Domestic spending surges to mitigate Brexit impact on India

Even though global economy, including India, is likely to suffer aftershocks of the British referendum, multiple upcoming domestic factors are likely to create demand in India which is likely to take the economy forward.

Sonal Varma and Neha Saraf of Nomura in a report dated June 24 said that Brexit impact on Indian economy will be cushioned by upcoming domestic impulses like good monsoons, 7th pay commission hikes and easing of monetary and fiscal policies.

India’s domestic demand largely stems its economic backbone. Britain’s decision to leave EU is thus not an open threat to India’s financial sector, they said.

According to the report, UK’s shares in Indian exports is nearly 3.5% and accounts for a fair share of Indian exports.

India’s exports of apparel to UK is 10%, footwear is 17% and machinery 5%, which will be the most hit.

Weak exports owing to Brexit and low capacity utilization will also affect Indian businesses, Nomura report predicted.

Although not totally immune to Brexit, India has strong trade linkages with EU amounting to approximately 13.5% of India’s exports which will be impacted.

Investors pulling out their investments and the tightening restrictions of European banks will result in tightening financial conditions in India, the report stated.