You would all have read about Brexit (Britain’s exit from European Union).
It would take years for us to understand its impact on the global economy. The majority view is that it would be negative.
The general feeling across the world, especially among poor and middle class is that of anti-globalisation and anti-immigration.
After 2008 crisis, global economy is plagued by deflation, slow growth, unemployment and rising inequality. So there is lot of fear and uncertainty in the minds of the people.
China, which was growing at higher rate for last 3 decades has fallen to around 4% growth rate now (nobody believes the data Chinese government provide).
There have been questions around even our own GDP data but even the critics acknowledge that we would be growing around 6%. Our official rate of growth is around 8%.
In a slow or no growth world, even 6% is an excellent growth rate.
This government has been doing a lot to ensure that we continue to grow at a good rate. I was having a very high opinion of this government and it has come down few notches after seeing the way they handled Raghuram Rajan issue.
We are an extremely poor nation with only $2 trillion GDP and around $1500 per capita. We need to grow at 8% to 9% for next 2 decades to catch up with where even China is now.
I’m fairly confident that the government would continue to work to make this happen.
Hopefully, if all goes well, we may be a $10 trillion economy with $7500 per capita in 2030. We would then be a middle income country. A majority of our population would be out of poverty.
The biggest challenge would be generation of employment. We are able to create only 5 million jobs a year whereas the requirement is 12 million. On the other hand, many countries in the world face labour shortage. The best option would be to focus on skill development (no country would want unskilled labour) and encourage emigration. If the employment gap continues to persist, it would become both a major social and economic problem.
As I’ve mentioned before, the journey from $2 trillion to $10 trillion provides us excellent opportunity to grow our wealth through equity investments. In a slow growth world, our growth at a higher rate (though from a very low base) is a boon for equity investors like us.
It is very difficult to guess how Brexit would play on our stock markets in the months to come. Though Brexit has less impact on our economy, it may have a significant impact on the markets, if foreign investors decide to pull the money out.
However, as always, please do remember that in the long run markets grow in line with earnings. As long as the economy and corporate earnings are growing, these short term blips can be completely ignored.
There is nothing new you need to do now. Stick to your SIPs and stay the course.