Everybody’s worried about the Brexit. The citizens of Great Britain have decided to leave the European Union and their decision is causing waves around the world. India has major investments in the UK– more than we do in the rest of EU put together. It has been our entry into the rest of Europe. Despite assurances from the Finance Minister, the stock market isn’t too happy with the news either.
So should we be panicking about Brexit? If history is anything to go by, we should be okay if we play our cards right. Since the end of World War II, India has managed to weather global political and economic turmoil with varying degrees of success.
1. Freedom From the Ashes of War
The struggle against British colonialism goes back to 1857 and continued through to the 20th century. India’s National Movement supported Britain during World War I and even through much of World War II, on the understanding that our financial, moral and military backing in the wars for freedom and democracy would earn us our freedom. But even during World War II, Winston Churchill did not want the sun to set on his country’s empire. The war left the UK a shadow of its former self. Its economy was in tatters, as was its military.
The war killed their appetite for empire. War hero Winston Churchill was voted out and the new Labour Party PM Clement Attlee was in favour of India’s independence. The war that devastated Britain and much of Europe also played a huge part in giving us our freedom. From Europe’s crisis, we gained our freedom.
2. Green Revolution and Rupee Trade: Walking the Superpower Tightrope
It’s not like India became independent and everything was hunky dory. We were still an extremely poor country, dependent on food and technological aid from more wealthy nations. The global scene was pretty volatile too, with the Cold War raging and many countries choosing sides between the Soviet Union and USA. Despite Nehru’s affinity for the Soviet Union, India managed to keep its distance from both power blocs.
Pakistan became an ally of the US, pushing India closer to the USSR. In the 1971 war, India received assistance from the world’s first Communist country. There was also technical assistance from both the US and USSR. The US funding organisation Ford Foundation was here from 1952 and the USSR sent an Indian into space. It was US scientist Norman Borlaug who was the “father” of India’s Green Revolution. The Soviets, on the other hand, agreed to ‘rupee trade’, which basically meant our low caches of foreign reserves didn’t completely cripple us. And we never became just another instrument in the Cold War between the superpowers.
But perhaps most importantly, while our neighbours and other developing countries around the world struggled to maintain democracy, we managed to hold on to free and fair elections.
3. The Fall of the Iron Curtain and ‘New India’
The USSR was dissolved on 26 December, 1991 and the world became an uncertain place. The fall of the Iron Curtain and the collapse of the Berlin wall didn’t hurt India as much as many other observers however. Quite the contrary.
The demise of Communism in Europe gave the Indian government the license to embrace the global market as well as carry out economic reforms in our own policies and systems. Under PM Narasimha Rao and Finance Minister Manmohan Singh, India began its path to liberalisation, ending the licence-quota raj that had existed until then. Our economy gradually went beyond the “Hindu rate of growth” (1.5 - 3.5 percent) that had been a hallmark of the planned economy.
4. Surviving the 2008 Crash
In 2007-08, the collapse of the housing market in the US led to the worst financial crisis since the Great Depression in 1929. Lehman Brothers, the fourth largest financial institution in the US declared bankruptcy and stock markets crashed, with Europe and North America losing an estimated $1 trillion. The recovery from that crisis has been slow and arduous.
India however, managed to weather the storm. In 2008, where most countries registered a negative growth rate for at least one quarter, India grew at a steady 6 percent.
High foreign exchange reserves, a robust domestic market and sound macro-economic fundamentals helped India stave off a crisis that effected much of the world.
Britain’s exit from the EU has created uncertainty and volatility in the global markets, but it also represents an opportunity for India. We have a strong presence in Britain and already enjoy a cordial and strategic relationship with the EU. If we play our cards right, this crisis like so many others, can be to our advantage.