Business Today

Minimal Impact

Britain's exit from the European Union may prove to be good for India in more ways than one.
twitter-logo Rajeev Dubey        Print Edition: July 17, 2016
Fight to the Finish: Brtish PM David Cameron with MP Boris Johnson

All is well, India! Widespread panic over Brexit is unfounded and our stock market's reaction was a bit over the top. Brexit will neither blow a hole in our economy, nor paralyse Indian companies in the EU or UK. Even though Britons have voted to exit, the separation is probably two years away once the two sides conclude the painful negotiations to part ways.

Sure, the pound has fallen 10 per cent vis-a-vis the dollar but the rupee won't follow as drastically. Because India enjoys a $3-billion trade surplus in the $14-billion Indo-British trade. Euro won't hurt the rupee directly either. The e77-billion India-EU trade is in balance, with just $1.27 billion trade surplus for EU. Impact on the rupee will also be limited to the global turmoil emerging out of the pound-dollar wrestle. Exporters will earn more from a fall, though imports such as crude will become expensive. Any unrest will only last a short while, rather than leave a lasting impact. On Friday, the rupee fell 1.4 per cent to 68.21, but recovered to 67.90. The BSE Sensex dipped 1,090 points but recovered to close 604 points lower.

There are 800-odd Indian companies and their 100,000-plus employees in the UK. Many of them being IT firms well adept at dealing in hundreds of geographies. They are unlikely to be flustered by Brexit. Morgan Stanley predicts Infosys and HCL Tech stocks will gain 11 per cent, Eicher 25 per cent, HUL 8 per cent and Sun Pharma 7 per cent. It also sees a fall in TCS (-10 per cent), Wipro (-8 per cent) and Tata Motors (-2 per cent). Besides, the Indo-EU trade has been on a slow decline since 2011 (between 0.5 per cent and 1.5 per cent year-on-year).

But wait out the outcome of the new trade pact between the EU and Britain. EU's biggest economies Germany and France will clearly oppose it. After all, UK would seek all the trade advantages of being in the EU, without bearing the responsibility of a member. Hard negotiations are in the offing but the EU and Britain will have to agree on a common ground. Boycotting Britain is not an option for EU either. It's too well integrated with the British economy. Many MNCs operating in EU have their headquarters in London. They will exert enough pressure on their politicians.

Brexit could also have a huge impact on UK-based auto makers. Nearly three-fourth of their production is exported. But then the new Britain-EU trade pact will be discussed precisely to anaesthetise such pain. Tata-owned Jaguar Land Rover is among the affected, but only 20 per cent of its production goes to the EU. It may have to pay 10 per cent import duty to sell to EU clients. But can that deter a JLR customer? Moreover, can EU risk annoying Britain? After all, EU-based BMW, Mercedes Benz, Audi, Renault and Volkswagen, among others, have customers in Britain too.

A new middle path trade pact is inevitable. Only, Britain would drive a hard bargain to make it as close to being in the EU, while the latter would make it as punishing as possible.

As for India, it will be a short-term impact on the economy and business, and more about weathering the waves of the global trumoil caused by Brexit. If at all, we have a lot to gain. By the time the dust settles, near the two-year deadline, or before, Indian firms will see greater opportunities from the vacuum created by Brexit in both economies. Not that other countries such as China won't eye those. But the Indian companies' skills will lie in exploiting them to their advantage.

Youtube
  • Print

  • COMMENT
BT-Story-Page-B.gif
A    A   A
close