Brexit and its immediate aftermath proves that globalization is a reality and events in far off places do have an impact in our backyards. Soon after it was clear that the British voter had decided to abandon the European Union, the Indian Sensex crashed by more than 1,000 points. Even the Indian rupee appears fragile. Shares of companies like Tata Motors that have a huge presence in UK have taken a terrible beating. Anyone who understands financial markets will know that it is another day in office. Sometimes, Bulls take a beating. And sometimes Bears get a hammering.
But what is surprising is how so many "liberal" voices have taken this to be the beginning of Armageddon. Some of the more offensive "liberals" have called British voters who voted for Brexit as racist, xenophobic, illiterate and worse. But more interesting from the Indian point of view is how the Brexit vote will affect India. Some saner pundits have said this will mean some impact on the Indian economy. But the hardline liberals have decided this is disastrous for India. Some have gone so far as to say how the imminent exit of RBI governor Raghuram Rajan means that the Indian economy will be in a mess because Rajan won't be around to manage the aftermath.
That's a lot of hogwash.
Ironically,mint was around this time 25 years ago that the Indian economy irrevocably changed. Back then, India didn't have enough foreign exchange reserves to pay for even one month of imports. Today, foreign exchange reserves are in excess of $ 360 billion. Back in 1991, 25 years ago, many pundits argued that India was a basket case as far as the economy was concerned. Today, the same kind of pundits are arguing Brexit will devastate the Indian economy. The fact is, the Indian economy has successfully weathered crises that were far more dangerous and destructive. The economic reforms of 1991 are testimony to the fact that the Indian economy has coped with emergencies. Sure, pundits point out how India has lagged far behind China. But to say that the Indian economy has done well would be stupid, or ideologically motivated.
1991 was not the only crisis that the Indian economy has faced since then. There was the Asian financial crisis in 1997 that devastated the smug growth forecasts of south East Asian economies. India too was adversely affected. In fact, the 1998 nuclear tests and the sanctions imposed by a US led coalition proved even more dangerous for the Indian economy. Even before India could recover from that crisis came the dot com bust of 2000-01. And yet, when the UPA took charge in 2004, the Indian economy was in the pink of health. Then came the meltdown of 2008 when it appeared that the global economy will virtually collapse. And yet, the Indian economy survived and endured.
The same will happen in the aftermath of Brexit. The fact is that the Indian economy, despite record inflows of FDI et al is still driven by domestic consumption. The annual FDI inflow is less than 2% of GDP. Foreign trade is still about 30% of GDP in terms of purchasing power parity, far lower than large economies. And UK barely makes it into the top 15 when it comes to largest trading partners.
Trust liberals to spout nonsense just because it suits their prejudices and ideological agendas.
