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Is India prepared for Brexit?

By S Muralidharan
June 24, 2016 12:36 IST
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'When the Brexit bomb goes off, the shrapnel will wound us.'
'We will in the time-honoured tradition apply band-aids all over.'
'Those who shout the loudest will get economic relief like interest rate reduction and debt restructuring.'
'Others will go on living lives of quiet despair,' says S Muralidharan.

The process of counting votes begins after polling stations closed in the referendum on Britain staying in the European Union in Glasgow, Scotland, June 23, 2016. Britain voted to leave the EU. Photograph: Clodagh Kilcoyne/Reuters

IMAGE: The process of counting votes begins after polling stations closed in the referendum on Britain staying in the European Union in Glasgow, Scotland, June 23, 2016. Britain voted to leave the EU. Photograph: Clodagh Kilcoyne/Reuters


Even as the Swamy sideshow goes on with much vituperation and malice towards anyone and everyone shortlisted for the position of Reserve Bank of India Governor following REXIT, the results of BREXIT -- the British referendum on staying in the European Union -- are out. Britain has voted to leave the EU.

Are we ready for it?

The PM is gallivanting around the world drumming up support for membership of the Nuclear Suppliers Group. It will be a symbolic victory if he achieves it. It may even confer some symbolic rights to access nuclear technology in the future.

But we have survived without it for four decades since that fateful day in the summer of 1974. We will continue to survive it.

In making it the main platform of his achievements, Modi is making a big mistake. Even the educated know only vaguely the alphabet soup of NPT, MTCR, NSG, CTBT, SALT I and II, START etc. The self-styled Public Intellectuals know even less and the voting populace and politicians of various persuasions nothing at all. The last named two do not care and rightly so.

To view nuclear power as the best option for power-starved India to vault into modernity is simplistic and chimerical.

Nuclear weapons may be perceived as a shortcut to power and prestige, but are a double edged sword costing many an arm and a leg to build, maintain and update. They are nothing without reliable delivery systems which are expensive to acquire (manned systems), complex to build (missile systems) and expensive to maintain (both).

Nuclear power stations take 20 to 30 years to commission. Even if we get the NSG membership, for us to be able to convert that into usable energy for the masses is decades away.

Then there is the matter of dealing with the nuclear waste -- we have neither the means nor the temperament to safely deal with something so toxic and long-lasting (unnees-bees type of jugaad technology will lead to massive disasters which will make Bhopal look like a walk in the park).

Solar energy may become technically feasible and a financially viable reality in that time frame. Importantly, we already belong to the Solar Energy Suppliers Group thanks to our geography. Instead of begging Xi Jinping to let us into the Nuclear Club, we should be telling him to order his solar cell entrepreneurs to Make in India.

Politically, the hard and long slog to get NSG membership may turn out to be a pyrrhic victory if at all Modi wins this one. For any negotiation to succeed both sides must gain something they value. What is China's real demand, hiding behind their insistence on our signing the NPT and CTBT? I do not see China giving this without significant concessions from India.

Could it involve major concessions in our boundary dispute and possibly even Kashmir? Are these politically feasible? It is well known that we do not supply nuclear technologies to other countries and that our position on the CTBT is moral if not real wordly.

China should also know that our computing technology prowess should enable us to model nuclear testing effectively without resorting to physical testing. So why their intransigence in this matter? Given this state of affairs, are they likely to drop their decades-long objections to our joining the NSG? To take that view is intellectual dishonesty of the greatest proportions.

By going for the biggest, shiniest and grandest of objectives is Modi losing track of small achievable victories which despite their small size can spell improvements in the lives of people?

Is he in danger of winning the battle for headlines and losing the war at the hustings? It would appear so.

By not focusing on the fateful events unfolding in Britain and Europe we are knocking on the doors of the Fragile Five once again. The Fragile Five is vulnerable to any but the gentlest of breezes at the best of times.

Governor Rajan took us out of this group with his deft handling of the economy after he took over. In all likelihood, when Rajan returns to Chicago University, his references, if any, to the Fragile Five will once again include India. Our economy does not have the size, momentum, or strength to remain unaffected by Brexit.

Everyone will be affected, make no mistake. But the ability to withstand the impact without serious or lasting damage is the question. The US and China, it goes without saying, will weather it. Germany and France may even survive it in the long run. Can we?

When crude hits $100 a barrel and stays there, can we contain the inflation which will hit the poorest the hardest?

When Brexit leaves Europe in shambles and no one knows how long it will take for Britain and Europe to put their houses in order, can we face down the economic consequences of those uncertainties?

When Brexit unfolds, it will do so over a period and no one knows exactly what will happen next, including the dramatis personae. What is certain is that following the initial shock and panic of the Brexit decision, the currency markets will be in turmoil.

The pound has already started losing significantly. This will obviously spread as the analysts start looking for and finding vulnerabilities and weaknesses in, and linkages to, other currencies which will then come under attack.

George Soros (who took on and defeated the Bank of England in 1992) is said to be back at his trading desk rubbing his hands in glee -- he seems to particularly relish the prospect of taking on and beating the British pound into submission.

There will be a prolonged and bitter dispute about the terms of the British exit. A Europe that feels betrayed will be in no mood to make concessions to an ex-member -- there are already noises to that effect. It is unlikely to give any quarter, especially trade concessions which the Exit camp believes it can get and has been fooling the public with.

Untangling their finances and renegotiating the new terms of a relationship will take years if not decades. In the meantime every rumour, every perceived concession, each apparent hardening of stands will move markets around the world. Speculators with guts and a sizeable war chest will win. All others will lose.

We are among the 'all others.'

Are we ready for this scenario?

Certainly not all of us. Some of us show a flicker of comprehension and most of us who do, just pray. The ones in power and politics appear not to have noticed or not to care at all and the vast majority of the populace is blissfully unaware of what awaits them a month, a year, down the road.

Of the few who understand and have the ability to do something about it, arguably the best one has been shown the door. Others are being besmirched and painted with tar brushes with absolute impunity.

Isn't Modi aware of what is going on or is he too busy in the cloud-cuckoo land of nuclear chimneys and hydrogen bombs? If he is, why is he keeping quiet about these disquieting goings on?

The question is: Are we prepared to face all this? Face it, we must, but are we in a position to prevent the fallout of Brexit blighting the lives of the ordinary voting public of India? I am unable to believe that we are.

What we see is chasing chimerical deals for 'national prestige' and vicious, unprovoked attacks on people who can be our bulwark against the financial tsunami which surely must follow. I am not raising Rexit to the same level of Brexit, but surely a new hand at the till, a new surgeon at the table, is not the best thing we could have at this stage.

Rexit is a fait accompli and we must move on to face Brexit. Can we stop the ill-timed personal attacks on the best candidates who can do the job?

It looks to me that when the Brexit bomb goes off, the shrapnel will wound us. We will, of course, in the time-honoured tradition apply band-aids all over.

Those who shout the loudest will get economic relief like interest rate reduction and debt restructuring in which everyone else will take haircuts even as the tycoons admire each others' coiffure.

Others will go on living lives of quiet despair, as they have done for centuries.

S Muralidharan retired as the managing director of BNP Paribas after serving the bank for 20 years. He began his banking career at the State Bank of India and worked at SBI for 12 years.

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