Brexit begins - What will follow for India?
Brexit is a commonly used term for the United Kingdom‘s planned withdrawal from the European Union. British Prime Minister Theresa May formally began her country’s divorce from the European Union recently after reiterating that there was no turning back. As a result, PM May notified EU Council President in a hand-delivered letter that Britain would quit the block which it joined in 1973. Unlike last year’s unease during the referendum, the triggering of Article 50 of the Lisbon Treaty did not worry the India much this time. Although it is still early days to gauge its real effects, Indian companies and sectors such as automobile, metal, Information and Technology, tours and travels, and education that have a notable exposure to the region are likely to see the considerable impact in the days to come.
Companies are looking to hedge their bets because Britain was a centre for significant financial activities. Easy access to markets in Europe enabled London to emerge as a flourishing centre for trade and investment services. Following this trend, companies from India have heavily invested in the UK such as the Tata Group which invested both in steel and automobile sector.
It would be interesting to see the future trade relation among EU nations and the UK now. If there is a free flow of goods and services through the proposed Free Trade Agreement, then there might not be much problem for Indian exporters as they would not lose the access to European markets. But in the case of a hard Brexit, where UK is unable to export to EU countries on the similar terms, then the picture might get different. For instance – Currently, Bangladesh has a significant advantage over India in textiles sector because of the tariff preferences which it receives in the European Union because of tariff concessions by Britain. After Brexit, this will be an open question whether Britain would continue to grant Bangladesh those tariff concessions or not. If Britain reverses this policy, it would be advantageous for India as the exports from India would get on par with Bangladesh, at least on input cost (tariff) fronts.
Implications for India
- Due to high volatility surrounding the GBP (Pound), it is expected that Indian stock exchange might feel the punch and Indian businesses in Europe might be at risk. This volatility in currency might also have an adverse impact on investment and movement of professionals to the UK.
- The uncertainty surrounding the Brexit process might affect India’s flagship IT sector. In the case of a hard Brexit, Indian IT companies will have to establish separate offices and hire different workforce for the Britain and the EU.
- Currently, Indian firms have their base in Britain because they avail a border-free access to the rest of Europe. This was one of the main reasons for Indian companies to establish their business in Britain itself. With this lucrative option gone post-Brexit, the investment decisions of Indian companies in Britain might see some change.
- Shunned from the Europe, British companies would look towards emerging markets which may also lead to greater investments by the British companies into India. This will increase the overall outflows of the domestic market of Britain, hence, disturbing the British economy further.
- As one can see through the recent moves by the British Government, Britain is willing to woo investors from India in terms of tax breaks, lesser regulation and other financial incentives which might be beneficial for the existing as well as future investors from India.
- India can explore significant opportunities in the pharma sector of British market due to rising health concerns In the case of larger government procurement of generic medicines from India, Indian pharma companies would find a big market for their exports.
The secession of Britain from the European Union does weaken the whole block at one level. It also reflects anti- immigrant or xenophobic sentiment sweeping across Europe and America in particular. Although it is premature to make assumptions about the course of Brexit negotiations, much will depend on the terms that are negotiated under Brexit. If the history is to be believed, the process of Brexit might not get complete within the next two years itself.