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This article is written by Jasmine Madaan, from Vivekananda Institute of Professional Studies (VIPS). This is an article describing the current and future impact of BREXIT in India.

Introduction

‘BREXIT deal’, the historic event that had the entire world at its wit’s end. All eyes were on the United Kingdom from the time it had announced the BREXIT referendum(a voting process in which an answer in the form of a ‘yes’ or ‘no’ is to be provided pertaining to the question) in 2016 to its final withdrawal from the European Union(EU) on January 31, 2020. 

The reason behind the worldwide attention was concern about the impact of withdrawal on their countries, the world economy, etc. India has been a former colony of Britain and shares economic ties with the latter. The article describes Brexit and its current and probable future impacts in India. 

Why, when & how of BREXIT

European Union is a political and economic union of various countries of Europe. It permits the member countries to conduct free trade, i.e., there are no checks and charges to travel from one member country to another. It even allows its citizens to move freely from one country to the other to travel, work or live due to no borders concept along with many other benefits. 

Currently out of 51 countries, 27 countries are a part of the European Union. It is the world’s largest trading bloc.

‘BREXIT’ is the abbreviation of ‘British Exit’ which refers to the exit of the United Kingdom( which consists of England, Wales, Scotland and Northern Ireland) from the EU. It has been derived from the term used in 2012 to refer to the possible exit of Greece from the European Union.

A list of dates and events describes the when, why and how of Brexit-

List of Dates

List of Events

January 1, 1958

European Economic Community (now, European Union) came into existence with only 6 members- Germany, Italy, France, Luxembourg, Netherlands and Belgium.

January 1, 1975

The United Kingdom officially joined the EU along with Ireland and Denmark after its first referendum in which 67.2% of the UK population voted in favour.

1986

Britain assumed the presidency of the EU, i.e.,the president of the EU was a Britisher.

1992

European Economic Community (EEC) was officially renamed as the European Union(EU).

1 November 1993

The Maastricht Treaty, formerly known as the Treaty of European Union which was entered in 1991, came into effect. The treaty led to establishment of the EU and granted citizenship to all the citizens of member states. It also led to formation of a central banking system and currency(Euro).

1999

The countries decided to use the common currency ‘Euro’ but the countries were provided with the discretion whether they want to use Euro or their own currency.

2013

Total of 28 countries had become a part of the EU.

2014

With the UK Independent Party coming into power, the voice to execute the BREXIT deal got louder.

23 June 2016

A referendum took place in the UK as per the date decided by then-Prime Minister David Cameron which resulted in 51.9% of the majority voting in favour of the withdrawal.

29 March 2017

The succeeding government headed by then Prime Minister, Theresa May initiated the official two-year withdrawal process of the UK from the EU.

29 March 2019

The original date of the UK to leave the EU.

July 2019

Mr Boris Johnson replaced the former Prime Minister of the UK, Ms Theresa May. He re-negotiated the deal and made certain changes, the main being the formation of custom barriers between Great Britain( England, Wales and Scotland) and Northern Ireland.

31 October 2019

The negotiation time duration was extended until this date.

31 January 2020

Finally, the United Kingdom was officially withdrawn from the European Union at 11 pm GMT.

31 December 2020

The end date of the transition/implementation period.  

During these 11 months, i.e., till the transition period gets over the trading relations of the United Kingdom will remain the same. It is pertinent to note that the United Kingdom is the first-ever country to leave the European Union. It took three Prime Ministers’ tenures to finally make Brexit a reality at least on paper till now.

A big challenge before the UK is to negotiate the BREXIT deal within the stipulated time or else the WTO rule will be applied. It means that high tariffs and customs barriers will be imposed between the UK and the EU. As per Article 50 of the Lisbon treaty, if the withdrawing member and the EU are not able to conclude the deal within the transition period, then the UK will have to end up with no Free Trade Agreement and the trading rules of the World Trade Organization(WTO) will be applied. 

With the current economic turmoil due to the Coronavirus pandemic, the process has been interrupted. Despite the lockdowns, the officers of the Union and the UK are working on the negotiation deal via video-conferencing. Till date, none of the party has shown any intention for an extension. The negotiation deal will ponder on various aspects including trade, law enforcement, aviation safety and standards, access to water bodies, data security and sharing, etc.

The future of the BREXIT is highly uncertain as to the ones in favour state that:

  • It will help Britain save billions of money that it had to contribute to the EU membership.
  • Britain will inculcate the independent power to strike trade deals.
  • Reclaim sovereignty over domestic affairs.
  • Regain control of its borders and minimize the entry of certain migrants.

It will be worth noting whether the United Kingdom will be able to bag home a deal or will end up having a no-deal Brexit.

Impact on India

As per PM Modi, the UK is an entry point for India to the EU. With the UK’s withdrawal from the EU, no one can predict anything with certainty. However, some experts believe that the move of BREXIT will be an opportunistic event for India. It is expected that it will act as a catalyst between India and the UK and also for India and the EU to modify or reset the legal terms of its trade with both.

On the other hand, some believe that the Indian companies or Indian-owned companies in the UK will be highly affected due to BREXIT especially if the UK does not end up with a Free Trade Agreement with the European Union.

India and the UK share good relations in some pre-existing matters. The UK has been the top G20 investor for the last 10 years in India. Some of the positive impacts that have already started to be seen within a few months of the final decision are:

‘Ready to Trade’ campaign

The ‘GREAT Ready to Trade’ campaign which was launched on 1 February 2020 also included Mumbai, India in its list of 18 cities across 13 countries. Various other countries include the USA, China, Hong Kong, Australia, etc. The campaign aims at increasing and deepening the relationship of the United Kingdom with its future global partners and also to make the UK the main hub of foreign direct investment (FDI) in Europe. It is being headed by the Department of International Trade.

Student work Visa rules

The major step taken by the UK government in 2019 is an evidence of how many opportunities can be opened for Indian students to gain experience and work in the UK. The step taken called the “graduate’ route was passed for a mutual benefit of the UK and International students. 

It states that all International students (with a special mention of India), who have a valid immigration status to the UK as a student and have completed an undergraduate or higher course from an approved ‘UK Higher Education Provider’ shall be permitted to stay for two more years after completing their course to look for job opportunities and work. The aim is to retain and recruit the best and brightest government talent from across the globe.

As per the official government website of the United Kingdom government, there has been a 42% increase in Indian students from last year and almost 100% increase compared to the end of June of 2016. 

With the advent of Brexit, it is expected that various such reforms will be made for students and skilled workers.

The expected drop of the pound

It is expected that post Brexit the value of the pound will decrease drastically. In 2016, there was an 8% decrease in the UK currency relative of the Indian rupee. It was noted that till 2019, there has been a decrease in 20% of its value since the 2016 announcement of Brexit. A drop of $1.20 (approx) was seen in 2019 which is the highest since 1985.

As per financial experts, this financial plunge can benefit the Indians as it will decrease the education cost, expensive travels and help it in obtaining cheaper homes in the usually expensive UK property market. Indian companies that import from the UK are likely to benefit. 

Expected trade deal 

Experts including Ms Catherine McGuiness, Policy Chair of London Corporation, who works with the financial services sector of the UK believes that there will be a post-Brexit trade deal between the UK and India. From industry experts to various government officers have hinted the clear intention to complete the trade deal between the two countries.

Not just trade one can also expect deals in Financing, renewable energy, renewable projects, green finance, fintech, cyber, insurance, etc. The Chief Operating Officer of the UK-India business council, Mr Kevin McCole stated that trade relations of India and the UK are not as strong as they could be.

New Immigration policy

The new immigration policy of the UK has been seen as beneficial for the Indians. The rules that will come into practice from 1 January 2021 state that a migrant shall gain 70 points to be eligible for a visa. An individual must be fluent in English, have a job offer and must earn 25,600 pounds subject to the exception of workers in the government’s official shortage list.

The new immigration policy is going to benefit skilled Indians exploring job opportunities in the United Kingdom. Freelancers or self-employed workers will not be much affected by it. The aim behind this is to achieve a ‘high skill, high wage and high productivity economy’. 

There was a 5% increase in the skilled work visa provided to Indians which were more than 52,000 in number. It is the highest increase for any country. Experts believe that this policy will help many skilled Indians landing a job in the United Kingdom as Indians are well known for their fluency in English and highly skilled expertise.

Stock Markets

After the 2016 referendum’s result, a downward trajectory was seen across global stock markets but soon it gained normalcy.

With high uncertainty in the UK and EU stock markets, one can also expect the Indian markets to benefit from it. The major Indian companies that earn a significant amount of revenue from the UK market seized the limelight in 2019 after the announcement of an outline Brexit deal has been struck between the UK and the EU. These companies are Tata Consultancy SVCS Ltd., Tata Motors Ltd., Tata Communications Ltd., Crisil Ltd., Eclerx Services Ltd., Majesco Ltd., Solara Active Pharma Science and Mastek Ltd.

Drop-in currencies

After the 2016 referendum’s result, a drop in world currencies was seen including the sterling pound. In 2019, India had seen a drop of 0.40 per cent against the dollar due to Brexit uncertainties. 

However, it is believed by experts that it will not have a drastic effect on the Indian economy. Many quote the example of 2015 when the rupee soon recovered after being hit by the drop in China’s yuan.

Cumbersome Transactions

Various countries including the USA and India believe that it was easier to have a fast movement of goods across borders for the UK during membership in the trading bloc. Now the transactions between the UK and other countries might become slower and subject to extra inspections, paperwork, approvals and custom reviews.

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Indian Companies in the UK

India was the highest FDI investor in London in the year 2018. India was the fourth-largest FDI investor in the UK in the year 2017. Both countries have been among the top 6 FDI investors in each others’ markets from 2010. As per an article of Business Standard, there are around 842 Indian-owned companies in the UK with a combined revenue of 48 billion pounds (according to a report of Grant-Thornton-CII) in the year 2019.

A drastic impact will be seen in the companies that have their headquarters for the EU in the UK. Now, the companies will be required to establish a separate functioning unit in the EU, the one other than the UK. The situation right now is still sceptical as the whole world awaits the post-transition period deal as it will decide the future of many companies and countries.

Experts believe that the effect will differ among various industries or sectors or even specific companies. For instance, Indian technology companies like TCS, Wipro, TechMahindra, etc. are expected to have very little effect on their businesses due to Brexit. Whereas, in the case of Jaguar Land Rover(JLR), it is expected to have a drastic impact on its manufacturing in the UK as it heavily depends in terms of its supply chain on the European Union. 

For example, in the Pharmaceutical sector, many Indian pharmaceutical companies in the UK are being impacted by the fact that the medicine control agencies are moving from the UK to the Netherlands.

However, a survey was conducted by the Federation of Indian Chambers of Commerce and Industry(FICCI) after the 2016 Brexit vote of 45 Indian companies operating in the UK. The result showed that 42% of the companies believed that either it will have not much effect on the business or have a good impact overall and 28% believed that it will have a negative impact.

48% stated that their main reason for operating in the UK was not just access to the EU markets rather was the UK market itself. Other benefits include the labour laws in the UK that are comparatively lenient to other European countries and also the low corporate tax which is one of the lowest in Europe.

Limited movement

India has often considered the UK as a main entry gate to the European Union. One of the main losses for Indians and other foreigners is the future restricted movement. As the unambiguity will be cleared only after 31 December 2020 regarding the jurisdiction based travel restrictions within the EU and the UK.

Conclusion

In the modern world of Globalization, the tremors of a major change in one of the countries can be sensed throughout the world. No one is aware of what the future holds but the Finance Ministry has stated that to handle any impact, India has enough foreign exchange reserves. Surveillance mechanism of SEBI and stock exchanges has been beefed up to deal with any sort of excessive push. It is believed that India will be a net gainer once the dust settles, with a higher rate of inflows.

References

  • https://www.bbc.com/news/uk-politics-32810887
  • https://www.clearias.com/brexit-how-does-it-affect-india-and-the-world/
  • https://www.bbc.com/news/uk-politics-51194363

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