The risks to global economy and India from Brexit are turning out to be higher than initially perceived, ASSOCHAM said today.
The industry association called on the government to set up a high level monitoring group comprising inter-ministerial and agency representatives to watch the unfolding political-economic scenario in Europe.
“Given the increased global risks, it would be quite prudent for the government to announce successor of Dr Raghuram Rajan as the RBI Governor sooner than later,” the organization said.
Though the RBI has been doing professional job par excellence, extra-ordinary situation may emerge as different trading giants like China might tweak their currency valuation, making going tough for the Indian exports to the EU, India’s largest trading partner, said ASSOCHAM Secretary General D S Rawat. He has been reaching out to the chamber’s offices in London, Paris and Spain over the last few days.
“An eagle eye must be kept on China,” he said. As it is, India’s exports have slowed for more than 18 months in a row, and any rise from here would largely be on account of a very low base impact.
Though Assocham had repeatedly protested Rajan’s policy of holding interest rates elevated, the organization was among those who regretted the government’s decision not to extend the RBI governor’s term.
“Dr Raghuram Rajan leaving the RBI at a time when a tumultuous global economy poses several risks to India along with the banks grappling with an unprecedented challenge of mounting non-performing assets is quite unfortunate,” it had said.
Now, said Assocham, it had conducted a brain-storming assessment of the developments in Europe, and it now believes that India needs a “much greater watch on the situation, than just being complacent taking solace from strong fundamentals of the Indian economy.”
The chamber has suggested formation of a high level monitoring group comprising senior officials of the ministries of Finance, Commerce, Information Technology and the Reserve Bank of India.
“Active involvement of Indian High Commission in London and missions in several European capital be sought in getting the real time information with a proper perspective from ground zero. Constant inputs should be sought from the Indian firms with base with Britain and across the European continent.
“The damage is not limited to the global economy and the stock market sentiment. The trouble lies in a widening political divide between Britain and the rest of the EU leadership on the one hand and then within UK, on the other. With this kind of charged up political environment, the damage to the world economy would be much more than just a few sectoral gains or losses,” the ASSOCHAM Paper said.
The paper analysed the situation well beyond the currency movement of the Pound Sterling and Euro against Dollar and the arbitrage impact on the Indian firms doing trade in Europe.
“There are clearly two big takeaways, as assessed by the ASSOCHAM top policy making leadership, from the Brexit. First, there would certainly be a damage to the market sentiment, leading to disruption in the investment flows alongside an impact on the currency valuations.
“Secondly, the way political relations evolve between the EU and the British leaders would be the key , because those would determine the terms of divorce. Any harsh and bitter outcome would be disastrous for the world trade and investment,”.
Article 50 of the Lisbon Treaty on terms of breaking away from EU membership is likely to be triggered soon , as EU leaders, including UK Prime Minister David Cameron converge in Brussels to chart out further roadmap.