What Brexit Means For India And The Way Ahead – Bhaskar, IIM Rohtak

In one of the most significant geopolitical events since the dawn of the 21st century, a majority of the electorate in the UK voted in favour of leaving the European Union. Their mandate, when implemented, will terminate the 4-decade old relationship the UK has shared with the EU that was based on a couple of terms, different from those of all other 27 members of the EU. The exit of Britain from the European Union has been termed as Brexit, a word derived from the amalgamation of Britain and exit.

The implications of this once-in-a-lifetime event in India will vary across the economic as well as the geopolitical front. Overall, Brexit is expected to have a mixed effect as there are bound to be some initial glitches, however, in the long run, India is likely to gain. Meanwhile, the referendum in favour of exit brings fresh uncertainties pertaining to Indian exports as the industry rightly expects a cascading effect of global currency and stock market volatility. The eagerly awaited terms of the exit of Britain, are likely to come by 2018. In the long run, the close ties between the UK and India and the prevalence of Indian enterprises in the UK may result in further opening up of the British market for Indian goods, given that the island nation is now cut-off from the continent in more ways than one.

The prominent analysts in trade and consumer affairs, CUTS, also expected that the positive effects would ultimately outweigh the negative ones, keeping in mind, the shift in trade from other EU countries to India. EU and UK might actually compete for trade with India, which in turn, would hasten the signing of the stalled trade agreement between India and EU. And a new trade agreement with Britain might as well be on the cards. The fact that approximately 800 Indian companies are at present investing in the UK and that among the major economies, India is currently growing at the fastest pace, increases the prospects of British investors coming to India.  Moreover, given the fact that the immigrants from the EU nations are likely to return to the continent, there is a chance that Britain might end up attracting more migrants from the Indian subcontinent.

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The referendum is bound to have initial shocks since this was largely unexpected. Even the British PM David Cameroon was unprepared for this. The result is, there is no well-defined future course of action. This uncertainty over Brexit is bound to reflect on the world markets.  Currently, India is the second biggest source of FDI for the UK and this is primarily because of India’s historical and cultural convolution with Britain. Brexit, however, will herald substantial changes in the approach of the Indian investors as Britain would no longer continue to remain as the center of operations for Europe. Yet, Britain will not want to lose out on such heavy investments and this will give India a stronger footing to put forward the terms for trade.

On the other hand, Europe definitely wants to cut into the USA and China’s sphere of influence, and also needs to hedge against the declining Chinese growth rate. Hence, Europe will be turning to India and would want to resolve the pending trade issues quickly. With the loss of her “Gateway to Europe”, India would now want to have strong ties with some other country in the EU. Currently, among the EU nations, Netherlands is the biggest recipient of India’s FDI. Also, India is in the midst of developing better trading relationships with other EU countries including France and Germany.

India would also likely provide Britain with quality, English-speaking labour force, that it might require following the severing of economic ties with the continent. Britain is also the most attractive destination for higher studies for Indian students. Presently, British Universities provide subsidised courses to students from the EU nations, which may now be diverted to help students from countries having strategic trade relations with Britain.

Talks on India-European Union Bilateral Trade and Investment Agreement (BTIA) have stalled because of resistance from the industry lobbies in India, who have consistently insisted on continued protection for several sectors. The Chief negotiator for Indian-European BTIA visited India within a month after the referendum. Although this agreement will provide mutual benefits for both the parties involved, Brexit has tilted the equation slightly in India’s favour. India is also in talks with the UK to sign another Trade Agreement after Brexit. Both the countries are exploring the option of formation of an India-UK sub-fund under the National Investment and Infrastructure Fund (NIIF) umbrella. Brexit has provided consequences where EU and UK are, in a way, competing for better trade relations with India.

Although Brexit has had some negative effects on the Indian economy, the need is to patiently weather the storm. The prospects for the future are bright. Brexit brings with it the myriad opportunities of growth for Indian industries. It provides a high pedestal for Indian negotiators at FTAs with UK as well as the EU. India just needs to be watchful and capitalize on whatever opportunities comes her way.




About the Author:

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Bhaskar Poddar is a first-year student at IIM Rohtak. He is an Electronics and Communications engineer from Dehradun Institute of Technology, Dehradun. A member of the Cultural Committee at IIM Rohtak, he likes to dance and watch movies in his leisure time.