'India should have contingency plan for 'Brexit' fallout'

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SME Times News Bureau | 22 Jul, 2016
The government and the Reserve Bank of India (RBI) should have in place a contingency plan to handle the fallout of Britain's possible exit or 'Brexit' from the European Union (EU), ASSOCHAM said on Tuesday.

The United Kingdom (UK) is set to vote on Thursday in a referendum on whether it should leave or remain in the EU.

"There could be an upheaval in the financial markets out of sheer panic, at least in the short term," said a statement issued by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), citing a study it has conducted.

London being a nerve centre for the global firms, a fear factor has gripped the entire financial world, it said.

"As a key emerging market and the one which is being preferred by the global fund managers, India could witness wild fluctuations or large outflows in sync with an overall trend. That is something to watch for," the ASSOCHAM statement said.

"The Brexit event is coinciding with the concerns over a possible outflow of USD 20 billion due to redemption of the FCNR (foreign currency non resident) deposits, though the current account situation at this point of time is quite comfortable," it added.

Reposing full faith in RBI Governor Raghuram Rajan's ability to handle any untoward consequences, ASSOCHAM said in the medium to long term, funds shuffled in the uncertain Britain and European markets could find their way into Indian markets.

"But in the immediate term, anything can happen and as a credible economy, we have to be ready and be on top of the situation," it said.

Meanwhile, the US dollar lost value against most major currencies on Monday as the euro and British pound rallied after opinion polls swung in favour of the campaign for Britain to remain in the EU. The pound had its biggest one-day rise in seven years on the day.

Two opinion polls on Monday suggested support for Britain staying in the EU had recovered some ground following the murder of a pro-EU lawmaker, while a third poll found that support for Brexit is ahead by a narrow margin.

"India invests more in the UK than in the rest of Europe combined, emerging as the UK's third largest FDI investor. Access to European markets is therefore a key driver for Indian companies coming to the UK," Chandrajit Banerjee, Director General of the Confederation of Indian Industry (CII), said.

Britain ranks 12th in terms of India's bilateral trade with individual countries. It is also among just seven in 25 top countries with which India enjoys a trade surplus.

According Commerce Ministry data, India's trade with Britain was worth USD 14.02 billion in 2015-16, of which USD 8.83 billion was in exports and USD 5.19 was in imports. The trade balance thus was a positive USD 3.64 billion.

Britain is also the third largest investor in India after Mauritius and Singapore, with a cumulative inward flow of USD 22.56 billion between April 2000 and September 2015.

Besides, the UK attracts more Indian investments than the rest of the EU altogether.

A. Didar Singh, Secretary General of the Federation of Indian Chambers of Commerce and Industry (Ficci), said: "We firmly believe that Britain leaving the EU would create considerable uncertainty for Indian businesses engaged with UK and would possibly have an adverse impact on investment and movement of professionals to the UK."

Also, if Britain does leave the EU, it could lead to volatility in the pound, which would increase the risks for Indian businesses, Didar Singh said.