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Last updated: 28 Jun, 2016  

brexitTHMB.jpg Brexit: Reforms can shield us from global shocks

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Bikky Khosla | 28 Jun, 2016
The week gone by saw some important developments. In a setback to the global economy, Britain decided to exit the European Union. The decision has sent a shock wave across the globe, but as far as India is concerned there is a unanimous view that we are fairly insulated from any collateral damage. Meanwhile in the domestic front, there are some positive news with reforms. First, foreign investment norms are relaxed further in a number of sectors. Second, the Cabinet approved a special package for the textile sector. If reforms continue at this pace, I don't think global shocks like the Brexit crisis can have any broad and lasting effects on our economy.

In a historic referendum last week, Britain voted to leave the EU. Needless to say, the result, which blindsided many pollsters, is a huge shock to the global economy, but I don't think it is strong enough to cause another financial crisis. Also, it would not be right to say that India is totally immune to it, but again I don't see any major threat from it to our domestic growth prospects. The Britain-EU divorce may force some of our companies to rework their European strategy and it may also lead to currency volatility in the immediate future, but on the positive side, it opens up an opportunity for us to negotiate a FTA with the UK, on the background of the current deadlock in India-EU FTA negotiations.

Meanwhile, the Centre's last week decision to further liberalize FDI regulations is a welcome move. This is the second biggest reform in FDI after the last radical changes announced in 2015. As per the announcements made, 100 percent foreign equity is allowed in scheduled airlines (up to 49 percent under automatic route); 100 percent foreign equity is allowed both in greenfield (automatic route) and brownfield (government approval route beyond 74 percent) pharma projects; and 100 percent foreign investment is allowed in defence (government approval route beyond 49 percent) and the condition of access to "state of art" technology has been done away with. Some other sectors that have benefitted include food processing sector, broadcast service industry and single brand retail trading.

In addition, the Cabinet cleared a Rs 6,000 crore package for the textile sector, which includes the full burden of provident fund on the government for new employees earning less than Rs 15,000 a month for the first three years; 25 percent subsidy for machinery under the amended technology upgradation fund scheme; and reduction in yearly working days for calculation of income tax rebate. Textile is a labour-intensive sector and I think these new measures will have multiplier effects on the economy. In addition, these steps can be expected to give our local manufacturing a big push at the right time when China is ceding ground in the global textile market due to increase in wages.    

I invite your opinions.
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P P Madan | Wed Jun 29 10:28:14 2016
It is great on the part of Government of India to do this. Fully understandable move in long term interest and for producing higher volumes at low costs, maintaining quality standards and following of respective codes etc. However, simultaneously how to provide a level playing field to Indian Industries so that they are able to face competition and survive. While the countries objectivity of providing employment, social needs, R&D, Innovation lies with the local industry; how the local industry will grow or sustain against all odds. The government, the financial institutions, and supporting ministries need to look at and address the issues accordingly. I can see a lot of serious labor related and manpower issues in due course of time. The local business is worse. Employment is a major issue. The competition is getting tougher with low value imports. Manufacturing and farming both labor intensive are becoming uneconomical. The new generation is not ready to dirty their hands. This is a bad sign for the nation.

CEO's Note
K.S.Chandrashekhar | Wed Jun 29 06:40:13 2016
While India can keep claiming that we are well prepared after the Brexit the country needs to be cautious as it is bound to have an effect on our growth and transactions.We are also concerned about the immigrants who are likely to be affected.The FDI is a welcome action by the government. However it is left to be seen as to how it is going affect the employment scene particularly at the senior levels. Organization wanting to invest would certainly like to have their own set of people either expats or those who have training with them overseas. This is likely deprive the domestic aspirants who are equally qualified and experienced. This opinion is borne out of experience in the past. The country was dominated by foreign firms over few decades ago and we slowly made efforts to indiginise the same and now we are heading towards the same situation. We only hope that the government will bring in safe guards to protect the local talents.

MANISH TRIVEDI | Wed Jun 29 05:52:27 2016
First, i would like to say thanks to Bikky Khosla, for such incense kind of views on essential matter for future business forecast . I think it's good though to think on opportunity rather than focusing on probable damages .

Brexit: Reforms can shield us from global shocks
A V CHANDRAN | Wed Jun 29 05:39:57 2016
Brexit: Reforms can shield us from global shocks India has nothing to worry about Brexit as it is a part and parcel of plus minus issues between Intra Britain/ Inter Britain and Intra Euro/Inter Euro hence it could be resolved by both side countries involved by all means. There must be merits and demerits here and there covering all these countries and that is their responsibilities for all resolutions. Regarding Indian FDI reforms it could be done in terms of our Sovereignty that too is a part and parcel of our constitution and it could not be done for business purpose subject to viable fund inflow and investment as India have to safeguard her Sovereignty at any cost. Further reforms at textile sector stands application of micro economy whereas it needs macro application to the extent of more than Rs.50000 crores whereas the proposed reform covers only Rs.6000 crores.

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