On Thursday, June 23 when Britons will vote on the referendum for Britain’s disassociation with the European Union, popularly known as Brexit, they will not take a decision only to affect the Britain – EU trade ties or immigration policies. The wider world beyond will also get significantly affected by the decision made. The voters will choose between, stay or leave and if the poll predictions are to believed, Britons are equally split over it. The rest of the world, almost all of them, along with India, are against British exit from the EU.
India has extremely close trade relations with the United Kingdom mostly owing to the historical & cultural ties, huge Indian diaspora in the UK, and ease of doing business. India is the third largest source of FDI in the UK and the UK is one of the countries with which India enjoys a trade surplus. There are more than 800 Indian companies in the UK employing over a 100,000 people. All this is at the backdrop of UK being the gateway for India to the European markets. United Kingdom is the natural choice for India as a base to cater to the European market. If Brexit happens, this advantage will be nullified, directly affecting the market available to these companies. The domestic UK market will be significantly smaller than what they cater to now, reducing the revenue and as they will have to set up separate a European base, it will be an added cost. Since, UK is the gateway to the rest of Europe for India, the exports will also take a hit affecting the surplus we enjoy right now. With Brexit, GBP is also likely to take a hit, short term impact of which will directly be on offshoring business from India such as IT industry. If deals are not renegotiated, a devalued pound will render current contracts a losing proposition. Large scale deals might come to a complete halt.
Closer home, because of the double effect of foreign fund outflow and dollar rise, rupee will depreciate causing rise in diesel and petrol price, forcing the government to cut down the excise duty imposed during the low crude price regime. This will ultimately result in increased fiscal deficit. Decreased revenue from European markets outside the UK will put an additional burden to it. The volatility in market will push people to seek for more secure investments thus a rush will be seen towards gold, resulting in a gold price rise.
But all is not bad for India if Britons choose Brexit over Bremain. Once the exit crystallizes and relative stability comes back, India can hope for more trade with Britain. EU led trade restrictions, such as Indian mango ban will not be there anymore. With no free trade access to the European market, UK gaze is likely to shift towards the Indian market. A bilateral trade deal between UK and India is more likely than an EU – India deal taking place ever. With no free border access for labour from EU to UK, Indian migrants if not at an advantage, will at least get a level field to play. Overall with Brexit India can hope for possible closer bilateral ties with UK.
Brexit is not a regional issue of the European Union. It is a significant event with larger geopolitical impact on the relation of other economies with Europe. In the short term it will definitely result in to a lot of uncertainties within Europe. If braced well against short term impact, India can definitely look for a lot of opportunities opening up in midst of these uncertainties.