Should India worry about Brexit?
Trade commissioners of India and the European Union (EU) met in the first week of June to hammer out the details of the Free Trade Agreement between the two parties. India insists on being declared a "data secure nation" and wants free movement of professionals, while the EU is bargaining hard for reduction of import duties on cars and wines from over 100 per cent to about 40 per cent.
The Indian government is wary of slashing import duty on wines because it could potentially impact grape growers and the celebrated "Make in India" campaign – specifically manufacturing of automobiles. But the negotiations aside, trade pundits are not too optimistic about the Free Trade Agreement because the upcoming referendum on June 23 has put them in a quandary.
If Britain does exit the EU, the worry is that that it could lead to a domino effect, as more member states could push for an exit. This could dramatically alter the trade equations with all of the EU, which is India’s largest trading partner. Also one cannot ignore the fact that Indian businesses, for long, have used the United Kingdom as a gateway to do business in Europe.
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The value of trade between EU and India grew from 28.6 billion euros in 2003 to 72.5 billion euros in 2014. Trade in commercial services quadrupled in the last decade from 5.2 billion euros in 2002 to 23.7 billion euros in 2013. Trade between India and UK was 14 billion dollars in 2014-2015.
Naushad Forbes of CII (Confederation of Indian Industry) laments: "This (Brexit) has created uncertainty and that is a concern for any industry. If Brexit happens, what are the agreements of trade that will work out?"
Traders and businesses are in wait and watch mode. If Britain does vote for an exit, India will have to renegotiate its trade agreements, which until now, were regulated by the EU. There was a policy coherence and similarities in legal system, and ease of language use made it easier to do business with the United Kingdom.
Indian businesses have often made greenfield investments and acquisitions in the country. The India-UK business forum has as many 250 members. "Investments made will get disadvantaged, because many Indian companies had invested in the United Kingdom with a view to access the European markets," adds Harsh Neotia of industry chamber, FICCI (Federation of Indian Chambers of Commerce & Industry).
In recent times, India has emerged as the third largest FDI source for UK. According to a report by the UK Trade and Industry, US is the largest source with a total of 564 projects in 2014-15, followed by France (124 projects) and 122 projects by India. During the year, India’s investments into the UK increased by 65 per cent, which created 7,730 jobs.
The key sectors of interest have been healthcare, food processing, agri-tech. According to estimates, total value of Indian investment in the UK in 2013-2014 totalled about 2 billion pounds. Britain’s exit would increase compliance costs for Indian businesses.
"If Britain exits, Indian exporters will have to adhere to two separate standards which will increase costs," comments Ajay Sahai of Federation of Indian Export Organisations.
Trade economist Biswajit Dhar sums up India’s quandary: "There will be a churn if Britain exits. EU is anyway a loose tie-up. There could be a situation that India might be negotiating with each individual state and the global crunch will only aggravate the pain."