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India Says it Will Withstand Brexit Impact

Indian Finance Minister Arun Jaitley speaks at an "Invest in India" forum in Beijing, China, June 24, 2016.
Indian Finance Minister Arun Jaitley speaks at an "Invest in India" forum in Beijing, China, June 24, 2016.

Although India’s currency and stock markets took a hit after Britain voted to leave the European Union, India is eyeing possible long-term economic benefits as it seeks to project the country as a haven of stability in a world where protectionist sentiment appears to be growing.

Hundreds of Indian businesses, however, which have made large investments in Britain in recent years, are bracing for big losses.

Indian Finance Minister Arun Jaitley expressed confidence that a solid economy will enable India to withstand any economic fallout from Brexit.

As fears were voiced about investors withdrawing from emerging markets as they did in the wake of the 2008 global financial crisis, Central Bank Governor Raghuram Rajan said he did not expect any significant outflow of foreign capital from India.

Seeking safe haven

Rajan, a widely-respected economist, said that after assessing the initial worries, “people will look around for places which are relatively less affected.”

Emphasizing that the Indian economy remains attractive, he said “being a continental economy with large domestic demand, I think we stand out as a reasonable prospect and after the initial concerns, money should return here.”

The positive messages calmed Indian markets, which recovered some of the ground they lost in early trading and the rupee eventually took a smaller hit compared to several other Asian currencies.

The mood was glum in the boardrooms of many big Indian companies, though, which have large investments in Britain. The worry is not just about falling profits from a plummeting pound for the nearly 800 companies like the Tata Group present in Britain; these businesses also will have to face increased costs of operations to eventually set up separate headquarters in Europe and Britain.

'Gateway to Europe'

Centuries of historical ties between the two countries means that many Indian companies have chosen Britain as their gateway to Europe. In 2014, Indian investment in Britain increased by as much as 64 percent, making India the third largest investor in U.K. after the United States and France.

“These companies will have to tailor their businesses accordingly,” said Finance Minister Jaitley.

One of the sectors most likely to be affected is India’s thriving information technology sector. Britain accounts for about one-sixth of the sector’s global exports.

India’s trade with Britain added up to $14 billion in the last financial year.

India’s Commerce Minister, Nirmala Sitharaman, admitted that some uncertainty lies ahead. “Within the European Union countries, Britain is the third largest trading partner with India. As we move forward what impact that will have, is something we will keep, watching,” she said.

She appeared optimistic. though, that India stands apart in contrast to the upheaval in Britain and Europe. “We are the only ones who is giving a picture of stability. Politically, economically, we are emerging as a stable economy.”