The massively adverse fallout in global markets post Brexit is testament to the literally "pound foolish" nature of the move. Brexit threatens to alter the world economic order, with a resultant decline in global GDP, volatility in currencies, rebalancing of trade ties and a possibility of the UK slipping into recession. In such a situation, it is imperative for global policymakers to take remedial measures to minimize damage.
Even so, the silver lining is India emerging as the "must invest destination" among emerging markets for strategic and financial investors in the wake of global uncertainty. Over the next one to six months, India could very well be a significant beneficiary of this extraordinary event, given Eurozone pain points and the possibility of a delayed hike in US interest rates. This is good news for India, but, of course, there's not-so-good news too. Global markets are facing extreme volatility and there could be, in the very near term, some more adverse spillover on India given our financial linkages with rest of the world.
However, I expect the dust to settle down soon as our policymakers have enough ammunition to ward off unwarranted volatility. Despite regular bouts of economic, financial, and political crises globally over the last two years, India has proved its economic mettle by boosting structural and institutional factors of growth while adequately ring-fencing its vulnerabilities. The government's persistence with FDI liberalization, passage of critical reforms like the Bankruptcy Bill along with the anticipated GST Bill will help India.
As both the RBI governor and Finance Minister have pointed out, we have to wait and watch for the complete impact. India is reasonably well placed. It is not as exposed to exports as some other countries are. We have a strong domestic economy. With the monsoon looking like it is playing out the way that was anticipated, perhaps that will also strengthen domestic demand.
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