By Sanjay Thapa Jeet
Even as the historic Brexit decision is being celebrated as ‘Independence Day’ in Britain, it comes as a major shake-up for the world. Over the course of the next two years, the final nitty gritties of the decision will be implemented under the section 50 of the EU agreement. Yet, Brexit has already set off a sense of reassessment around the world financial capitals. Many see it as a major shake-up for the world currency market. The global stock markets went jittery after the news of Brexit. Also, the Dow Jones plummeted head on in a free fall of 467 points.
As the fine print sinks in, the question is whether Brexit will set off exit of other EU members?
This deepens the fragility of the Eurozone, raising questions of euroskepticism. European recession and the Greece crisis have already cast an ominous shadow over the sucess story of the EU. Thus the question is whether Brexit will set off a world currency crisis in the coming days?
After the Chinese Yuan Remnibe devaluation last year a simlliar shake-up took place in the EMS currencies. Last year, the US Fed’s postponement of an interest rate hike albeit by a marginal 25 basis points to kickstart the US economy strengthened the dollar. Japanese Yen was devalued and the Pound Sterling was down at its lowest since 1985. But then there are collateral ‘benefits’ that Britain may derive by exiting the EU.
Negative Implications of Brexit for India
On the negative side, in terms of trade between India, the EU member nations and Britain there may be a major impact as the rupee slides. UK is one of India’s largest investors and EU is its second largest trading partner block. Brexit would mean that trade to EU and UK will have to be done separately.
Although UK is saddled with a large trade account deficit, it is India’s 5th largest export partner and fourth largest import partner.
Thus export sectors will suffer as the rupee depreciates and this would affect Indian companies like TATA JLR. One of the main contentions for Brexit was that immigrants were eating away a large portion of UK jobs under the EU agreement. This would affect lakhs of Indians employed in the UK.
Both US and Europe have been facing jobless growth for past several years. They have been decrying the presence of the Indian work force. The US President aspirant Hillary Clinton has called to stop outsourcing jobs to Indians. In UK there has been a growing lobby against the Indian workforce, some even calling it ‘reverse colonialism’.
Positive Implications of Brexit for India
But on the positive side, it does open up more opportunities for India as the world economy stagnates. Given the ‘sweet spot’ theory of the North Block and the recent move of the Modi government to free FDI, India may emerge as one fo the top options for global investments as compared to other nations. To add to this the news of ‘Normal Monsoons’ as well as the optimism over the implementation of the GST Bill in the upcoming Monsoon session of the Parliament might pave way for the manifestation of the ‘Indian growth story’ into reality, amidst the dismal growth figures from China and other EU member nations rendering India advantageous.
Implications for the World
In hind sight, my interactions with the CEA Arvind Subramaniam as well as the RBI Governor it emerged that even as the Chinese central Bank undertook two rounds of devaluation of the Chinese remenbi, currencies particulalry in the EM wanted to devalue theirs to kickstart exports. The affect on world commodities has been positive for precious metals. It has had an adverse impact on crude oil which has shown some signs of hardening in the recent months. Brexit is just the begining and one would have to wait and watch to see the repercussions it holds. There is also the possibility of further exits by member nations from the EU. The Eurozone might fear collapse.
Sanjay Thapa Jeet is an alumni of Cambrian Hall Dehradun and has worked with The Indian Express and India Today.
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