scorecardresearch

Brexit, Jaitley, and need for caution

Finance Minister Arun Jaitley has just given a measured response to the decision of the British to opt out of the world's biggest economic and trade bloc - European Union (EU).

Joe C. Mathew, Senior Associate Editor, Business Today
Finance Minister Arun Jaitley has just given a measured response to the decision of the British to opt out of the world's biggest economic and trade bloc - European Union (EU). He said India respects the verdict of the referendum and is well prepared, as one of the UK's key trading partners, to face the possible immediate and medium-term consequences. The response is aimed at pacifying the Indian stock markets that remained extremely volatile since morning. And it should work.

India's primary strength, Jaitley states, is its strong commitment to maintain a stable macro-economic framework. "Our macro-economic fundamentals are sound with a very comfortable external position, a rock-solid commitment to fiscal discipline, and declining inflation. Our immediate and medium-term firewalls are solid too in the form of a healthy reserve position."

He also believes that as investors look around the world for safe havens in these turbulent times, India stands out both in terms of stability and of growth, and hence can be a good investment destination. "India, as you are all well aware, is amongst the fastest growing major economies in the world today. Our growth and inflation prospects are further improving in the wake of the good monsoons that are now moving well across India."

Jaitley also stated that the government and the Reserve Bank of India as well as other regulators are well prepared, and working closely together, to deal with any short term volatility. "Our aim will be to smooth this volatility and minimise its impact on the economy in the short term. At the same time, for the medium term, we will steadfastly pursue our ambitious reform agenda - including early passage of the GST - that will help us realise our medium-term growth potential of 8-9 per cent and help achieve our objective of development for all."

Britain's exit from the EU is a lengthy process, and will take several years. However, the message today's verdict carries is very clear. The globalised world is bracing towards a very long period of volatility and uncertainty.

Countries, while engaging with other nations, also need to cushion themselves against external shocks. India is no exception.