Brexit: Mixed bag for India

The world is undergoing a metamorphosis with people at large bored with the status quo. There is a groundswell of aspiration for change, for out-of-the-box solutions to problems and a surge of expectations which reflect impatience. Who would have thought that the US would have a black President and the Republicans would opt for a man like Donald Trump for the post-Obama presidency who prides in saying that Muslims should be denied entry into the US?

By the same token whoever thought a few years ago that the United Kingdom would walk out of the European Union, and with Scotland and Northern Ireland wanting to persist with the tie-up with Europe, the very existence of UK would be in jeopardy amid demands for referendums to decide their future? 

The enigmatic thing about UK’s walking out of EU is that it is not the product of a youth movement. The youth are in fact blaming the elders. Those under 25 are especially angry because they see the spectre of missed opportunities. Three years ago when Prime Minister David Cameron promised a referendum on UK’s membership in the EU, few thought it would lead to a divorce from Europe. Now, as the implications of Brexit seep in, there are growing fears.

Many commentators are now saying that it was UK’s poorer and less educated citizens that pushed the country out of EU because they were angry at not having had a fair share in the economic benefits of a new world order. More than two million people had, until Saturday, signed a petition seeking a second referendum but that is hardly likely to come about.

Yet, there is no denying that Euroscepticism had been growing steadily and strongly while the Brits were getting increasingly nationalistic without the powers-that-be realising the extent of it. Ordinary Britons, hit hard by the economic crisis, were feeling betrayed by their political leadership.

The cold reality of Brexit will now lead to a huge ripple effect. The EU, taken as a whole, is the UK’s major trading partner, accounting for 44% of exports and 53% of imports of goods and services in 2015. Now, the Brits will have to scout around to reduce their dependence on the European market. India could be one of the countries to fill the possible vacuum but this will not come in a jiffy and would require considerable quality control and hard-selling.

What will Brexit mean for India? If at the end of the two-year withdrawal process the UK exits the unified market, EU countries will start imposing tariffs on British products, making it far less attractive for Indian businesses — like Tata Motors — to have a manufacturing base in the UK. Indeed, Britain’s exit from EU may affect Indian companies’ appetite for investing in the UK, particularly those seeking access to the European market. 

There are 800 Indian companies in the UK employing more than 110,000 people — more than the combined number in the rest of Europe. Many of these firms made the investments with the wider European market in mind.

The Tata group itself operates 19 separate companies in the UK, including Jaguar Land Rover, Tetley Tea and Tata Steel UK, which it has recently decided to sell.

While the 1,000-plus fall in the Indian sensex in the immediate aftermath of Brexit was seemingly an over-reaction, there is no denying the adverse fall out for India in the short term. Whether the Indian economy would get over the early hiccups in the medium and long terms remains to be seen and would depend on a host of factors.

The British pound collapsed to a 31-year low against the dollar, crashing about 10 per cent on June 23 against the rupee. The bright side of it for Indians is that the UK has become a more attractive destination for Indian travellers, thanks to a weaker pound and this is likely to continue in the foreseeable future.

The drop in the pound is also likely to result in an increase in Indian students choosing UK as a destination for higher education as this will make studying there significantly cheaper.

India’s software sector makes nearly $30bn (£22bn) each year from Europe. Now, industry body Nasscom has said the falling value of the pound could render several existing contracts loss-making.

Politically, India was happy that Cameroon and Prime Minister Narendra Modi had struck up an excellent equation. With a change due in the US as well, the Indian government would have to calibrate its moves judiciously so that the special relationship so assiduously built up in recent years is not frittered away. But foreign policy in any country works on enlightened self-interest and there is no reason why the special ties cannot be maintained despite change of leadership in both the US and UK.

According to a 2010 House of Commons Library study, around 17 per cent of UK’s laws are the result of its membership in the EU. Much of this has to do with agriculture, fishing, environmental policies and trade. For example, British farmers have to meet the EU standards of quality control to export to member countries. EU’s agriculture policy lays down the law on GM crops, animal husbandry and even how much of his field a farmer must leave fallow to get subsidies. Another example is the fishing policy. There is a 200-mile fishing zone around the UK coastline. Under EU law, UK fishermen can fish only up to a specific quota and fishing fleets from other EU countries are given equal access to the zone. The UK boats get an exclusive 12-mile zone. With agriculture, British farmers will lose the EU subsidies. 

All in all, the world will not be the same with Brexit. While UK itself faces the biggest challenge, for emerging markets like India it will be a mixed bag.

The author is a political analyst