Pratik Dattani (Twitter: @) is Managing Director of EPG Economic and Strategy Consulting, and Director – UK for the Federation of Indian Chambers of Commerce and Industry (FICCI), India’s oldest apex trade body. Here he writes exclusively for IndiaGBnews on what Brexit means for UK – India trade relations.
The Brexit vote caused a political earthquake in London last month. But there may be a silver living for parts of India-UK economic relations.
The Leave vote was strongest in regions economically dependent on the EU. A higher percentage of East Yorkshire and Northern Lincolnshire’s economic output is sold to the EU, and yet 65% elected to leave. Although thousands of local jobs depend on the Indian-owned Jaguar Land Rover factory in Coventry, 55.6% of voters in that constituency voted to leave. It is worth noting the UK car industry exports 49% of its cars to the EU (see here). For the Jaguar Coventry plant, 20% is exported to the EU (see here), and overall 24% for Jaguar (see here, this source also points to the potential Brexit issues for Jaguar). Wales and Cornwall, meanwhile, have the highest level of EU subsidies in the country, and yet they voted to leave.
But this anti-EU sentiment could benefit economic relations with India. Priti Patel, the minister of state for employment and one of the leading Brexiteers, said in February “voting to leave the European Union would be a massive boost to UK-India relations. New opportunities for the UK and India to cooperate more closely and develop stronger trading links would emerge as the UK re-aligns its foreign policy and trade priorities.”
It’s important to put this in context. David Cameron had said during his first visit to India as Prime Minister in November 2010 that doubling trade with India was a key foreign policy priority. Instead, year-to-date figures show that India is the 18th most important trade partner for the UK (and three per cent of India’s total exports). China ranks fourth. UK exports to India since the start of 2010 have fallen by 14%, whereas Indian exports to the UK have increased by 13%.
On investment, the picture is rosier. India is the fifth largest job creator in the UK in the last four years, after the United States, France, Canada and Germany, and ahead of China. According to consultancy Grant Thornton, 58% of the 110,000 jobs employed in the UK by Indian companies, were by just two companies, Tata Motors and Tata Steel. In terms of FDI into India, the UK ranks first between 2000 and 2015, with a cumulative US$22bn investment, ahead of Japan at US$18.3bn.
The Indian Finance Minister Arun Jaitley has said India is “well prepared” to deal with the fallout from Brexit. India’s former Chief Economic Advisor Arvind Virmani thinks it will have little net effect on India because a continued weakness in demand in the UK and Europe may reduce demand for oil, which India is a large net importer of.
Another avenue of potential benefit to India may be the reduction in barriers for temporary movement of IT professionals to the UK. Because of an anti-immigration sentiment in the UK, driven by increasing numbers of EU migrants, restrictions on highly skilled non-EU migrants – an issue particularly impacting Indians – have increased in recent years.B
Sakate Khaitan, Senior Partner at Khaitan Legal Associates, said: “UK’s focus to India ought to increase given UK will no longer be burdened with differing views within Europe. Accordingly, deal flow should increase – particularly in areas such as nuclear technology and defence. In the medium term however, the impact is likely to be adverse were Europe to revoke the passporting rules for financial services and beneficial access to EEA to companies registered in the UK. Indian companies looking to set up a beach head for their European businesses are unlikely to choose UK.”
In two seminars on Doing Business in India we co-hosted in Manchester and London in the last few days, a key question for discussion was the impact of Brexit on bilateral relations. Amidst the uncertainty, internationally mobile companies may recalibrate their growth strategies, but it is important to remember that the UK’s decision may bring both opportunity and challenges for Indian companies.