Barely a month after taking over as India's Central Bank Governor Urjit Patel has shot off his first ever warning to India and other BRICS nations. He said that India and fellow BRICS countries need to be prepared to confront potential 'political risk' events such as Britain's exit from the European Union and the US presidential elections.
Reserve Bank of India Governor also cited other challenges such as a soft commodity cycle facing the global economy and the BRICS countries. He also urged BRICS countries to respond by shoring up their domestic economies by making themselves attractive investment destinations.
The RBI governor may have taken various international factors such as Brexit and US elections into account that have the potential to upset the economy of any country, but his predecessor and former RBI governor Raghuram Rajan and the current finance minister Arun Jaitley have somewhat different assessment of the Indian economy.
Former RBI governor Raghuram Rajan's take on Brexit
Immediately after Brexit, Rajan responded to the wild reactions in market by saying that the panic over Brexit was a bit exaggerated and it would not impact the rupee as much as it was being feared.
He also appealed to investors to remain calm, Rajan said in June: "The Brexit vote would have a number of repercussions for financial markets and for the political fabric of the EU. But we see no immediate dire impact on Britain."
Rajan had also said that investment would slow down further in Britain as immediate repercussion of Brexit. Rajan put all the fear to rest by saying that "Nothing will happen immediately, things will unravel going ahead."
Finance Minister Arun Jaitley's take on Brexit
While speaking to the Economic Times, the Finance Minister of India had dispelled concerns of any long term impact of Brexit. Quite contrary to Patel's assessment, he believed India actually had a huge opportunity for trade ties between India and the UK to grow after Brexit.
"There is a huge amount of opportunity that I see between the United Kingdom and India entering into, some kind of trade arrangements once they are formally out of EU and legally entitled to do so," he said. He also said that Brexit as such does not adversely impact India.
But, on US elections, Jaitley's and Patel's views seem to match. The Indian finance minister has also expressed worry about the uncertainty over the economic policies that can follow the presidential results.
"The US presidential election, it is a worrisome situation. Worrisome because the anger in the electorate has led to the tenure of the entire debate being protectionist and if the world's most powerful economy turns protectionist, then for others to grow out of protection becomes all the more difficult," he had said.
Impact of US elections on Indian economy
As United States inches closer to elect its next president in November, many of its trading and strategic partners have started analysing the economic policies of the presidential candidates from the Republican and Democratic parties.
Both the countries are committed to take trade from current $100 billion to $500 billion. However, it is important to keep the political calendar of the next few months in mind that could be a decisive factor in how trade relations are defined between the two countries.
Andrew Holland of Ambit Capital while speaking to the DNA said, "There may not be a big leap with respect to FDI but given the scope of improvement in trade numbers, it could only get better."
Holland like many market analysts have based his comments on the assumption that Hillary Clinton would win. From a stock market point of view, that would spell continuity.