BREXIT: India to Benefit But 2 Years Later

Now that the UK has done what was expected in the last one decade, exiting from the European Union, despite a brave face put up by the Indian government and analysts, the gloomy picture is looming large on the share market that plunged by more than 1,000 points in a single day.

The government’s reaction is stereotypic that the economy has enough "firepower" to deal with the situation, and that the Reserve Bank of India (RBI) has been "working" on possible eventualities and the Economic Affairs Secretary Shaktikanta Das was upbeat on fundamentals. But let us face it — grim future ahead and perhaps another prolonged period of uncertainty and recession.

The BSE Sensex lost 1,050 points and investors have lost Rs.4 lakh crore in one day. The rupee touched the 68-mark, down by nealry one rupee in one day, indicating its weakness in a globally turbulent economy. "You know the pound sterling have been depreciating so all currencies have been depreciating," defended Das. With $360 billion in foreign exchange reserves with RBI, he said India’s position "is very sound and solid."

While the knee-jerk reaction is likely to cool in a coule of weeks, for Britain the changes will not be overwhelming as it had always played an outsider role within the European Union. Unlike other members, it had kept its currency, the pound sterling in tact and never joined the Schengen zone of passport-free travel in Europe. Its contribution to EU budget is also relatively less than others.

The pound sterling may see downward movement for sometime and so is India’s rupee but for the reality of entirely breaking away from the European Union may take about two years, if the current David cameroon’s government gives its consent and goes ahead with the referendum’s outcome to exit from EU. So, these two years will be sufficient for India to move closer to the UK both in terms of trade treaty and negotiate more opportunites.

While the immigration was a major cause of worry for Indians in Britain, they can breathe easy now with the exit plan putting a cap on 100,000 immigrants per annum taking concrete shape as no more EU immigrants can enter Britain so easily now. With the immigrants stopped from elsewhere, India may leverage the opportunity for a more favourable immigration policy with the UK.

Finally, the oil prices will fall following Brexit and it will squarely put in more reserves in RBI kitty. "So when oil prices decline, Indian economy benefits," said another Indian Finance Ministry official.

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