By Subrata Majumder
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 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 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 UK,
accounts for one-fifth of India’s total exports, it will cast a shadow over its
overall exports. However, optimists believe that an independent UK is likely to
play a more important role to rejuvenate the trade relation on bilateral basis
with India and enhance 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 percent of exports and 58
percent of imports of UK . The share 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 as it could
become an alternative market for UK. India, harping on high GDP growth,
surpassing China and amidst global recession, eventually poses as 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 ($ 26 billion). UK is the second
biggest export destination for India’s pharmaceutical products. Annual exports
to 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.
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 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 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 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 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 near term, against the prolonged haggling in
negotiations..
However,
the major challenge, which UK will faces 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 percent of UK’s exports of goods and 40 percent of service exports.
Similarly, EU played a 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 loss. To this end, FTA can be a
major succor to these industries.
Automobile
is a successful manufacturing industry in UK and the biggest item of export to
EU, sharing 18 percent 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 UK from despair by engaging into strategic economic partnership. (IPA Service)
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