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BREXIT: Opportunity For India, Challenges To UK – Analysis

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At last, BREXIT heads for reality on March 29 , amidst big haggling for benefits over two years. A new dawn will break over UK’s sovereignty. It will prop up a new dynamism in India-UK economic relation. Emerging a new single market, UK portends for a new important economic partner for India.

Even, while being in EU, UK has been playing an important harbor for India- EU relation. It acted a main functional partner for enhancing India- EU economic relation. For example, UK has been the biggest export destination for India among member countries . India has a favourable trade balance with EU and UK was linchpin for fovourable trade balance. Therefore, UK exiting EU, is likely to impart a major impact on India –UK and India-EU relations.

Given the lead role played by UK in India–EU relation, arguments were levelled both in favour as well as against BREXIT. One group thinks that it will open new opportunities for surge in the economic relation with UK as sovereign country. Another group beacons for gloom with UK becoming a single market.

Given UK as the window for large EU market, naysayer apprehend that BEXIT will bring some damage to India-EU trade relation. And, since EU, including UK, accounts for one-fifth of India’s total exports, it will cast shadow over its overall exports. However, positive thinkers believe that the independent UK is likely to play more important role to rejuvenate the trade relation on bilateral basis with India and portend for enhancement of exports from India. With tariff benefits waned to EU exporters, large opportunities will emerge for India’s export to UK’s market.

Incidentally, trade relation between UK and EU is on downturn trend over one and half decades. EU accounts for biggest shares in UK’s exports and imports. But, it was on downtrend. In 2002, EU accounted for 55 percent of exports and 58 percent of imports of UK. The shares slipped to 43 percent in 2016 and 51 percent in 2014 respectively

BREXIT will provide a new opportunity for UK’s trade diversion to India. India will be an alternative market for UK. India, harping on high GDP growth, surpassing China and amidst global recession, eventually poses a big market for UK. Currently, UK has adverse trade balance with India. UK’s exit from EU will open new opportunities for enhancement of trade with India in the wake of doing away with tariffs benefits for exports to EU.

Export of pharmaceutical is a case in point. Pharmaceutical product is the second biggest item of UK’s imports from EU. In 2017, It accounted for 7.9 percent of UK’s total imports, valued at £ 20.3 billion (US $ 26 billion). UK is the second biggest export destination for India’s pharmaceutical products. Annual exports to UK were US $ 532 million. Given the large import market for pharmaceutical products, BREXIT provides a big opportunity for Indian exporters, with imports from EU becoming costlier due to tariff restriction.

The UK is an important destination for foreign investment. As of 2017, it was the third biggest destination for foreign investors in the world. Incidentally India is the third biggest investor in UK. There are 800 Indian companies in UK. This is more than total Indian companies in the remaining 27 EU member countries. Concern was raised over UK’s exit from EU, which will dent Indian investors , since BREXIT will rip UK’s border free access to EU market.

Nevertheless, the positive thinkers are hopeful that this may lead to investment diversion to India. In addition to NRI investors relocating their plants to India, UK investors will be keen to invest in India as an alternative market. Over the period, India has accumulated several factors which will act favourable to woo the British investors. According to former RBI Governor, Raghuram Rajan, “ India will become bigger than China eventually as China would slow down and India would continue to grow”.

Brexit unleashes greater opportunity for Indian immigrants in UK. Given the EU rules, which restrict member countries to prefer EU immigrants over non-EU immigrants, Brexit will get UK rid of the apartheid rule and take the advantage of low cost Indian professionals. Under the rule, EU countries can opt for non-EU immigrants, provided there is shortfall of talents within EU. The strict EU immigration law has virtually curtailed the scope for Indian immigrants at the time when UK was experiencing greater shortfall in professions such as physicians, nurses, IT professionals and researchers.

The UK’s exit from EU will pave the way for India – UK strategic partnership. It is likely to boost hope for India-UK FTA in near term, against the prolonged haggling in the India-EU negotiation for FTA .

However, the major challenge, which UK will face, is its over – dependency on EU for trade. More than half of UK’s export is accounted by EU. In 2017, EU accounted for 48 percent of UK’s exports of goods and 40 percent of service exports. Similarly, EU played major role in UK’s imports. In 2017, EU accounted for 54 percent of UK’s import of goods and 49 percent of services.

BREXIT will impart a major impact on UK’s export based industries and services. Concerns are raised over motor vehicles, petroleum products and pharmaceutical products, which account for one-third of UK’s exports to EU. With the exit from EU, these industries will face a major challenge for survival, unless alternative markets are there to offset the injury. To this end, FTA can be a major succor to rejuvenate these industries in UK.

Automobile is a successful manufacturing industry in UK. It is the biggest item of export to EU, sharing 18 percent in 2017. It is apprehended that BREXIT will dampen the UK automobile industry.

BREXIT will pose a new challenge to MNCs for supply chain industry in UK . For example, components and parts will be subject to various different regulations and costs and intra-staff transfers will be subject to controlled migration rules.

Therefore, BREXIT will oscillate between hopes and despair. To this end, India, with its high growth trajectory and historical bondage, can play an important role to pull out UK from despair by engaging into strategic economic partnership.

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Subrata Majumder

Subrata Majumder is an adviser to Japan External Trade Organization (JETRO), New Delhi, and the author of “Exporting to Japan,” as well as various articles in Indian media, including Business Line, Echo of India, Indian Press Agency, and foreign media, such as Asia Times online and Eurasia Review .

One thought on “BREXIT: Opportunity For India, Challenges To UK – Analysis

  • January 28, 2019 at 5:07 pm
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    Lol … Indian astrologer … with a lot of words … What do we know – now end of January… While India and others hope for a ‘no deal’ Brexit and waiting to export ‘cheaper’ products to UK -with than lower quality because less controls and no EU norms and regulations- but for a higher price than before -because no more binding ties to EU trading contracts- many and now the woken u majority of UK residents are fearing the ‘no deal’. Not only could this deminish the traveller, tourists and other businesses with new visa restrictions on both sides, it would harm all of the transport contracts for ship-, plane- and vehicle transports. How wrong and how little information the author have is shown by the fact that he did not mentioned the future population of UK and the implications of a ‘no deal/hard’ Brexit for them …

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