New Delhi: Finance Minister Arun Jaitley on Friday sought to calm concerns over the market fallout of UK's decision to leave the European Union saying the government and the RBI are well-prepared to deal with any fallout.
"We are well prepared to deal with the short and medium term consequences of Brexit. We are strongly committed to our macro-economic framework with its focus on maintaining stability. 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." Jaitley said in a statement.
The Finance Minister said the immediate effort would be to smooth the volatility - both stock and currency markets plunged after the Brexit vote - and minimise its impact on the economy in the short term.
Reserve Bank of India governor Raghuram Rajan, talking to Network18 over the phone, warned against "över-forecasting" on the current developments.
"It is early days days yet. There is no need to overforecast...We are seeing reactions from across the world. Let us see how it plays out," Rajan said.
The RBI governor said the UK referendum came as a shock as opinion polls had suggested the 'Remain' campaign will prevail.
Economic Affairs secretary Shaktikanta Das came out told the media,“We have enough fire power to deal with the situation. Brexit will not affect us much".
Some Immediate Impact, No Long-Term Trouble
Financial experts see the developments as sentimental reactions arguing that the long-term impact of Brexit would be minimal on the Indian economy.
Sujon Hazra, chief economist and executive director at Anand Rathi Securities, told News18: "The Brexit result is narrow. It will take at least two years for the UK to decide on Brexit referendum results. There can be some interim impact on our economy. In the long run, there won’t be much direct impact on us".
On the prospects of India’s BPO and KPO sectors in the UK and rest of Europe, he said it would take some time to get a clearer picture. He said all emerging markets including India will face some uncertainty in the beginning and that India is in a better position to absorb the shocks.
A Prasanna, chief economist at ICICI securities, also expressed similar views on the Brexit impact over India. He said that direct impact on the economy would be quiet small and Indian rupee is more resilient than other currencies against the US dollar. “I don’t see a huge impact in the long run. Fundamentals of our economy are strong," he told News18.
DK Joshi, chief economist at CRISIL, said the reactions in the stock and currency markets were expected. Speaking to News18 he said “what happens next is going to be decided over the course of the year. The Indian business which uses Britain as a manufacturing hub to export it to rest of Europe will have to change its strategy after Brexit".
Major Sectors
At least one-fourth of export revenues of Indian software majors come from the UK and European Union. According to experts they will have to make a separate business plan for the UK, if Britain actually exits EU in the next two years.
According to “The Economist" over 800 small and big Indian companies operate out of Britain, using London as their main base to get access to the vast European market with 50 crore population.
Now, these companies may find it more difficult to directly access markets in mainland Europe and will have to create a separate base for rest of Europe in Germany or France.
Even though India’s trade with the UK is shrinking these days, it is still valued at US dollar 14 Billion or over Rs.90,000 crore in Indian currency.
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