How Will Brexit Impact The Indian Economy?

On June 23, 2016, a referendum was conducted across the United Kingdom over Brexit. In this referendum, 52% of  the people voted in favour of Brexit while 48% voted against it. On March 29, 2016, Prime Minister Theresa May triggered a two-year process using Article 50 of the Lisbon Treaty to leave the European Union (EU), even though she was against Brexit before the referendum. As per the Lisbon Treaty, the United Kingdom was to leave the EU on March 29, 2019. But the main opposition party, Labour, opposed May’s decision.

Opposition leader Jeremy Corbyn said that we can’t endorse the Brexit Bill in the parliament as it is against the nation’s fortune. Even Theresa May’s own Conservative party members including its allied Northern Ireland unionists party are opposing the Bill. Consequently, PM Theresa May had to face historical loss in the parliament by a margin of approximately 215 votes on January 15, 2019. Two consecutive defeats in the Lower House compelled and prompted PM May to get down from the chair.

British Prime Minister Boris Johnson (L) and European Commission President Jean-Claude Juncker give statements to the media prior to a summit of European Union leaders on October 17, 2019 in Brussels, Belgium. Officials announced earlier in the day that EU and UK negotiators have reached an agreement on the United Kingdom’s departure from the EU. (Photo by Sean Gallup/Getty Images)

After this heated episode, senior conservative leader, Boris Johnson became the Prime Minister of the United Kingdom. Seeing the dramatic and unstable situation in the UK, PM May requested the EU council president Donald Tusk to extend the date of Brexit, which was accepted and adjourned from March 29 to October 31, 2019. But consensus could not be developed in the UK Parliament to get Brexit done which resulted in postponement from October 31, 2019, to January 31, 2020.

Positive Impact Of Brexit On India

1. Free trade agreement:

After losing access to the EU single market, the UK would want to develop trade relations with emerging markets around the world. India, with strong economic fundamentals and a large domestic market, is in a better position.

2. Easy market access:

India is a significant Foreign Direct Investment (FDI) source for the UK because many Indian firms have used it as a gateway to the EU single market. Initially, after divorcing from the EU, the UK wouldn’t like to miss Indian investment. It will attract Indian firms by offering more incentives such as tax break, relaxed regulations and opening up markets.

Negative Impact Of Brexit On India

1. The UK has always been a gateway for Indian firms to enter the EU single market. After Brexit, this may cause short term distress on Indian firms.

2. The second impact would be visible on currency volatility as there would be devolution of Pound and Euro due to Brexit. Indian companies with sizable presence will have to bear the brunt.

3. With Brexit, there will be a considerable spike in the price of imports, foods and other everyday commodities, which will impact Indian firms.

4. Brexit can affect Indian flagship IT market sector, given that EU accounts for 17 % of the global market and UK accounts for solely 3% out of that 17%. Brexit will increase overhead cost and setting up of new headquarters perhaps, in both EU and UK separately.

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