IMPACT OF BREXIT ON INDIA



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Brexit and it’s recent news

The possibility of Britain withdrawing from the European Union (EU) is abbreviated as Brexit. The EU is a political and economic union of 28 countries, which allows free trade and free movement of people in whichever country they want. Britain had a troubled relationship with the EU from the very beginning and had put forward its intention of withdrawing from the EU in the year 2017 since then it has been a very controversial topic. If UK turns out of the union then they will be the first country to break the treaty. The latest news confirms the postponing of the day of Britain’s departure from the European Union from October 31 to January 31 the next year.

Let us analyze some of the pros and cons of Brexit as far as India is concerned.

Visa approval

The UK government had decided to remove an annual cap of nearly 20,700 on the visas, which is expected to benefit Indian students, doctors, and IT professionals. According to the new immigration policy, all the international students, after completion of their studies, will be allowed to stay back in the UK for 6 months to look for job opportunities. Non-EU students as per Brexit news, applying for Ph.D. will enjoy the post-study work visa UK of one year in place of 6 months after completion of their course. To allow businesses to hire the staff on a time-bound basis, there will be a new 12-month visa route for workers at any skill level for temporary periods.

Work opportunities for Indian professionals

The imbalance in the exchange rate of Indian currency and British currency is expected to benefit the Indian economy. Reduction in pound value will reduce the cost of living of people staying in the UK for professional purposes. It will also help the Indian companies to acquire hi-tech assets. India is a big importer of crude oil; fall in price of commodities like crude oil will reduce India’s oil import bills. This will result in the reduction of current account deficit, fiscal deficit as well as help to bring inflation under control.

Post-Brexit, it is expected that the imports will be cheaper than the exports, which is a boon for an importing country like India. This will give a boost to trade ties between both countries. All the Indian import companies, in the UK will gain due to the fall in pound value. There is a possibility of formation of a free trade deal with the UK government resulting in reduction of cost of Indian goods. This will also help reduce inflation. It will accelerate Europe’s interest to develop Indian as a Strong Trade companion and strategic partner. All these factors will result in opening up more companies in UK providing job opportunities to many more people, currently they employ nearly 105,246 people in the country.

Scope of Indian investments in the UK

Previously 800 Indian companies were doing their business in the UK now the number had increased to 842, with a combined turnover of 48 billion pounds, making India one of the top investors of the country. On the other hand, the UK is the third-largest foreign direct investment (FDI) investor in India. Despite the uncertainty, the number of Indian companies investing in the UK has gone up over the last one and a half years. With the decrease in the UK corporate tax from 19 percent to 17 percent, the figures of investment are likely to go further upwards.

Challenges Ahead

Apart from the benefits discussed above, the Indian government is also concerned about some areas which can get complex later on.

As the Brexit crisis looms, the pound has risen from 88.4600 (24/09/2019) to 91.2845 (24/10/2019). This is a worrying sign for India. IMFs downgrading the growth projection for 2020, escalating oil prices and the huge trade deficit will make rupee extremely vulnerable against the pound sterling. This will essentially mean, increased cost of living for Indians living there.

Exporters will gain definitely but an extremely high import bill will force India to realign the balance of trade. In dealing with this, Reserve Bank of India has assured that they would step in to minimize volatility if required. Steps, like buying foreign bonds and using the treasury chest, might be some of the options that would be used.

Brexit is expected to have a negative impact on the automobile, pharma and the Indian sectors. Gold prices are expected to rise. Volatility in the Indian stock market may drive away foreign investors, thinking investment in Indian Market is risky. Many companies having a base in the UK will not enjoy free access anymore and face higher logistic costs and custom duties and other regulations. This may cause some disturbances in the operation of the Indian companies and may also cost some jobs.

Final Words

Keeping in mind, the negative effects of Brexit, Indian government had taken steps to strengthen the Indian economy. The Reserve Bank of India (RBI) is ready to infuse the required liquidity into the Indian Stock Exchange to regulate the Indian market. Securities and Exchange Board of India (SEBI) had beefed up their surveillance mechanism while RBI is trying to calibrate the monetary policies, to keep the volatility on the Indian market under control.

It is assured by the Finance Minister of India that the country has sufficient foreign exchange to deal with any positive or negative impact of Brexit on the Indian money market. Since the import prices are expected to go down with an increase in the export prices, India is thinking of utilizing the import advantage by revising the present trade scenario. Maybe in the short run, the negative impacts are more dominating, but in the long run, India may be seen to be a net gainer.