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What Brexit Means For India

| July 6, 2016

With the financial and political consequences of Brexit continuing to reverberate around the world, questions persist over its impact for the global economy, including the world’s emerging markets.

What does Brexit mean for India? As a former British colony, the country enjoys particularly close economic, trade, political and cultural ties to the United Kingdom.

Although significant coverage has predictably focused on the fallout from the referendum, the UK’s decision to leave the European Union presents a potential upside for India in numerous ways.

First, the massive selloff of the British pound that followed Brexit resulted in a roughly 8% decline of the currency relative to the Indian rupee. Financial experts predict the plunge to continue before the pound stabilizes, making it considerably less expensive for Indians to travel and study in the UK. The falling currency also presents cheaper real estate options for Indian citizens and companies seeking property in the UK’s notoriously expensive property market.

Second, Brexit will likely compel London to seek a more robust trade relationship with New Delhi. Britain and India have been so far unable to reach a free trade agreement, with negotiations having become mired in the convoluted financial politics of the 28-nation EU bloc.

Now unencumbered by the rest of the EU, the UK will aim to boost trade ties with India and other similarly situated countries. With India’s economy outperforming all of its counterparts, the erstwhile crown jewel of the British Empire appears to be shimmering brightly once again from London’s view.

Third, and closely related, the financial and political uncertainty enveloping the EU makes the Indian stock market a more attractive destination for foreign investment. While Indian markets experienced a dip in the immediate aftermath of the referendum, they have generally recovered, particularly relatively to other global exchanges.

Fourth, some analysts predict Brexit could lead to changes in UK immigration policies that would favor high-skilled workers from India. Divorced from the rest of the Europe, the UK could potentially face a dearth of high-skilled EU workers if the movement of professionals from the continent is curbed. India could benefit from the possible shortfall. This would be ironic given the xenophobia, nativism and isolationist sentiment that presaged and perhaps even motivated the exit.

Fifth, the U.S. Federal Reserve, along with the central banks of other major countries, will likely wait to raise interest rates to avoid affecting economic growth and exacerbating already precarious global markets. The delay should help maintain or even strengthen the influx of foreign investment to India as a result of relatively higher interest rates.

Although Brexit’s impact on India appears muted, serious risks remain, particularly for those sectors with significant exposure to the UK.

Some of India’s most prominent companies, which employ over 100,000 workers in the UK and include the Tata Group and several high profile IT firms, could be hardest hit. Now confronting the prospect of higher tariffs for their exports, the promulgation of new regulatory and immigration policies and a plummeting exchange rate, these companies have all indicated the need to review their massive operations in the UK given these new governing realities.

Ultimately, prolonged uncertainty stemming from the EU referendum could undermine the resiliency India has demonstrated in response to Brexit thus far.

For more information on this publication: Belfer Communications Office
For Academic Citation: Desai, Ronak.“What Brexit Means For India.” Forbes, July 6, 2016.