India strong enough to overcome Brexit fallout, says India Inc : The Tribune India

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India strong enough to overcome Brexit fallout, says India Inc

NEW DELHI: As stock markets and the rupee were pounded following the Brexit outcome, the government today assured investors that India’s macro-economic fundamentals are strong but warned of turbulence for the global economy in the months ahead.



Sanjeev Sharma

Tribune News Service

New Delhi, June 24

As stock markets and the rupee were pounded following the Brexit outcome, the government today assured investors that India’s macro-economic fundamentals are strong but warned of turbulence for the global economy in the months ahead.

Finance Minister Arun Jaitley, who is on a visit to China, said all countries around the world will have to brace themselves for a period of possible turbulence.

“We are well prepared to deal with the short and medium-term consequences of Brexit. Our macro-economic fundamentals are sound with a very comfortable external position, a rock-solid commitment to fiscal discipline, and declining inflation. Our immediate and medium-term firewalls are solid too in the form of a healthy reserve position,” he said referring to record foreign exchange reserves of more than $360 billion.

The RBI too tried to assure investors. RBI Governor Raghuram Rajan, who is meeting heads of central banks in Basel, said the RBI is continuously maintaining a close vigil on the market developments, both domestically and internationally, and will take all necessary steps, including providing liquidity support (both dollar and rupee), to ensure orderly conditions in financial markets.

Experts said while Brexit will hurt global recovery, it will help India with lower commodity prices. Sunil Kumar Sinha, Principal Economist, India Ratings, said as Brexit will vitiate the already uneven and fragile global recovery, it will exert downward pressure on global commodity prices and India will benefit being a net commodity importer.

He added that Indian companies having exposure to the UK would be hit.

While India’s trade engagement with the UK is limited, the impact of global volatility will hit capital inflows. According to Kotak Institutional Equities, India’s export exposure to the UK is limited with only 3.3% of total export basket directed at the UK which is around 0.5% of the GDP. Textiles and apparels, pharmaceutical products, and gems and jewelry form the bulk of exports. Services exports to the UK account for 0.3% of the GDP. However, a fall in global demand will further weaken the exports trajectory. According to the FIEO, India’s exports to EU were $35.35 billion while the same was $9.35 billion to Britain in 2015-16.

The Brexit verdict will also hurt investments into India. Aditi Nayar, senior economist, ICRA, said the post-Brexit uncertainty may weigh upon the performance of merchandise and services exports and delay the concretisation of investment plans, partly moderating the expected benefit of the recent FDI reforms.

Indian companies continue to play a major part in the vibrancy of the UK economy. 2015 saw investments from India rise by 65%, making it the third largest source of FDI in the UK.

CII president Naushad Forbes said many Indian companies view the UK as a gateway to Europe and the companies will have to reassess their strategy.

“With the UK voting to leave the EU, Indian companies will re-engineer their European strategy. This should not be an issue. India will not be affected due to Brexit if we look at a mid to long-term perspective,” he said.

Industry body Ficci said there will be a greater period of volatility in the days ahead while the trade and investment implications for India and the rest of the world become evident.

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