Volatile environment for Indian Exporters Due to Brexit, But Stay Calm & Watchful: FIEO

Volatile environment for Indian Exporters Due to Brexit, But Stay Calm & Watchful: FIEO

Soon after Britain voted to part its way from European Union, the Indian exporters are worried about the volatility in the currency, while about the trade, the exporters feel that it all depends on the kind of negotiation that Britain works out with the EU.

On the issue of Britain’s exit, stakeholders of Indian exports say that in third country where Indian exporters are competing with Britain and Europe, these countries will have the advantage of currency with them.

Reacting to the Britain exit from EU, Mr S C Ralhan, President, Federation of Indian Export Organisation (FIEO) said that while it has led to political and economic uncertainty, it will not have much impact on India’s trade with Britain and EU. Much will depend on what kind of negotiation Britain works out with EU within the two years window available to replace the terms of EU membership. If Britain gets the same treatment in terms of Free Tariff and Free Movement of persons, not much will change for India. However, if Britain gets the treatment as applicable to a non-member country, it may lead to positive impact on India’s exports to EU as well as to Britain. India’s exports to EU was USD 35.35 billion while the same was USD 9.35 billion to Britain in 2015-16. Indian products may compete with British products in EU and EU products in Britain on MFN basis augmenting our exports. Similarly, any restriction on movement of persons from EU to Britain will open opportunity for Indian service providers in wide range of services.

FIEO observed that in the immediate future, volatility in currency may put pressure on India’s exports as both British Pound and Euro will depreciate giving greater competitiveness to their products particularly in third countries. With currency depreciation, the domestic manufacturer in EU and Britain may get some competitiveness as imports becoming costlier having its effect on India’s and other countries exports. This may also increase imports from Britain and EU, if their currency remain weaker on medium term basis.

President, FIEO is of the view that we need to watch the development but there is no need to panic as things will settle down soon. The real impact of Brexit can be assessed only after the final negotiation between EU and Britain is worked out.

In another set of reactions, “Right now we are worried about the volatility in currency because it is very clear that both British Pound and Euro may weaken and if they weaken definitely dollar will become strong and Rupee may again weaken against the dollar,” said Ajay Sahai Director General (DG) of Federation of Indian Export Organisation (FIEO).

However, he said that it’s too early to say what impact Indian exporters to Europe would have because much will depend on what kind of negotiation Britain works out with the EU.

“They have two years period to work out negotiated settlement with EU. If they work out let us say duty free regime with EU, they will continue to have more or less same work, same tariff advantage which they have right now. But if they come out from EU without such kind of negotiation and they close their market for free movement of labour and it will have a different impact,” said FIEO.

Britain has voted to leave the European Union in a referendum, with the result throwing into question the fate of the 28-nation bloc and several high-profile British politicians, including the prime minister. With 90 percent of the votes counted, Brexit was ahead at 52 percent following Thursday’s referendum.

Sahai further explained that with the currency weakening, even imports in these markets will become costlier which will affect India as well as the rest of the countries.  If that leaves the downfall in demand then it may have impact on India as well as other countries. So the short term impact is more on the currency and may be on the demand side.

However, he said that, “I personally feel that it is too early to conclude anything. Whatever reaction we are seeing is more psychological and that’s why the Sensex has declined so much. On trade front we have to wait and see. Some of that may be positive for India and some that may be negative. It totally depends on what kind of negotiations come out with EU and Britain.”

Global financial markets started to fall as voters in Britain voted in favour of quitting the European Union. In India, the BSE Sensex slumped over 1,050 points or nearly 4 per cent, while the broader Nifty index traded below the psychological 8,000 levels as Brexit fears came true. The rupee plunged over 1.4 per cent to 68.21 per dollar mark.