Brexit for India: Its not all bad

The Brexit actually took place last week, after many months of speculation and debate over its potential impact. The overwhelming reaction to the event is one of disappointment. The uncertainty that it has brought to Europe is needless to say, a challenge. Also in a globalised world, what affects on country or group of countries, affects all others. That does not however, dim my surprise at the number of social media threads from India I have read, which are disappointed with Brexit.


Because it is taking a possibly uncertain long term view over clear short term benefits. And because it focuses so much more on what it means for Europe than what it means for us, here in India. 

It is of course a disappointment in terms of a breakdown in unity among countries, at one level. I get that perfectly. But in the words of US President Obama, " There has been a bit of hysteria post-Brexit if....every country is rushing off to its own corner." 

But, to everyone in India, the sharp dip in the british pound against Indian rupee, is essentially what the Brexit has meant for us so far.

That trip you wanted to make to London or wherever else in the UK? The time is now. It doesn’t get better.

From clothes to food, everything imported from the UK is going to become cheaper too, if this depreciation in the pound continues.

And this, incidentally, is good for the UK too. As is the marginal depreciation in the Euro potentially good for that economy in the short run as well.


Last week I had written a post titled “When did economists come to be called ‘rockstars’?” that expressed my amazement at how keenly economics and economists have come to be followed by individuals who should ideally not be impacted by many aspects of economic functioning.

I was, however, mistaken if I though that people at large are interested only in matters that are related to the Indian economy only. And this was proved by the conversation around the Brexit. I have lost count of the number of social media threads I have seen from people in my networks who have either commented themselves on the Brexit or posted from various sources about it. 

The typical tone of these posts is one of disappointment at the UK leaving the EU. Part of this expressed disappointment is on account of the fact that the future of the EU itself now comes under question. It is possible that other EU countries might also decide to secede, following the path of the UK. It is also seen as a symbol of a breakdown of economic and people movements that keep Europe as one entity, and now that will be lost. No matter how we look at it, it represents a period of uncertainty, more so because we don’t know what the terms of exit themselves might entail.

I totally get why people are moved by many of these posts. They are also directly relevant to those who are actually living in the UK or other parts of Europe. There might also be second round effects on people in India because of this. The speculations range from UK going into a recession to the EU breaking up and everything in between.

However, let us not forget first round effects in favour of second round ones. And what are the first effects? Right now, all that we in India as the regular folk need to look at is the exchange rate chart. After Brexit was announced, the pound fell by 6.6% to the rupee. At present it costs around INR 90 to buy one British pound, an almost INR 10 fall from the last week. My question: Does it get better for people in India?

That trip you wanted to make to London? The time is now. It doesn’t get better.

From clothes to food, everything imported from the UK is going to become cheaper too, if this depreciation in the pound continues.

Further, at the margin there is also some depreciation in the Euro compared with the Indian rupee. This contrasts with the fact that during the past week, there has been some appreciation in the US dollar against the rupee.

And before it sounds purely self-centred, let me rush to add: buying in or from the UK is only good for the UK economy as well. As is the depreciation in the Euro, good for the EU.

Even from a more economy and business oriented perspective, the Brexit is far from being an unadulterated bad. For one, even if our imports from UK increase, India has a trade surplus with it and even across all countries our trade deficit at present is quite contained. Therefore, an increase in imports is not bad. If anything, it gives an impetus to our imports, which have been falling over the past year. 

Further, India and the EU have been caught in an impasse with respect to the negotiations on the EU-India Bilateral Investment and Trade Agreement, which were first initiated in 2007. With the UK moving out of the EU, there is a possibility that India can have an independent pact with the UK. Not only is UK the largest investor in India among all EU countries, it is also the largest export market.

Perhaps we would like to wait and watch what the exact impact of the Brexit is, going forward. And in the meantime, make the most of the good it does for us, and for the UK and EU economy as well.

No comments:

Post a Comment