Lok Sabha Question No. 93 (STARRED), answered on 2016-07-22
Subject: Brexit
Ministry: FINANCE
Asked by: SHASHI THAROOR, SAUGATA ROY

- (a) whether the Government has assessed the impact of Brexit on the Indian economy;
- (b) whether India's substantial trading with both Britain and the European Union (EU) is likely to create a situation of volatility in our domestic markets;
- (c) if so, the details thereof; and
- (d) the measures proposed by the Government to hedge the likely impact of Brexit on money markets and capital markets in India?

## FINANCE MINISTER

(SHRI ARUN JAITLEY)

- (a)  to (d):  A Statement is laid on the Table of the House.

## STATEMENT REFERRED TO IN REPLY TO LOK SABHA STARRED QUESTION NO. 93 BY DR.SHASHI THAROOR AND PROF. SAUGATA ROY REGARDING 'BREXIT' FOR ANSWER ON JULY 22, 2016

Government has assessed the impact of Brexit on the Indian economy. Thus far, India has not only avoided adverse impacts, it has in fact emerged as a safe haven for investors around the world.

For example, the rupee depreciated against the US dollar by around 1 per cent for one day post-Brexit  referendum,  while  currencies  of  other  emerging  markets depreciated  for many  days. But on a cumulative basis, the rupee has actually appreciated by 0.3 per cent on 19 th July 2016 over 23 rd June  2016.  Similarly,  the  Sensex  fell  only  on  one  day  by  around  2  per  cent  while  the equity  index  of  many  other  developed  and  developing  countries  fell  by  a  higher  percentage  for many days after Brexit referendum. On cumulative basis, the Sensex has risen by 2.9 per cent on 19 th July 2016 over 23 rd June 2016. The G-sec rate has also declined from 7.48 per cent to 7.28 per cent over this period. By virtue of its domestic policies, India is seen as a haven of stability and opportunity in these turbulent times.

As a part  of  the  global  economy,  India  will  obviously  be  affected  if  there  is  slowdown  in growth in the UK and EU following Brexit. India's exports in goods to the UK and EU (including UK) have been around 3 per cent and 17 per cent of our total exports. India also exports roughly $10 billion in software to both the UK and EU. Overall though, India's exports to both UK and Europe have been on a downtrend in the past two years on account of subdued demand led by a frail and scattered  recovery  in  the  region.  The  forecast  of  global  growth  for  2016  has  also  been  revised downward by the IMF from 3.2 per cent to 3.1 per cent in the aftermath of Brexit.

However, these potential effects on India's growth could be offset by the weaker price of oil, which  will  help  maintain  macro-stability,  and  by  the  likelihood  of  more  policy  support  in  the advanced economies. Moreover, the impact of Brexit on trade, if any, in the medium term, would also    depend  on  bilateral  trade  negotiations  that  will  determine  India's  future  market  access  to these countries. While the Government and the RBI are closely monitoring the situation, India's macroeconomic fundamentals are strong.  Besides, the strong forex reserves position can provide a  buffer  against  any  temporary  episodes  of  volatility  in  the  domestic  foreign  exchange  market. Further, RBI's proactive liquidity management could ensure stability and calm in money markets. As regards the stock market, the Government and Securities and Exchange Board of India (SEBI) are keeping a constant vigil.  SEBI has laid down various regulations and guidelines for protecting investors' interest and ensuring orderly functioning of the stock market.

*****