Brexit brings some cheer to the Indian economy

Chief Economic Advisor Arvind Subramanian said the government has "enough ammunition" to deal with volatility in the currency market.

The Finance Ministry on Friday rushed to calm the jangled nerves following the Brexit vote, saying it offers a "silver lining" to Indian economy in terms of decline in oil prices and likelihood of a rate hike delay in the US.

Chief Economic Advisor Arvind Subramanian said the government has "enough ammunition" to deal with volatility in the currency market and India is going to be a haven of stability and opportunity in these uncertain times.

"Let's not see this as unremittingly gloomy. There are a couple of silver linings. Oil prices have come down. That's good for India's macro situation," Subramanian said.

"I also think that with this uncertainty and flight to safety, this is looking less likely there would be interest rate hike in the US. This too would work in India's favour."

Stating that Britain's exit from the EU came in as a bit of surprise as overnight the betting was on 'remain', the CEA said globally, countries will have to brace for turbulent times.

"India is well prepared to cope with this volatility...As investors look around the world in these turbulent times, India is going to be a haven of stability and opportunity," he said.

Trying to allay concerns on rupee depreciation, Subramanian said India has the ability "to shape how much and where we want to keep the rupee and how stable we want it to be".

"Of course, without totally interfering with market forces or impeding market forces. But we have the ability and wherewithal to ensure whatever adjustment takes place is orderly and smooth," he said.

Subramanian said global central bankers are meeting in Basel and there will be some coordinated action among themselves.

Asked how the ministry will rework its trade strategies with the UK, the CEA said it would depend on how UK renegotiates its trade relations with other European countries.

"It is going to depend a lot on how currencies adjust. All currencies except the dollar and the yen are going to expect some decline and ours is in line with other currencies. We have to see at the end of the day whether our competitiveness has increased or not," he said.

"But finally, trade is going to depend on our reforms. So, in the medium term, we have to rely on making out economy much more competitive."

Subramanian said India's macroeconomic framework is very strong, fundamentals are sound, reform agenda is moving ahead and hence, the country is well positioned to be able to absorb the shock and move on. 

Photograph: Reuters