When Elephants Fight, The Grass is Always Trampled
As the Britons were busy contemplating and pondering over what exactly the European Union (EU) means and stands for, the referendum results started coming in the wee hours of the morning of 24th June, sending shock waves throughout Europe. With reactions coming in from around the world, ranging from ‘ecstatic ‘ to ‘nightmarish’, the results marked the beginning of the new end. The Pandora’s Box had been opened with the results striking a killer blow to the much vaunted EU unity and also bringing out in the open, the major differences that threaten to fragment the not-so-United Kingdom.
Moving on to the moot question: How does Brexit affect India and its import-dependent economy? Coming close on the heels of the news of Rexit, the Brexit is surely going to effect the Indian economy considering the long and close relations that India enjoys with the United Kingdom. As things stand, India is presently the second biggest source of FDI for the UK. However, with UK choosing to come out of the EU, the FDI inflow is set to come down drastically as UK will no longer be an attractive destination for businesses that aim to access the vast European market. In order to appease the Indian companies, one can expect the British authorities going the extra mile by providing bigger incentives in terms of tax breaks, lesser regulations and other financial sops.
On the other hand, with the global markets in turmoil following the June 24 results, Sensex and Nifty are bound to be hit hard in the short run due to the economic volatility plaguing the global economic markets. Coupled to this, the recovery in commodity markets in recent months will hit a roadblock with these results. The IT and automobile sectors are set to face the maximum brunt of the results as a sizable portion of their revenues come from the United Kingdom.
On the fillip side, with UK out of the EU, it’s high time that India grabbed the opportunity with both hands and started forging stronger ties with other EU nations which shall provide a gateway to the large EU market. Also, the crude oil prices are expected to fall sharply due to the weakening demand which is a huge positive for the Indian economy considering its huge import requirements. Further, Indian students stand to benefit from Brexit as UK universities are no longer obliged to offer subsidized education to students from other EU nations, thereby, freeing up funds for students from other countries.
It is a bit too early to quantify the effects that Brexit is going to have on the Indian economy but the referendum results have presented India with a unique prospect to seize the moment and rise above the volatile market amidst this global turmoil and turn the threat of Brexit into an opportunity. The clouds may seem really dark at this moment but as is often said, every dark cloud has a silver lining to it.