People of Britain have cast their vote and the results are out, Britain will leave Europe after 43 years of staying together. Opinions are divided on whether Britain was right to leave Europe. Pro-Business camp felt let down as their products would be hard to sell within Europe and hiring of young immigrant workers from Europe will not be easy now. While others have felt Britain gives a lot as the membership fee to stay in EU without anything much in return.
Taking a step back from all this, what is the potential impact for India?
1. The stock market reacted as expected and wiped away 4 lakh crore of investor wealth. However, given the sizeable amount of forex reserves, low inflation among other strong fundamentals, India is expected to bounce back from this plunge.
2. Indian companies in Britain – All the Indian companies in Britain like Tata Motors and others, their stocks have come crashing down on an average of 7%. Indian investors uncertain over the repercussions of the exit have gone on a selling spree after the news of BREXIT broke out. Indian companies in Britain will have their tasks cut out for the coming future given the partial delinking of Britain from the European market.
3. Countering United States – Asian countries and other small economies all are wary of a unipolar world with the US at the helm, the EU provided the counterbalance to the US for other countries to exploit. The exit of Britain weakens Europe significantly and the chance of a bipolar world. There is every reason for Asian countries to be nervous about BREXIT.
Good news is there as well
4. Borrowing in pounds – For all the companies which had borrowed in pounds, they will have to pay less now given the 10 % slide in the currency.
RBI governor has calmed things down post BREXIT news, while the ruling party has allayed fears over the potential consequences of BREXIT, Congress Jairam Ramesh speaking to The Hindustan Times termed BREXIT as a “suicide” committed by Europe.