succumbed to the aftershocks of the global financial meltdown.
Up to a few months ago as the US-led banking crisis ballooned, Indian policymakers comforted themselves, saying the country, with its dynamic and vast domestic market of 1.1 billion people, was "decoupled" from the West.
Since then, however, property prices have plunged, lending has stalled, factories have cut output, exports have tumbled and share prices are down by nearly 60 percent with foreign investors pulling out 13 billion dollars this year.
"This whole idea of decoupling has been shot down very clearly by the global crisis which is getting transmitted through trade and the financial markets," said Shubadha Rao, chief economist at Mumbai's Yes Bank.
The government has taken some steps to stimulate the economy. But unlike China, India -- which has one of the highest combined state and national deficits in the world -- has no similar room for a fiscal "big bang."
"The government's ability to stimulate the economy is obviously constrained by the government's current fiscal health," said Mumbai's Edwelweiss Securities economist Siddartha Sanyal.
Nevertheless, economists expect India to post growth of at least 6.8 percent this year, which is still substantial by anemic Western standards, falling to around 5.5 percent next year as the full impact of the downturn is felt.
The state of the economy and national security are issues that will dominate general elections which the Congress-led government must call by May next year.
The result is difficult to predict.
The Congress Party was criticised in the wake of the Mumbai attacks, but still performed well in a handful of state elections where voters were unmoved by the campaign of the main opposition party, the Hindu nationalist BJP, to paint the government as "soft on terror".
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