Brexit likely to impact Indian biz contours

The exit of Britain from the European Union – Brexit – is likely to impact India, businesses based in the UK, IT exports and possible market and currency volatility leading to inflationary pressure on the Indian economy. Former Reserve Bank of India Governor Raghuram Rajan had said that “We are in the midst of an age of competitive devaluation and beggar-thy-neighbor policy. When elephants fight, the grass suffers. “India has a concern. Britain is considered as a gateway to the EU for India, with it opting out, the advantage by India is lost. Therefore, there is a need to get border-free access. The Brexit issue is crucial as India’s GDP has never before contraction since 1952 and Europe has been a major trade destination that has helped the country progress. The UK remains the largest source of foreign direct investment to India and the Brexit deal may have a significant ripple effect back in India. According to experts, while the Brexit paves way for a free trade agreement (FTA) between New Delhi and London, it might take the sheen away from India’s planned FTA with the EU. India had a lot of contentious issues while negotiating FTA with the EU. The FTAs have their problems too and there are experts who are not in favour of more FTAs. In the new situation a fresh FTA process, and that is cumbersome, may have to be started with the UK. However, now the UK could have a different view. Brexit may have an impact on the decisions of Indian companies to invest in the future. India’s IT sector exports 17 percent of its services, about $ 30 billion, to the UK. The EU and UK together gives about $ 30 billion IT business to India. There are 800 companies from the country employing 1.1 lakh persons, have set up bases there for easy access to the EU market. Their overheads and tax payment burdens now may increase. A   NASSCOM report says,  “ Indian IT industry is going to experience a negative influence in the short term due to Brexit.” The return of these companies is going to be affected because of the depreciation of the pound. The deal announced on New Year eve means that about half of the $ 900 yearly EU-UK commerce will remain free of tariffs and quotas. However, goods moving between the EU and the UK will be subject to customs and other controls and additional paperwork. It would add to cost and expected to have other major disruptions. Even after the Brexit, British companies will have to obey certain European laws if they want to maintain access to the EU. Moreover, future autonomous British law-making will not be free from coordination with the EU  in order to ensure market access. A relocation of banking and primary insurance business is possible and it could hurt Britain. The idea that India could have a better relationship with the US to make for losses is far-fetched because Trump may be on exit but Trumpism – a protectionist approach – is likely to continue with new US President Joe Biden. There is another aspect. India is the third-largest source of FDI to the UK in terms of the number of projects. So far, India has been investing more in the UK than in the rest of Europe. The key sectors attracting Indian investment include healthcare, aggrotech, food, and drink.So the question is whether the UK would be able to ignore India. Or would India for a wider EU area would be focusing on moving out of Britain to have greater access to larger economies in the EU region. The pattern of the way India is doing business in the region can change. There is a perception that the UK would have to strive harder in the post-covid19 market to maintain its strength. In other words, it can become a smaller economy and not as beneficial to India or the rest of the world as it may be perceived now. There are many uncertainties and that includes whether in the event of its economy not remaining so robust could keep itself politically relevant or not. These doubts and uncertainties dog the diplomatic community and the businesses. It may be a longer wait and watch the game. If doubts turn into even partial realities the global investment trend may change. India is cautiously watching it. Its prime investment – Tata groups Jaguar (accounting for Tatas’80 percent of revenue), Japanese Toyota and BMW put down their shutters from a few days to week in November 2019 to study the ramifications of the new deal. The Tata motors losses have been mounting as Jaguar lost about $ 4.6 billion (Pound 3.6 billion) and sacking 4500 workers, it reported on January 30, 2020, that is pre-pandemic. In August 2020 it reported JLR lost 413 million pounds till June due to covid19 as sales were down 70 percent. Tatas also lost Pound 371 million in the UK’s largest steelworks at Port Talbot. Lakshmi Mittal lost Pound 35 billion and became bankrupt with Pond 130 million debts in October 2020.Thus Indian-related businesses are in a tizzy in the UK pre and post-covid19. In 2019, 56 percent of the UK companies were upbeat about doing business in India, UK-India Business Council has said. Post covid19 despite the enthusiasm most of these companies are not in a position to continue with their efforts for now. Interestingly, the UK is among the seven in 25 top countries with which India enjoys a trade surplus. If businesses shift from the UK to Europe, it could be a major loss to Britain. The UK would have to ensure that despite the pressure the value of the pound is maintained. For now, though, markets remain cautious on the pound’s outlook, the currency has been gaining against the dollar. This means that the Indian rupee gets devalued, the import prices of goods would surge. Forex reserves have declined to $ 469 from $ 574 billion. It is likely to be strained further. Brexit is changing the world scenario in many ways, more so as there is weak global growth and Eurozone heads for recession. India gradually would be changing its trade contours in the West and may reduce ties with the UK and increase with countries like Germany, France and other EU countries. Image courtesy: DD News