By Sanjay Thapa Jeet
Even as the historic Brexit decision is being celebrated as’IndependenceDay’ in Britain, it comes as a major shake-up for the world. Over the course of the next two years, the finalnitty gritties of the decision will be implemented under thesection 50 of the EU agreement. Yet, Brexit has already set off a sense of reassessment around the world financial capitals. Many see it as amajor shake-up for the world currency market. The global stockmarkets 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?
Afterthe ChineseYuan Remnibe devaluation last year a simlliar shake-up took place in the EMScurrencies. Last year, the US Fed’s postponement of an interest ratehike albeitby a marginal 25 basis points to kickstart the US economy strengthened thedollar. Japanese Yen was devalued and the Pound Sterling wasdown 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 negativeside, in terms of trade between India, the EU member nations and Britain there may be a major impact as therupee slides.UK is one of India’s largest investors and EU is its second largest tradingpartner block. Brexit would mean that trade to EU and UK will have to be doneseparately.
Although UK is saddled with a large trade accountdeficit, it is India’s 5th largest export partner and fourth largestimport partner.
Thus export sectors will suffer as therupee depreciates and this would affect Indian companies like TATA JLR. One ofthe main contentions for Brexit was that immigrants were eating away alarge portion of UK jobs under the EU agreement. This would affect lakhs of Indians employed in the UK.
[su_pullquote align=”right”]But on the positive side, it does open up more opportunities for Indiaas the worldeconomy stagnates.[/su_pullquote]
Both US and Europe have beenfacing jobless growth for past several years. They have been decrying the presence of the Indian workforce. The US President aspirant Hillary Clinton has called to stop outsourcing jobs to Indians. In UK there has been a growinglobby against the Indian workforce, some even calling it ‘reversecolonialism’.
Positive Implications of Brexit for India
But on the positive side, it does open up more opportunities for Indiaas the worldeconomy stagnates. Given the ‘sweet spot’ theory of the North Block and the recent moveof the Modigovernment 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 inthe upcoming Monsoon session of the Parliament might pave way for the manifestation of the ‘Indian growth story’ into reality, amidst the dismalgrowth figures fromChina and other EU member nations rendering India advantageous.
Exits after Brexit? | Photo Courtesy: www.visualhunt.comImplications for the World
In hind sight, my interactions with the CEA Arvind Subramaniam as wellas the RBI Governor it emerged that even as the Chinese central Bank undertook tworounds of devaluation of the Chinese remenbi, currencies particulalry in the EMwanted to devalue theirs to kickstart exports.The affect onworld commodities has been positive for precious metals. It has had an adverse impact on crudeoil which has shown some signs of hardening in the recent months. Brexit is just the begining and one would haveto wait andwatch 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.
Featured Image Source: Unsplash
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