Gateway to Europe: Short-term worries for India as UK chooses to exite EU
After the referendum pushed Britain out of the EU on Friday, India said it values its relationships with both the UK and the EU and will work to further strengthen these ties.Britain EU Referendum Updated: Jun 25, 2016 00:54 IST
In the run-up to the high-voltage European Union (EU) vote, India maintained it was an internal affair of the British but not without saying that Britain is the gateway to Europe.
After the referendum pushed Britain out of the EU on Friday, India said it values its relationships with both the UK and the EU and will work to further strengthen these ties.
Between these two statements lies the impact of Brexit on India – a lot will now depend on how the separation plan between Britain and the EU is arrived at. A host of short-term impacts will be felt by India but the long-term picture appears to be rosier.
“I would say there will be some impact in the short term. But I don’t see long-term implications for India arising from UK’s decision to walk out of the EU,” said former foreign secretary Lalit Mansingh, who also served as India’s envoy to London.
Making light of the personalised, first-name basis diplomacy this government is known for, he said irrespective of what happens to Prime Minister David Cameron, India-UK ties will continue to be on a strong wicket.
“Personal chemistry is something that great leaders can manufacture. Despite having nothing much in common between them, former prime minister Atal Bihari Vajpayee had excellent personal chemistry with Bill Clinton and his successor George Bush,” Mansingh said.
However, there are some immediate concerns for India. Brexit could be the single biggest challenge to global economic recovery.
Britain accounts for 18% of the EU’s GDP and the bloc stands to lose around a sixth of its economic output after Thursday’s vote.
The EU and UK are crucial to the Indian growth story. A fifth of India’s foreign exchange reserves come from export earnings and other inflows from the EU and Britain.
With the UK out of the EU, Indian firms will have to re-think their strategy. Nearly a third of Indian investment in the UK is in IT and telecom. If some of this has to migrate to the continent with manufacturing firms, Indian investment into the UK will be diverted to the EU.
IT sector lobby NASSCOM said as much as 30% of the industry’s $100 billion revenue comes from the European market. “UK would be under no obligation to adopt restrictive EU data localisation norms which it does not subscribe to in their entirety. All these factors could benefit India-UK bilateral economic relations,” it said.