Waiting in the wings

With Brexit becoming reality after January 2020, a new dimension in UK-India economic relation will set off. It will throw new challenges to deepen the relationship with UK, after its exclusion from the European Union.

There are two areas which will open opportunities to rebuild the economic relationship with the UK. One, it is the economic relationship with UK as a single country. Second, the relation with EU, where UK has played a harbour for India.

UK acted as a main functional partner for enhancing India-EU economic relation. It has been the biggest export destination for India among member countries. India has a favourable trade balance with EU, who is its biggest trading partner courtesy of UK. In 2018-19, EU accounted for 13.7 per cent of India's total trade in the world and UK accounted for one-sixth of EU share. Therefore, UK leaving EU, is likely to impart a major impact on India-EU relations.

Prior to joining EU, UK was one of the major trading partners of India. It was the fourth-biggest trading partner of India in 1970-71. The trade importance of UK declined significantly after it joined EU. It slipped to the fifteenth rank in 2018-19. Given the paradoxical trend between pre and post EU joining, it epitomises that UK, as a single count, provides more opportunities for trade expansion after it leaves EU.

Notwithstanding, mixed reactions prevailed over UK-India relation in post Brexit. One group is of the opinion that India's export opportunities to UK will surge, with the abrogation of duty-free benefits to member countries. Another group is sceptical with an assumption that the export opportunities will be curtailed if the separate UK engages it in FTA with EU.

Further, UK being the window for large EU market, critics apprehend some damages to India's exports to EU after UK's departure. Nonetheless, the positive thinkers are of the opinion that independent UK will play a big role in expanding India's exports, which will outweigh the dent to India's exports to EU in the wake of Brexit.

EU is the major trading partner of UK. Half of UK's trade is with EU. Nevertheless, the trade between EU and UK sunk over a period of one and half-decade. In 2002, EU accounted for 55 per cent of UK's global exports and 58 per cent of its global imports. In 2018, EU's share slipped to 46 per cent in exports and 54 per cent in imports. This deciphers a downtrend in the UK's dependence on EU.

Another significant feature of UK-EU trade is that UK has a trade deficit with EU over a period of time. In contrast, UK recorded an overall trade surplus with non-EU countries. This decodes UK's comforts to do trade with non-EU countries, including India. The upshot of the situation is that UK will feel more comfortable to trade with India after Indian goods will be competitive with the abrogation of duty-free benefits and provide more opportunities for Indian goods to enter the country where big consumers are Indian non-residents.

Going by the micro-level analysis of the potential expansion of merchandises between India and UK, it is noted that major items of UK's imports are motor vehicles, pharmaceuticals, electrical machinery, telecom equipment and petroleum products. Against this backdrop, India's major exports to UK are apparel and textile, pharmaceutical products and motor vehicles. These account for one-third of India's exports to UK.

Pharmaceutical product is the second biggest item of UK's imports from EU. In 2018, it accounted for 6.7 per cent of UK's total imports, valued at US$ 23 billion. UK is the second-biggest export destination for India's pharmaceutical products. Annual exports to UK were US$ 532 million. Given the vast import market for pharmaceutical products, current India's exports are the tip of the iceberg. Brexit provides a big opportunity for Indian exporters, with imports from EU becoming costlier due to tariff restriction.

UK is an important destination for India's investment abroad. India is the third-biggest investor in UK. Incidentally, there are 800 Indian companies in UK. This is more than the 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 NRI investment surge in India. In addition, UK investors will be keen to invest in India as an alternative market. Over the period, India has accumulated several factors in its favour to woo the British investors.

Brexit will provide greater opportunity for Indian immigrants in UK. EU rules restrict member countries to prefer EU immigrants over non-EU immigrants. Under the rule, EU countries can opt for non-EU immigrants, provided there is a shortfall of talents within EU. Brexit will help UK to get rid of the apartheid rule and take advantage of low-cost Indian professionals.

In nutshell, Brexit will provide new scope for expansion of India's exports, which is the need of the hour after the US-China trade war stalled export market.

Views expressed are strictly personal