Brexit and India

Expert Column

Thursday, 23rd of June will go down in the history as a date on which the United Kingdom took a historic decision, which is called as political earthquake. In a people’s referendum it was decided to stay in the European Union (EU) or not to stay. The referendum was based on simple voting pattern which had only two options ‘remain’ or “leave’. By the morning of the next day, i.e. 24th of June it was clear that after more than 40 years as a member state of the EU, the British people decided to walk out of the 28 member Union. Prime Minister David Cameroon, who had promised the referendum in his poll manifesto last year, was strongly campaigning for remaining in the EU. PM Cameroon in his speech had clearly stated that “despite its faults and its frustrations, the United Kingdom is stronger, safer and better off by remaining a member of the European Union”. However after the victory of ‘leave’ vote in the referendum with just around 4 per cent, the PM, announced that he will step down before the month of October and the process of leaving the EU will be headed by some one else in the Conservative party. NYT came up with the article titled as ‘The Crumbling of the First World’. Brexit has shaken the world and it is indeed a symbol of cracks appearing in the foundation of the western world that consolidated itself after two destructive world wars within a span of 40 years.

The markets responded, as they were expected, with uncertainty and the outcome of Brexit vote triggered a 2 trillion USD fall in global markets. Ratings agency Crisil has said Brexit is not going to have any significant impact on India’s GDP growth in fiscal 2016. It has forecast 7.9 per cent growth, with agriculture as the swing factor for India’s GDP and also that in the short run, there will not be much difference in the business figures as far as trade between India and the UK is concerned. As per the Crisil Report, “the UK accounts for 3 per cent of merchandise exports from India. Further, India’s total trade with the UK is only 2 per cent of its external trade”.

However, the decision taken by the UK to come out of the 28 member block, the EU will impact Indian companies in many ways. As Britain has decided to come out at the time when both the EU and the global economy is facing a downturn, at this moment this decision will further weaken the chances of recovery of the economies that are now deeply integrated. The Brexit vote has added to the fragility, uncertainty, and volatile nature of the global financial markets. Further, as both the UK and the EU will be affected by the divorce, there will be weakness on the demand side from both the parties, which may impact export of goods and services from Indian side. The free fall of pound will trigger ripples all over the world, and according to Crisil which may in the due course of time result in volatility in commodity prices, currency impact on account of the potential depreciation of the rupee, euro and the pound, and balance sheet impact on account of exposure to unhedged overseas borrowings. Companies engaged in service sector, information technology, textiles, pharmaceuticals, gems and jewellery, leather products, automobiles and auto components are quite vulnerable to change in demand and fluctuations of currency rates. The economic uncertainty in the EU and the UK may in the due course of time lead to shrinking of business between India and the UK.

Currently, many of the norms and standards pertaining to labour, industry, safety, rights, equality, etc. are determined at the EU level which the member states comply with. However with Brexit, one can expect change in the economic policies of the UK and in the long run, companies doing business in the UK will have to restructure themselves in order to fit into the new frameworks which are more likely to be inward looking as the referendum has made it clear. The agencies and many experts are optimistic that India will remain unaffected by the Brexit, which it would to large extent, but many of the after affects of this shock will unfold only in the due course of time.


By: Dr. Sheetal Sharma,
Assistant Professor,
Centre for European Studies,
School of International Studies, JNU




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