Se ha denunciado esta presentación.
Utilizamos tu perfil de LinkedIn y tus datos de actividad para personalizar los anuncios y mostrarte publicidad más relevante. Puedes cambiar tus preferencias de publicidad en cualquier momento.
THE UNITED KINGDOM REFERENDUM AND
ITS IMPACT ON INDIA
The United Kingdom voted to leave the European Union in a historic r...
While the Finance Minister stated that “India stands out both in terms of stability and of growth” in these
turbulent time...
3
One of the main reasons for a
large presence of Indian
investments in the UK market is the
historic and cultural ties al...
business people, professionals, students, spouses, parents and relatives. Work-related visa restrictions have
already resu...
Próxima SlideShare
Cargando en…5
×

The United Kingdom's EU referendum and its impact on India

316 visualizaciones

Publicado el

The United Kingdom made a momentous decision by voting to leave the European Union in a closely-fought and historic referendum. The Brexit side won 52 per cent of the vote in a high-turnout referendum.

Prime Minister David Cameron, the architect of the referendum and a passionate supporter of Britain within the European Union announced that as a measure of respect for the “will of the people” he would be stepping down as prime minister in October.

Finance Minister, Mr. Arun Jaitley said in a statement, “We respect the referendum’s verdict. At the same time, we are also aware of its significance in the days ahead and also for the medium term. We are well prepared to deal with the short and medium term consequences of Brexit. We are strongly committed to our macro-economic framework with its focus on maintaining stability. Our macro-economic fundamentals are sound with a very comfortable external position, a rock-solid commitment to fiscal discipline, and declining inflation.”

The Indian industry said that India's strong macro-economic fundamentals will help it withstand the Brexit fallout, although companies having exposure to the UK need to realign their strategies to stave off the negative impact on their businesses.

This document analyses the referendum’s impact on India.

Publicado en: Móvil
  • Sé el primero en comentar

The United Kingdom's EU referendum and its impact on India

  1. 1. THE UNITED KINGDOM REFERENDUM AND ITS IMPACT ON INDIA The United Kingdom voted to leave the European Union in a historic referendum. The Leave campaign won by a narrow margin - 52% to 48% - with England and Wales voting strongly for Brexit, while London, Scotland and Northern Ireland backed staying in the EU. The referendum has been seen as a defining day for the UK; UK Independence Party leader Nigel Farage hailed it as "independence day", while the Remain camp called it a "catastrophe". Britain would be the first country to leave the EU since its formation - but a leave vote will not immediately mean Britain ceases to be a member of the 28-nation bloc. That process could take a minimum of two years, with Leave campaigners suggesting during the referendum campaign that it should not be completed until 2020 - the date of the next scheduled general election. The Prime Minister will have to decide when to trigger Article 50 of the Lisbon Treaty, which would give the UK two years to negotiate its withdrawal. Once Article 50 has been triggered a country cannot rejoin without the consent of all member states. Global financial markets were jolted as the result trend became clear. The pound fell to its lowest level against the dollar since 1985. The Nikkei 225 index plunging nearly 8% in trade. Other Asian markets such as Hang Seng, Straits Times, Taiwan Weighted and Shanghai Composite lost 1.2% - 5%. In India, the S&P BSE Sensex and the Nifty 50 indices opened nearly 3% lower. Immediately after the results of the referendum were announced, the Finance Minister of India, Mr. Arun Jaitley issued a statement stating “In this globalised world, volatility and uncertainty are the new norms. This verdict will, obviously, further contribute to such volatility not least because its full implications for the UK, Europe and the rest of the world are still uncertain. All countries around the world will have to brace themselves for a period of possible turbulence while being watchful about, and alert to, the referendum’s medium term impacts. As regards, the Indian economy, we are well prepared to deal with the short and medium term consequences of Brexit. We are strongly committed to our macro-economic framework with its focus on maintaining stability. Our macro-economic fundamentals are sound with a very comfortable external position, a rock-solid commitment to fiscal discipline, and declining inflation. Our immediate and medium-term firewalls are solid too in the form of a healthy reserve position.”1 1 http://pib.nic.in/newsite/erelease.aspx?relid=146469
  2. 2. While the Finance Minister stated that “India stands out both in terms of stability and of growth” in these turbulent times, the significance of the results will remain to be seen in the short and medium term. Some of the issues and concerns are highlighted below: Financial and political uncertainty The process of withdrawing from the EU is unprecedented as no country has ever used Article 50. There is a great improbability about how it would work. The Economist called out that there will be a long period of harmful uncertainty2. The Brexit would be a complex negotiation requiring the involvement of all 27 remaining EU Member States and the European Commission. Before negotiations could even begin, the European Commission would need to seek a mandate from the European Council (without the UK present). The withdrawal agreement would also require the consent of the European Parliament. Uncertainty during the negotiating period could have an impact on financial markets, investment and the value of the pound, and as a consequence on the wider economy and jobs. With Prime Minister David Cameron resigning after the results, the negotiations will likely be carried out by a new government. Several questions remain unanswered worrying financial markets across the world. There is a likelihood that Europe's global "soft power" may be diminished owing to this instability, to the detriment of both the EU and the UK. In this backdrop, analysts expect more downside for the markets and caution that the plunge could take them into a bear phase. The Reserve Bank of India has said that the central bank would provide enough liquidity if there was volatility in the currency and that it was prepared for any eventuality. Indian investments in the UK India is presently the second biggest source of Foreign Direct Investment (FDI) for Great Britain. There are 800 Indian companies in the country -- more than the combined number in the rest of Europe. According to the India Tracker 2016 commissioned by the Confederation of Indian Industry (CII), Indian companies generate 110,000 jobs. The number of Indian companies growing at more than 10 per cent has nearly doubled since last year. The total turnover of the fastest growing Indian companies in the U.K., especially in the fast growth sectors of technology, telecom, pharmaceuticals and financial services, rose by 18 per cent in 2016 — from £22 billion in 2015 to £26 billion this year, according to the Tracker. During trade talks held during the visit of Prime Minister Narendra Modi to the U.K. in November 2015, £9 billion worth of commercial deals were agreed upon. 2 http://www.economist.com/news/leaders/21701265-how-minimise-damage-britains-senseless-self-inflicted- blow-tragic-split?force=scn/tw/te/pe/ed/atragicsplit
  3. 3. 3 One of the main reasons for a large presence of Indian investments in the UK market is the historic and cultural ties along with the fact that the UK is often seen to be a gateway into the rest of Europe. Indian companies could sell their products to the rest of Europe under the European free market system. However, with the referendum, it is likely that in the short term, the UK may not be as attractive a destination for Indian FDI as before. In the medium to long term, Britain is likely to seek to woo Indian investors as it would not want to lose capital coming in from India. There is a likelihood that this may see Britain provide much bigger incentives in terms of tax breaks, lesser regulation and other financial incentives. Further, one of the reasons given by the Leave camp was the EU's complex bureaucratic regulatory structure; given this it is likely that Indian companies could expect a deregulated and freer market in Britain. This very much depends on the UK’s changing political landscape and is particularly likely if the Conservative party returns. The Indian industry has viewed the referendum in a divergent manner. The Confederation of Indian Industry (CII) Director General Chandrajit Banerjee has stated the importance of continued border-free access to European markets as a “key driver for Indian companies coming to the U.K.” “Anything that lessens this attractiveness may have a bearing on future investment decisions,” he said. While the SBI has said, "This referendum will have geopolitical implications and will affect the relation of the rest of the world with Europe. But, our take is that though such an exit brings up a lot of uncertainty within Europe, it definitely opens up opportunities for India."4 Immigration and visa restrictions The referendum has also raised some questions about the nearly three-million strong diaspora of Indian-origin U.K. citizens and the interests of a large moving population of Indians who come to Britain ever year as tourists, 3 http://www.cii.in/PressreleasesDetail.aspx?enc=KJP0jXUGGBfO8gJ0THqRH/9tXrRINNkkjWRcCyAQnjY= 4 http://articles.economictimes.indiatimes.com/2016-05-12/news/73039714_1_brexit-sbi-report-eu-membership 24% 8% 6% 6% 5%5%5% 4% 3% 34% India's export to UK 2016- as % of total export to UK Textiles and clothing Machinery and mechanical appliances Jewellery and precious stones Auto and anciallries Footwear, gaiters Pharma Eelctrical appliances
  4. 4. business people, professionals, students, spouses, parents and relatives. Work-related visa restrictions have already resulted in a fall in the number of Indian students studying in British universities from 22,385 in 2012- 13 to 18,320 in 2014-15, according to the U.K. Council for International Student Affairs (UKCISA). Given their tough stance on cutting immigration, a Brexit government could be expected to make such curbs more stringent. According to Lord Karan Bilimoria, President of the UKCISA, the clutch of new visa rules that have impacted student flows from India — especially the withdrawal in 2012 of the post-study work visa — has had disastrous consequences. Brexit is likely to exacerbate these. “Unlike other countries, Britain classifies overseas students as immigrants.” On the Brexit argument of “curbing unacceptable levels of immigration” into the U.K., Lord Swraj Paul, head of the Caparo Group said that students coming to the U.K. to study must be “kept out of, and apart from, immigration quotas”.5 There are some who see an advantage in Brexit for skilled migration from India to Britain, while others see the anti-immigrant sentiment making UK a less attractive destination. However, control of borders may help reassure UK voters about immigration. What lies ahead With Britain exiting the EU, it is likely to lose its status as the gateway to Europe. This might make India forge ties with another country within the EU, which provides for the requirements of doing business easily. India is already trying to build trade negotiations with Netherlands, France, and Germany, albeit in a small way. Brexit is likely to force our policy mandarins to see beyond Britain and build trading partnerships with other EU nations in order to access the large EU market. With Britain leaving the EU, it will need to find new trading partners and sources of capital and labour. There have already been many proponents of the Leave campaign that suggest that the UK should look towards the Commonwealth to forge new alliances. Britain will still need a steady inflow of talented labour, and India is seen as fitting the bill perfectly due to its English-speaking populace. Analysts say that it would be in Europe's interest to develop India as a strong trade and strategic partner. Brexit is likely to accelerate this process. The India-EU Free trade agreement may be looked at with a renewed interest from both sides and the pending trade issues with India may quickly be resolved in order to develop a lasting relationship. 5 http://www.thehindu.com/opinion/lead/india-and-the-brexit-forecast/article8748915.ece

×