Are “Brexit” concerns for India overdone?

The markets have calmed down. As a matter of fact, global markets, including the ones in Europe that fell like no tomorrow have recovered a fair bit as doomsday theories begin to fade away.

There already are views that Brexit may not happen at all. Moreover, if triggered, it will take about two years or more for the UK parliament to constitutionally incorporate changes and negotiate new deals with EU.

A lot has been written about Brexit and its impact on India. Last Friday, just like global markets, India too saw a flurry of activity where markets plunged nearly 3%.

But, is it really that bad a deal for India?

Arvind Subramanian, Chief Economic Advisor (CEA), was quoted in the Times of India as saying, “Brexit may have caused a lot of uncertainty in the global economy but the development has made India a `safe haven' for investors in the past few days.”

According to HDFC mutual fund, the policy direction in India is right and economy is making good progress on most fronts.

However, until the terms are revised between the UK and EU, Brexit is likely to disturb the Indian businesses. Sterling’s depreciation is an unexpected positive for companies like Tata Steel and Tata Motors (JLR), who have manufacturing operations in Britain, but, impact on Indian sectors like pharma, IT, banks and agrochemicals is likely to be marginal, HDFC mutual fund report said.

India is expected to be in a strong position even if there are some foreign institutional investors who decide to pull their money out of the country.

It is believed that India’s current account deficit (CAD) to remain attainable at about ~1.5% of GDP in FY17. Finance Minister Arun Jaitley, too, has labelled India’s CAD as ‘comfortable’.  

Foreign exchange reserves at $363 billion seem adequate to withstand volatility in the case of global risk aversion.

It is difficult to make a case of any meaningful impact on Indian economy of Brexit – either direct or indirect.

India is a small trading partner of UK with only 3.4% and 1.4% of India’s merchandise exports and imports, respectively, as of FY16.

FDI flows from UK to India stood at only $1billion in FY15 and $0.8 billion in FY16

“In our opinion, Indian markets will quickly discount/recover from Brexit,” said the report.