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As the impact of perhaps one of the most stunning referendum sinks in across the region and the world, the Brexit vote has unsettled traders, bankers, workers and scholars alike as to what the future of the world would be.
Seen from the Indian perspective, the impact is much more tectonic than the week old Rexit (news of Raghuram Rajan exit plans), particularly as initial reports suggest that nearly 4 trillion rupees were wiped off from the Indian market in a matters of hours after the news broke. Yet, a more nuanced analysis of the short term and the long term impact would be in order.
Given the fickle nature of international financial markets, already burdened with less than buoyant investor sentiment, it is quite natural that Brexit may, in the short run, see a massive run on invested funds, particularly from emerging economies like India which had a huge stake in the European Union (EU) market (and vice versa, as acknowledged by British Prime Minister David Cameron in one of his campaigns for the Remain camp).
This certainly will not be good news for India, which is too close to seeing a redemption of roughly $20 billion Foreign Currency Non-Residential (FCNR) deposits as they finish the maturity period. Which means a further pressure on rupee. Good that Dr Raghuram Rajan has three more months before he signs off!
Read a blow-by-blow account of the Brexit referendum on The Quint.
Hoping that India is able to see this short-term challenge overcome with some imaginative monetary and fiscal management, the long term impact may actually be much easier to absorb.
Brexit comes at a time when negotiations across regional groupings were already proving to be long drawn and cumbersome (take India EU bilateral Free Trade Agreement for instance), making striking deals on bilateral lines more feasible. European Union’s position as India’s leading regional trading partner has already been slipping as India’s trade and services basket is expanding to other regions/countries.
We’re seeing the same trends in terms of investments as the EU share of Foreign Direct Investment (FDI) in India too, has not been on an ascendant. So, Brexit may at best necessitate a course correction, needing greater diversification rather than an emergency operation coping up with an amputation.
The real challenge for India and Indians is going to be the new framework for immigration and migration that may emerge in Europe once other countries also start judging the outcome of Brexit on their respective economies.
In an already migrant/refugee apprehensive Europe, the possibility of immigration norms becoming more stringent is high. No wonder, therefore, that even the Indian community within the UK was divided on the pros and cons of Brexit, with voices on both the sides consisting of eminent business tycoons as well as professionals.
The ones to get more affected would be the low or semi-skilled workers who would use the mechanisms available to them for a work visa in UK and then begin planning their future course of action. The EU immigration policy perhaps gave them greater flexibility and confidence. But not any more.
One such stark case is that of hundreds of Indian nationals from Goa, who have been making use of the erstwhile Portuguese concessions of granting citizenship to Goans born before 1961 and their children the option to register their birth in Portugal and become eligible for Portuguese citizenship, which in turn, became their passport to European Union and then to the United Kingdom.
Post Brexit, such people are likely to face not only a new United Kingdom, but they may be staring into a totally restructured Europe itself. Brexit would, therefore, bring more anxiety to such Indian people than the Indian government and the latter would do well to extend a helping hand.
(The author is Associate Professor and Head of the Political Science Department at Goa University)
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