In the summer of 2005, I moved with my family to live and work in Mumbai, the capital city of Maharashtra State. I came after living for several years in Kolkata, in the east of India, a city that, after decades of genteel dwindling and gradual reconciliation with its diminished sense of itself, was beginning to look up. As I settled down, I found Mumbai to be all the things that Kolkata was not.

If Kolkata was bashfully apologetic and self-deprecating, wry and ironical, Mumbai was brash and self-congratulatory. It was chest-thumpingly aware of its own importance and its position at the heart of India's rapid growth and change. The nation was being transformed by an economic miracle that had implications far beyond the Arabian Sea on whose edge the sprawling city of 19 million people was perched.

We found a flat in Bandra, a western suburb on the seafront. It was once predominantly a Christian locality, with many churches, and dotted with quaint cottages hugged by creepers. This was a neighbourhood in which, as Amit Chaudhuri wrote in his novel Afternoon Raag, the "Portuguese names - Pedro, DiSilva, Gonsalves - twang in the air like plucked, silvery guitar strings".

All that has changed over the past decade. Although it is only ten miles away, Bandra once seemed so far removed from the city's downtown (the area in which terrorists unleashed their audacious, murderous attacks) as to seem a place where you bought a weekend home. But now it is right in the heart of things.

Because outrageous property prices were pushing people ever further outward from the city's southern downtown tip (the business hub and centre of old money and aristocracy), Bandra had become the new midtown: nouveau riche, prohibitively expensive and fashionable in an edgy sort of way. The old cottages were being ripped apart, replaced by often ugly - but always lavish - towers of apartment blocks.

And now the soundtrack to our lives in Bandra, as in so much of Mumbai, is the relentless noise of old buildings being demolished and new ones going up: the clang of the hammer, the whine of the drill, the rumble of the bulldozer. Bandra is an embodiment of what Mumbai is now all about: wealth and social climbing, the need ostentatiously to proclaim that you have arrived.

The main Hindi film studios are not far from this neighbourhood, and most of the stars of the industry have moved out to Bandra, weary of the daily travel from downtown (where they once used to live) to the western suburbs (where they go to work). It isn't merely them. Anyone who wants to be in Bollywood is trying to move into Bandra as well, living far beyond their means in one-roomed flats little bigger than ten square feet. It is as though being in Bandra, close to the stars, takes away some of the sense of remoteness from their aspirations. Here they are, in the city of dreams, still dreaming.

In his novel Sacred Games, Vikram Chandra captured something of this feeling when he portrayed Mumbai as a city of magical possibilities: "It could happen. It did happen, and that's why people kept trying. It did happen. That was the dream, the big dream of Bombay."

Living in Bandra offers a sort of a start. If you can live here - and it is hard - who knows, you might soon find a role in a movie, a role that would put you on the billboards, like the stars you so admire but whose success you also resent. Bandra is Beverly Hills with terrible roads. Everywhere you go in the neighbourhood, there are reminders of the movie stars' presence.

Mumbai is in love with its own self-image and the awe it inspires in others; it has no patience with those in whom it does not inspire a sense of wonder. This is a city that exemplifies the new India: keen to inspire envy, in a hurry to get ahead, revelling in its importance and never shy of parading its not inconsiderable wealth.

Every week in the newspapers, there are reports of how Mumbai pays the most tax in India; how it has more billionaires than any other city; how its rentals and home prices are among the highest in the world; how it is getting richer and richer by the day. The business of making serious money drives Mumbai.

That business never lets up, even in the face of calamity. Mumbai is no stranger to catastrophe. In 1992, there were communal riots that threatened to rip apart for ever the secular fabric of this most cosmopolitan of Indian cities. In 1993, serial blasts tore through Mumbai, an event that has become the material for dozens of Hindi movies. In 2005, a month after I moved here, 934mm of rain fell in a 24-hour per iod, a world record. The deluge unleashed the worst floods in the city's history, killing hundreds and destroying thousands of homes and livelihoods. In 2006, bombs went off on the city's suburban train network, killing more than 200 people.

Mumbai has been repeatedly brought to its knees, and repeatedly it has picked itself up, and got on with life. There is a phrase that has become not so much a commonplace as a vulgar truism, one that people reach for as a shorthand to describe the city's indomitable nature: the spirit of Mumbai.

But something is different now. These latest attacks have truly shaken the spirit of the city.

This is what we know so far. The terrorists came by sea from Karachi, Pakistan. They were armed with enough guns, ammunition and explosives, and were sufficiently ruthless and well trained to be able to hold out for 62 hours against India's elite commandos and army. The terrorists held hostage two luxury hotels, the Taj Mahal and the Oberoi-Trident; the Chhatrapati Shivaji Terminus, the city's main railway station; a cafe called Leopold's, popular with tourists and backpackers; and a five-storey residential building that housed the city headquarters of an ultra-Orthodox Jewish group. All the locations were in south Mumbai.

The strikes were timed to play out on worldwide daytime television. As the story of the attacks began to unfold from the night of 26 November in India, it coincided with Thanksgiving in the US. The terrorists were specifically looking for visitors with British or American passports. And at the end of the three-day killing spree and pitched gun battles, 173 people had been murdered. (That was merely the official count; the actual estimate of those killed is much higher.) Twenty of the dead were foreigners.

This year, many hundreds of people have been killed in terrorist attacks across India, in Jaipur, Hyderabad and Delhi. High-profile terrorism in cities (70 blasts and attacks) has killed 400 people in India over the past seven months alone. But the November assault on Mumbai suggested something not hitherto evident: that India was now firmly on the deadly map drawn up for attack by global jihadists.

After each of the previous attacks on Mumbai, people could begin to guess why they had happened. In this instance, there was obviously shock but there was also profound bewilderment and confusion. How exactly? And why?

India has been quick to insinuate that Pakistan is linked to the strikes. The one terrorist who has been caught and interrogated has told investi gators that he was trained by Lashkar-e-Toiba, a jihadist group based in Pakistan.

For ordinary people, however, there are no clear answers or explanations. No one can tell why this happened or when something similar might happen again. Stumbling and groping, Mumbai has had its sense of security and confidence eroded. Never before has the city so acutely felt its own fragility.

Of the five locations, it was the attack on the Taj Mahal hotel near the Gateway of India that was, in terms of symbolism, the most resonant. Mumbai's monuments are secular, and the 105-year-old Taj, built by a Parsi businessman because he was turned away from a hotel for being Indian, is the picture-postcard emblem of the city. It is to Mumbai what the Empire State Building is to New York and the Eiffel Tower is to Paris. It is Mumbai.

As pictures of the smoking hotel - flames leaping out of windows, panes shattering, crows taking off in the foreground at the sound of gunfire against the plumes of smoke that darkened the afternoon sky - flashed up on live television, and later, as the Taj Mahal closed down for repair on Monday, Mumbai saw the attack on its signature hotel as a violation unlike any other.

On Sunday 30 November, a groundswell of protests against the attacks began in Mumbai. There were candlelit vigils, marches and peaceful demonstrations with eloquent placards. The resentment, for the moment, seems to be directed at the perceived failure of the intelligence services and at politicians. In a nationwide survey conducted by the Hindustan Times, one of the country's best-known and most influential English-language broadsheet dailies, 84 per cent of the respondents felt that the government was not doing enough to fight terrorism.

With general elections due in 2009, the ruling coalition headed by the Congress Party bore the brunt of the anger. Shivraj Patil, India's home minister, stepped down on Sunday. By Monday morning, Maharashtra's home minister, R R Patil, had quit as well. The indications are that Vilasrao Deshmukh, the chief minister of Maharashtra, is on his way out, too.

How India will react to the attacks will shape the events of months and years to come. Already, the peace process with Pakistan is in jeopardy. And with India's dismal history of strife between Hindus and Muslims (in 2002, the main opposition party, the BJP, was accused of the biggest anti-Muslim pogrom in modern Indian history), the country will do well to be particularly vigilant against communal conflict.

Time and again over the past week, commentators have referred to the attacks on Mumbai as "India's 9/11" - a world-historic moment of change after which nothing can be the same again. That is indeed the most convenient analogy to use. But if one were to assume that it is so, that assumption brings its own complexities.

As the novelist Amitav Ghosh wrote in an essay published in the Hindustan Times: "If India can react with dispassionate but determined resolve, then 2008 may yet be remembered as a moment when the tide turned in a long, long battle . . . Defeat or victory is not determined by the success of the strike itself. It is determined by the response."

And what, now, of Mumbai? How will this city withstand these ravages and go about its business? How resilient can the city prove it- self to be?

Mumbai is the glittering exemplar of the new India and the national success story, yet it is also a city of dichotomies. Nowhere in India (perhaps even in the world) is the gulf between the affluent urban elite and those who live beneath the poverty line as pronounced as it is in Mumbai. Nowhere, perhaps, is the urge to cross over from the side of the underprivileged to the other as deeply consuming.

The degree to which these attacks have scarred Mumbai, and the extent of the damage they have inflicted, was symbolically represented on Thursday 27 November when the Bombay Stock Exchange did not open for trading. The business of making money might drive Mumbai, but the shock of being violated had stalled it.

The following Monday morning, still numbed, the city was returning to its frenetic self. Children went back to school. Hotels had been turned into fortresses. Offices were open, and the roads were filling up with the sort of traffic which is usually so dense that you can hear the conversation in the car alongside yours when you stop at traffic lights. Money was being made – and lost – on the stock exchange, as usual. Markets were doing business. And in homes, cremations or burials over, hundreds were beginning the process of grieving and reconciliation.

Mumbai, hurt and angry, was still grappling with how to come to terms with what had happened but it was also beginning to get on with the business of getting along, of going on.

In a way, this is the story of India, the world's largest democracy: learning to carry on after assaults on its pluralist democracy, and being, in the end, able to do so.

In his book India After Gandhi: the History of the World's Largest Democracy, Ramachandra Guha argues persuasively that it is no small triumph that India, as well as its democracy, not merely exists at all but continues to thrive. "India will go on," Guha quotes the novelist R K Nara yan telling V S Naipaul in the 1960s.

In its darkest hour, that is Mumbai's triumph, too. Mumbai will go on. As India will.

Soumya Bhattacharya is the editor of the Hindustan Times in Mumbai and author of the memoir "You Must Like Cricket?", published by Yellow Jersey Press (£12)