Brexit: A boon for India

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 relations. Emerging as 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 role for India-EU relation. It acted as a main functional partner for enhancing 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 the linchpin for it. Therefore, UK exiting EU is likely to impart a major impact on India-UK and India-EU relations.

Given the lead role played by the UK in India-EU relations, arguments were levelled both in favour as well as against Brexit. One group thinks that it will open new opportunities for a surge in economic relation while another group predicts gloom with the UK becoming a single market.

Given UK as the window to the large EU market, naysayers apprehend that Brexit will bring some damage to India-EU trade relation. And, since EU, including the UK, accounts for one-fifth of India's total exports, it will cast a shadow over its overall exports. However, optimists believe that the independent UK is likely to play a more important role to rejuvenate the trade relation on a bilateral basis with India, enhancing exports. With tariff benefits waning to EU exporters, large opportunities will emerge for India's export to UK's market.

Incidentally, trade relation between UK and EU has been on a downturn trend over one and half decades. EU accounts for the biggest share in UK's exports and imports. But, it was on a downtrend. In 2002, EU accounted for 55 per cent of exports and 58 per cent of imports of UK. The share slipped to 43 per cent in 2016 and 51 per cent in 2014 respectively.

Brexit will provide a new opportunity for UK's trade diversion to India as it could become an alternative market for the UK. India, harping on high GDP growth, surpassing China and amidst a global recession, eventually poses as a big market for the UK. Currently, UK has an 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 per cent of UK's total imports, valued at £ 20.3 billion ($ 26 billion). UK is the second biggest export destination for India's pharmaceutical products. Annual exports to the UK were $ 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 United Kingdom 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 the UK. There are 800 Indian companies in the 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 optimists 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 a period, India has accumulated several factors, which will act favourably to woo British investors

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

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 the near term, against the prolonged haggling in negotiations.

However, the major challenge, which the UK will face is its over-dependence on EU for trade. More than half of UK's export is accounted by EU. In 2017, EU accounted for 48 per cent of UK's exports of goods and 40 per cent of service exports. Similarly, EU played a major role in UK's imports. In 2017, EU accounted for 54 per cent of UK's import of goods and 49 per cent 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 loss. To this end, FTA can be major succour to these industries.

Automobile is a successful manufacturing industry in the UK and the biggest item of export to EU, sharing 18 per cent in 2017. It is apprehended that Brexit will dampen the UK automobile industry. It will also pose a new challenge to MNCs for the supply chain industry. 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 the UK from despair by engaging in a strategic economic partnership.

(The views expressed are strictly personal)