Britain and the rest of Europe seem to have always harbored a love-hate relationship; geographically and often politically isolated from the rest of the continent, Britain has always had a tendency to define itself based on its independent position. It also happened to be the last European country that successfully fought back against Germany during World War II, and this development has had a large impact on its role during negotiations about forming a European union during the second half of the 20th century. When the European Economic Community (EEC) was formed amongst France, West Germany, Belgium, Italy, Luxemburg and Netherlands in 1957, Britain was not amongst the participants. The UK applied in 1963 to become member of the EEC, yet it took ten years until they were finally member in 1973. Even then, there were strong forces in the UK in favor of backing out of the partnership.
While a national referendum in 1975 bolstered the pro-European factions, Margaret Thatcher threatened British payments to the EEC on the grounds that farming subsidies would constitute an unfair advantage of EEC country over the UK economy. As a result, Britain reduced its payments into the European economy to 12% of its GDP. Later on, events like the ‘Mad Cow’ BSE epidemic caused the EU to restrict beef imports into the Eurozone, which further increased anti-European sentiment in the UK. After the worsening of the migrant crisis in the continental European Union and amidst an increasing immigrant population in the UK, support for Nigel Farrage’s UKIP that advocated for Brexit, i.e. an exit of Britain from the EU started to increase, with Prime Minister David Cameron setting the date for a Brexit referendum to the 16th of June, 2016. Almost 52% voted in favor of Brexit, thus setting the course for a separation of Britain from the European Union (Pruitt, 2016).
Impact of Brexit on the Indian economy
Brexit impacts India and her economy in both positive and negative ways; often, the very same aspect has both positive and negative impacts on British-Indian relationships and the Indian economy (Parakh, 2016). Britain – because of her strong economic, historic and political ties to India – has long served as a gateway into the European Union. Several Indian companies have their headquarters in the UK, and thus become part of the European economy. One sector that is strongly represented among those companies are the pharmaceutical industry – for example, Intas, headquartered within the Indian province of Gujarat, recently announced the acquisition of Actavis’ business operations in Britain and Ireland (Stacey, 2016). IT companies like Infosys have strong business ties to the UK as well (Quartz, 2016). Lastly, Indian carmaker Tata is exposed to the British economy by owning Jaguar and Land Rover (Bajaj, 2012). At least some companies of those industry sectors moving their operations back to India or into other countries, since the economic consequences of Brexit could be trade barriers between the EU and UK, higher taxes or even tariffs and the scrapping of preferential interest rates.
Another general consequence of Brexit is a depreciation of both the Pound and the Euro. This reduces profits for Indian companies that have invested in the UK. Moreover, even though the Indian rupee is anchored to the dollar, there may be some fallout by a depreciation of the Euro (Datta, 2016). Because of this currency depreciation, investors into the UK may become more risk averse. This behavior will be further bolstered by economic uncertainty (Nathan, 2016); the value of the pound fell after Brexit and continued to fall during 2016 amidst political fallout (Thompson, 2016). Even though the Indian economy is still growth oriented on the long-term, India’s GDP could be impacted on the short term (Nathan, 2016). Some observers even go so far as to predict a recession. The 10 – 12% revenue growth forecast for the UK sector of Indian IT companies, for example, experienced a downward correction to 8 – 10%, although the individual contributions of Brexit vs. Donald Trump’s election victory in the US that is also expected to negatively affect companies that operate on the international level, are not clearly defined (Jain, 2016). Risk aversion and economic uncertainty also yield the possibility of increasing the cost of equity of UK stocks, which may also affect the Indian economy.
However, Brexit may not necessarily affect the Indian economy in an overall negative way. There are a number of positive sides that may just turn out as a net benefit to both India the UK and the relationships between both countries if handled correctly. India may not be an entry gate into the European Union any more, but Brexit may strengthen existing ties between India and United Kingdom, simply because those ties between the United Kingdom and the European Union are weakened. The fact that Indian companies may relocate their offices and headquarters to different countries may offer additional chances – even though they may not show immediately. One consequence may be the boost of the Indian government’s initiative ‘Make in India’. Jobs may return to India, especially if currency depreciation continues, which is not unlikely given the more nationalistic tendencies in Europe and French and German elections still outstanding for later in 2017. A return of job positions to India will likely boost the Indian economy and strengthen its economic impact on the world (Choudhury, 2014). Importantly, it may not only be the workforce that is returning to India. These workers have often enjoyed an education in the West and will thus bring knowledge back to India as well, further boosting an already booming Indian economy. Yet also for those Indians that decide to stay within the UK, Britain may offer unprecedented chances, since competition from the European mainland will be further reduced, because people from the Eurozone may not move as easily into the UK as before. As a consequence, scholarships and entry level job positions within the United Kingdom will now more readily available to Indians. Despite ‘Make in India’, the weak pound may further encourage some Indians to stay within the UK or at least travel there more often.
India does not do much direct trade with the UK, so the Indian economy is not as much directly affected by Brexit; however, India and the UK may decide to engage in more talks that result in bilateral Free Trade Agreements, so the consequences of Brexit on the Indian economy are rather promising and may end up to be a net plus (PTI, 2016).
Often the very same aspects of Brexit offer both threats and opportunities to the Indian economy on several levels. The most important consequence of Brexit is that the United Kingdom will not be an intermediary to the European Union anymore. This, in and of itself, will have a negative impact on Indian companies that want to use the United Kingdom to establish their presence within the European Union. On the other hand, their ties with the United Kingdom will become stronger, including consequences from negotiating direct bilateral trade deals between both countries. This can be a big advantage, as both countries will be forced to draw on their core strengths unperturbed by European Union interference. It will be an interesting development to watch as the British-Indian relations strengthen and both countries meet each other eye to eye after a much different level of relationship a century ago during Imperialist times, when India was under colonial governance by the British. India continues to have strong business interests in the United Kingdom. If some of the negative impacts of Brexit – for example, an impediment of Free Trade between Britain and mainland Europe – can be mitigated through retaining a basic level of United Kingdom-EU trade partnerships, Brexit may offer a blessing in disguise on the state of the Indian economy in Britain after all. This would not lack a certain level of irony; after all, it was India that suffered first under British colonial rule, and subsequently, Britain was never completely embraced by the European Union, even though it certainly contributed positively to European history. The way the dice have fallen, the Brexit separation may turn out to be a boon to global business relationships and thus may yet achieve what the European Union could not – to boost positive relationships between nations.
- Bajaj, V. (2012). Tata Motors finds success in Jaguar Land Rover. Web. Retrieved from http://www.nytimes.com/2012/08/31/business/global/tata-motors-finds-success-in-jaguar-land-rover.html
- Choudhury, G. (2014). Look East, link West, says PM Modi at Make in India launch. Web. Retrieved from http://www.hindustantimes.com/business/look-east-link-west-says-pm-modi-at-make-in-india-launch/story-mGj6f6mlUmos0BAi27Rl1O.html
- Datta, D. (2016). 2017: The year of the strong dollar (and weak rupee). Web. Retrieved from http://www.rediff.com/business/column/the-year-of-the-strong-dollar-and-weak-rupee-2017-currency/20161221.htm
- Jain, U. (2016). Indian IT sector growth forecast lowered on Brexit, Donald Trump. Web. Retrieved from http://www.livemint.com/Industry/vW6xWt4ztQXMDoJrDKrvEL/Nasscom-cuts-Indian-IT-export-growth-forecast-to-810-for-2.html
- Nathan, N. (2016). How Brexit will impact the Indian market. Web. Retrieved from http://economictimes.indiatimes.com/wealth/invest/how-brexit-will-impact-the-indian-market/articleshow/52912741.cms
- Parakh, R.(2016). ‘Brexit’ and it’s effects on the Indian economy. Web. Retrieved from https://www.jaagore.com/current-issues/brexit-and-its-effects-on-the-indian-economy
- Pruitt, S. (2016). The history behind Brexit. Web. Retrieved from http://www.history.com/news/the-history-behind-brexit
- PTI (2016). UK eager to have free trade agreement with India: Nirmala Sitharaman. Web. Retrieved from http://economictimes.indiatimes.com/news/economy/foreign-trade/uk-eager-to-have-free-trade-agreement-with-india-nirmala-sitharaman/articleshow/55296325.cms
- Quartz (2016). India’s $146-billion IT industry has no idea what will happen to its European business now. Web. Retrieved from https://qz.com/716157/indias-146-billion-it-industry-has-no-idea-what-will-happen-to-its-european-business-now/
- Stacey, K. (2016). Indian drug maker buys Actavis’ UK and Ireland business. Web. Retrieved from https://www.ft.com/content/c1ccac48-8ae1-11e6-8cb7-e7ada1d123b1
- Thompson, M. (2016). Brexit is becoming a big fat mess. Web. Retrieved from http://money.cnn.com/2016/10/14/news/economy/brexit-messy-divorce/