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Not to be apocalyptic

Not to be apocalyptic
Highlights

As the world wakes up to the repercussions of Brexit, India, too, is assessing the implications of Britain‘s exit from the European Union.  India is one of the largest investors in United Kingdom. There are 800 Indian companies having a presence in Britain. Most of them are commodity-dependent. 

As the world wakes up to the repercussions of Brexit, India, too, is assessing the implications of Britain‘s exit from the European Union. India is one of the largest investors in United Kingdom. There are 800 Indian companies having a presence in Britain. Most of them are commodity-dependent.

These can be potentially harmed due to Brexit. More so, the Brexit has deeply impacted sentiment in global financial markets that have already shown visible effect on the stock values in the Indian market, too. The impact on the real economy may not be so significant.

The exaggerated first reaction may settle down as measured response prevails over panic reaction. The European Union is a single market with free movement of labour and capital as well as free trade within the Union. As it leaves the EU, Britain would hunt for new avenues for trade and investment. India can be a favourite, given the buoyant Indo-British relations.

Immigration was the major bone of contention during the Brexit debate. This is an area to be carefully watched for its possible adverse impact on Indian professionals moving to Britain for jobs. The echoes of Brexit are already being heard elsewhere in the EU, including in the countries like France.

More referendums may follow. No wonder even if the European Union disintegrates. India should be prepared for any eventuality. In an inter-dependent world, no country can hope to be completely insulated from the Brexit-induced global volatility. But, there is no cause for alarm.

India enjoys a comfortable position on the external front. With a matured democracy and strong macroeconomic fundamentals, India should strive to convert the threat into an opportunity to forge much stronger ties with both the UK and the EU.

The impact of Brexit on India’s trade is also expected to be marginal as it has bilateral trade agreements with the members of European Union. Brexit is a reality. The world has to come to grips with this divorce even if it is expensive. India should evolve robust strategies to capitalise on the emerging landscape as the world struggles to economically acclimatise to a looser EU.

It’s erroneous to make an apocalyptic prediction. The bloodbath in Dalal Street is only the result of herd instinct and it no way represents the things to come. Britain accounts for only 3.4 per cent of India’s exports. If it renegotiates its terms of trade as it exits from EU, it is not going to hurt India in any big way.

The rupee may continue to be in jitters due to Euro-Sterling relationship. But, India’s relationship in the foreign currency market is more with the dollar. Therefore, the adverse impact may be temporary and the overall economic impact of Brexit on India is all likely to be peripheral.

That too, there will be a two-year window for the transition during which India can brace up to the limited impact. But, if the exit of Britain means the disintegration of Europe, the risks associated with it are difficult to predict at this moment.

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