Why is Great Britain’s #Brexit Great for India?
Yes you heard me right!
Oil prices — our biggest worry will be down
Oil prices had gone up close to 80 per cent since they hit their 13-year lows earlier this year.
The immediate reaction of the BREXIT vote was on oil prices as it crashed below the psychological $50 per barrel mark.
Oil prices have been as much a function of demand as it has been of supply. With the Great Britain , EU and the global economy likely to slow down, the impact on oil demand will be substantial as EU is a major net importer of oil. That means the benefit of cheap oil dividends on India’s corporates, its fiscal and current account deficit will continue. Cheap oil will also keep inflation low giving more ammo to RBI to cut rates. This will be a major benefit that will accrue to India as an outcome of BREXIT.
Interest Rates our next big worry would likely ease and US Fed is unlikely to hike rates in the near future
One of the big worries for Indian market still is that the US Fed would hike rates and other central banks would gradually reduce their accommodating monetary stance. The BREXIT vote may have substantially changed that equation. With the Great Britain and the EU likely to slow down, and probably the global economy too; the US Fed and other key central banks would prefer to maintain rates for some more time. While it may be hard to put a time frame, the US is unlikely to consider rate hikes during this year. RBI will have less to worry about on the Fed rates front and will have greater leeway in cutting its own rates further.
India can renegotiate with Great Britain on Ease of Doing Business
In the past, any of India’s engagement with the Great Britain was stalled by the stringent rules imposed by the EU. While it may not be clear as to the nature of the trade deals that the Great Britain will strike with the EU countries, it surely opens up a window of opportunity for India to separately negotiate agreements with the Great Britain. For the next five years, British companies and Great Britain are going to be negotiating all sorts of trade issues with us: tariffs, taxes et all. Meanwhile, nothing at all changes for India. So Indian companies will take advantage of the chaos.
India may be the chosen partner for Great Britain after BREXIT
With Great Britain cutting off ties with EU, it will be desperate to find new trading partners and a source of capital and labour. Great Britain will now more desperately need a steady inflow of talented labour, and India fits the bill perfectly due to its English-speaking population. With migration from mainland Europe drying up, Britain would be able to accommodate migration from India, which will suit India’s interests.
India is presently the second biggest source of FDI (Foreign Direct Investment) for Great Britain. Great Britain would try extra hard to woo Indian companies to invest there by providing much bigger incentives in terms of tax breaks, lesser regulation and other financial incentives. As Britain is leaving the EU due to the latter’s complex bureaucratic regulatory structure, Indian companies can expect a deregulated and free market in Great Britain. Great Britain is also likely to adopt a market-friendly approach to business and that would help more than 800 Indian companies.
Great Britain would become the Skill Partner for Indian Youth
We all know that Great Britain is one of the most important destinations for Indians who want to study abroad. Great Britain’s universities are forced to offer subsidized rates for citizens of EU. With BREXIT, however, the universities will no longer be obliged to provide scholarships to EU citizens, which will free up funds for students from other countries like India. This means more Indian students will be able to get scholarships for studying in Great Britain.
Indian Universities could tie up more easily with universities in Great Britain and offer our youth their skill needs.
Gold becoming the safe haven currency will only increase India’s hidden wealth
With BREXIT vote, gold prices started moving up sharply. Gold has traditionally been a classic safe haven investment in volatile times and prices of gold are likely o remain elevated. With the Great Britain Pound coming under attack, there will be increased calls for gold as an alternate currency. As we enter a period of strong gold prices, the big beneficiary will be the Indian economy. Let us understand how this wealth effect is going to play out.
Indian households are estimated to be holding nearly 22,000 tonnes of gold in their vaults either in the form of jewellery or in the form of solid gold. And we are not counting the gold thrashed in our Temples vaults. In the last 4 months, the value of this huge gold stash has increased from $840 billion to over $1 trillion. The wealth effect may not be visible immediately but rising gold prices surely creates a huge wealth effect in India. Over a period of time it will translate into higher consumption and higher investment resulting in a virtuous circle.
But then why is the Indian Sensex down after BREXIT?
Personally I think for no reason. This is just what happens when there is great uncertainty. This vote was uncertain. It was unexpected what happened. The result is uncertain. So the markets reacted in the short term and being part of the Global Economic order we did what all others did. FALL.
Short term jitters notwithstanding, the Indian economy will be better off as a result of the BREXIT. It could actually provide an opportunity for those who want to bet on India’s growth story. BREXIT could actually be that big opportunity that investors have been waiting for.
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