Mumbai: Brexit is unlikely to have a notable impact on India’s GDP growth this fiscal, even though it will impact sectors like auto and information technology, domestic rating agency Crisil said on Monday.
“Brexit is unlikely to have a notable impact on GDP growth in fiscal 2017, and we retain our forecast at 7.9 per cent, with agriculture as the swing factor,” its analysts said in a note.
They added that the spatial and temporal distribution of rains in July and August will “matter more” in achieving growth.
It can be noted that at least one of the agency’s peers has suggested that there will be “downward pressure” on GDP growth because of Brexit.
Crisil said Indian companies will be impacted through demand weakness and commodity price volatilities.
Companies having a presence in UK and Europe will also be impacted, while there will also be an impact on the balance sheets through unhedged overseas borrowings, it said.
Specifically, it pointed out auto, information technology, textiles, pharma, leather and metals as the “most vulnerable” sectors.
Stating that a fourth of auto part exports are to Europe, it said the impact will be limited for manufacturers barring Tata Motors, which has the JLR business in UK.
For IT sector, which contributes significantly to the country’s services exports, it is a “double whammy” where there will be a fall in discretionary spends due to uncertainties and a jump in administrative costs as movement of people between UK and EU becomes expensive.
It added that UK alone constitutes for 17 per cent of Indian IT exports, while Europe accounts for 29 per cent.
Crisil said it expects a major impact on the rupee and pushed its March 2017 rupee estimate by 50 paise to Rs 66.50 to a dollar.
The impact on exports will be limited as UK constitutes only 3 per cent of our merchandise exports, but the movements in the peer currencies hold the key to India’s competitiveness in the international markets, it said.
Exports will be slower overall this fiscal and the agency expects the current account deficit to widen 0.20 per cent to 1.20 per cent in 2016-17.
Expecting interest rates to fall more, Crisil said RBI will continue intervening to manage liquidity through open market operations and use its foreign exchange reserves to tackle currency volatility and capital outflows.
On domestic factors staying favourable, it maintained its inflation target at 5 per cent for the entire fiscal 2016-17.