The European Union (EU) is a political, economic, and trade union that was established in 1957. It underwent several developmental changes before arriving at its current form in 1992. Out of the 51 countries in Europe, 28 have signed the agreement giving consent to become members of the European Union. It has surpassed the United States as the world's largest commercial bloc.
Britain has always had constrained relationships with the European Union since the initial stages and the entire world has been a witness of the country’s numerous deliberate attempts aimed at breaking away from the EU.
'Brexit' is the alternate word for the phrasal idea ‘British Exit ’ from the European Union (EU) on January 31, 2020.
This term is also considered by many as a reflector of another term ‘Grexit’ that was denotative of the probable exit of Greece from the EU in 2012, which was coined by two Citigroups’ senior economists.
While Brexit had many direct effects on the relationship between the EU and the United Kingdom, it also had undoubtedly a major impact on India in several areas, including the economy and the corporate sector. This article seeks to highlight some of the significant good and negative consequences of the situation.
What are the possible adverse effects of Brexit on India?
Apart from the significant changes that India would have to bring in its internal and external functioning, there are a number of additional aspects that serve as evidence to prove the fact that Brexit is a piece of terrible news for not only the Indian government, but also for numerous outsourcers, local businesses, investors, and other sectors. Let us see how.
- Impact on Business
Since the creation of the EU collaborative market, the United Kingdom has served as a gateway for Indian businesses to enter the EU. Following Brexit, Indian companies were forced to compete for these two markets separately and individually.
Let us consider an example to understand the same: Brexit led to an increase in the overhead costs and necessitated the establishment of new offices in both the EU and the UK. Another renowned multinational company - the Jaguar, which is owned by TATA, previously wasn't required to pay any customs charges in the EU market. However, after Brexit, all such companies battled with greater logistic expenses, customs tariffs, and other regulations, rendering these vehicles uncompetitive.
- Exchange rate uncertainty
Brexit also paved the way for a subsequent depreciation of the Pound and the Euro which ultimately posed a negative impact on the Indian rupee. Experts believe that this has three major effects:
1. The strengthening of the dollar resulted in a much weaker CAD (cash available for distribution).
2. The previously existing and stable quantity of servicing expenses for bonds issued by Indian companies also saw an increase.
3. Due to the depreciation of the Pound, Indian exports to the United Kingdom tend to suffer.
- No major benefit to Indian goods owing to the paperwork delay
Following Brexit, the UK was expected to actively seek other partners for goods trade, even though nearly half of the $900 billion in annual EU-UK trade will stay tariff-free and quota-free.
However, goods transiting between the UK and the EU will be subject to customs and other procedures, and the additional paperwork will likely cause some delays. As a result, the treaty would not provide many benefits to Indian goods.
- Loss in Foreign Direct Investment field:
An investment in the form of controlling ownership in a business in one country by an entity established in another nation is known as a foreign direct investment. One of the major sources of India's FDI comes from the United Kingdom. Therefore, the Brexit deal was believed to have a substantial impact on the Indian economy.
- Rise of Protectionism
Protectionism is a term used to describe government policies that limit foreign commerce to benefit domestic businesses. Protectionist policies are typically intended to boost domestic economic activity, but they can also be enacted to address safety or quality problems. In the foreign affairs field, where till now Multilateralism was being supported and practiced, Britain's exit has proven to help in the emergence of the policy of Protectionism by the sovereign state once again.
What are the positive impacts of the Brexit deal?
- The establishment of a Robust Indian economy is expected to be the most pivotal aspect of this deal. Since India is the third-largest economy going through vast levels of growth and development per year, it would be easier for the country to acquire and negotiate better global partnership deals because post-Brexit, the countries of the EU and UK would be looking out for new trade partners who would replace the existing ones.
- Brexit would also result in easier negotiation of a free trade agreement with the United Kingdom. A well-crafted bilateral trade agreement between the United Kingdom and India has the potential to boost bilateral trade by 26%.
- Even in the agricultural field, India is expected to gain an advantage because now Indian companies have opportunities in the food and agro sector as the UK is a net importer of food from the EU. The absence of a self-sufficient partner in the agricultural industry would prompt them to enter into deals with India that would profit the Indian investors.
- The restraints on unrestricted movement of experts between the two markets are projected to benefit India's services sector. According to the Brexit trade and security agreement, UK citizens will no longer enjoy unfettered freedom to work, study, start a business, or live in the EU, notwithstanding tariff-free and quota-free access to each other's markets. As the EU-UK accord does not cover services, Indians can benefit from opportunities in service areas such as IT, architecture, research and development, and engineering in both markets.
- Following Brexit, freedom of movement between the EU and the UK will be restricted, forcing the UK to hunt for human resources in other nations such as India. (For example, the recent extension of a two-year post-study VISA for international students) However, given the EU's ongoing migrant problem, much relaxation in visa regulations for Indian skilled workers is doubtful.
Every coin has two sides, and the Brexit deal is no exception. While it puts India in a stronger position to renegotiate its trade pact with the EU and develop itself as a global player, the government must carefully monitor and plan to support the sectors and people who would be affected by the accord.
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