PROJECT

REGULATORY             2019-01-01

Brexit and the Spillover effects on India

Britain’s Exit commonly known as BREXIT is the withdrawal of United Kingdom from the European Union. It follows the referendum held on June 23, 2016 when 52% of the people voted in favor of withdrawal. Article 50 of the Treaty on European Union was invoked and UK is supposed to exit from the European Community by March 2019. There is near-unanimous agreement among economists that leaving the European Union will adversely affect the British economy in the medium- and long-term. Brexit is expected to incur losses on account of increased inflation and decline in GDP.  A 2017 survey of the existing academic literature "the research literature displays a broad consensus that in the long run Brexit will make the United Kingdom poorer because it will create new barriers to trade, foreign direct investment, and immigration. However, there is substantial uncertainty over how large the effect will be, with plausible estimates of the cost ranging between 1 and 10 percent of the UK's income per capita. These estimates differ depending on whether the UK stays in the European Single Market, makes a free trade agreement with the EU, or reverts to the trade rules that govern relations between all World Trade Organization members. The major positive drawn from Brexit is that it poses a great example of participative democracy deciding the polity despite the presence of politicians.

Post Brexit, the UK would lose its access to the European Union Single Market, hence it would be looking to develop strong trade relationships with the emerging economies of the world. India, with it’s strong economic fundamentals and a large domestic market would be a vital contender for it. Britain and India have been in discussions for Post – Brexit bilateral free trade agreementamounting to over 1 Billion GBP.

India has been a major source of Foreign Direct Investment (FDI) for UK, as UK has been a gateway to Europe for the Indian firms. Post Brexit, UK might not remain attractive as before. In order to sustain the investment from the Indian companies, the British government can provide more incentives such as tax rebates, easier regulations and opening up the markets.

Britain has been one of the most sought after destinations for advanced studies and research in the world especially for the Indians. Brexit could bring down the cost of studying in UK as the accessibility for the European students would tighten and in order to encourage students from different parts of the world the government could initiate certain incentive schemes which in turn essentially would bring down the cost of education for the Indians.

As per the EU rules, any EU member country should not invite immigrants from the non-EU countryunless there is a significant shortfall of talent within the EU. For most of the skilled workers from India,this was the end of the British dream. Physicians, nurses, IT professional and researchers were deniedUK job opportunities. The stricter EU-enforced laws virtually stopped the immigration from India. TheBrexit would provide a new opportunity for the Indian professionals to look for work options in the UK. India is also among the strongest, innovative, consistently growing and most stable economies anddemocracies in the world. As Britain would renegotiate her trade agreements with the EU, India couldleap towards better deals for Indian companies employed in the UK and Europe. If played right, it would
present a massive advantage for Indian firms.

With Britain cutting off ties with the EU, it will be desperate to find new trading partners and a source of capital and labour. There have already been many proponents of the Leave Campaign that suggest that the UK should look towards the Commonwealth to forge new alliances. Britain will still need a steady inflow of talented labour. And India fits the bill perfectly due to its English-speaking population. With migration from mainland Europe drying up, Britain would be able to accommodate migration from other countries, which will suit India’s interests.

India has a positive trade surplus of US$3.64 billion in terms of bilateral trade with Britain. The total trade stood at US$14.02 Billion, out of whichUS$8.83 Bn was in exports and US$5.19 Bn was in imports. In terms of imports, India imports only 1.45% of it’s net imports from UK. The imports from UK will be getting cheaper on the event of Brexit, mainly rough uncut diamonds, spirits etc.

UK is listed 18th among India’s top 25 trading partners. After Brexit, India may increase its exports to the UK, as the goods supplied by EU producers and existing FTA partners of the EU will be subject to the same tariff as applicable goods imported from India. However, in the longer run, Brexit could help strengthen India – UK economic relationship as the UK seeks to compensate for loss of preferential access to EU markets.

Brexit might eventually compel another European Countries to consider referendums and renegotiation of term with the European Union. This in turn would lead to greater political instability and conflict. Europe being a major importer of Asian goods, any political tensions would impact the demand for the goods thereby impacting the balance of trade of the Asian countries.

There’s been negative sentiments towards Brexit, but eventually that will pass because there arealways hidden opportunities in any extraordinary outcome. For example, Switzerland and Norway that aredoing exceptionally well without being a part of EU whilst Finland is struggling even when it within EU.Brexit will possibly lead to bilateral agreements of UK and EU with India. The FTAs will certainly lead to arise of trade volumes for India. This will result in greater investments in India, lower prices of goods,more competition and greater variety for consumers