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Brexit: The implications for India and the UK

Brexit: The implications for India and the UK

One word defines Brexit and the possible impact of Britain’s links with other countries once it leaves the European Union – confusion. No one is clear about the implications of the various scenarios – hard Brexit, soft Brexit, or no deal.

Economist Lord Desai was characteristically blunt when he declared at a public meeting that the degree of unpreparedness of the British government was shocking. He asserted that the government had had no idea what to do if the vote went against Remain. No one had agreed what a free trade treaty is or made clear that it takes a long time to negotiate these agreements. This view was echoed at the same meeting in London, organized by the Democracy Forum, by another economic analyst, Linda Yueh. She had an entertaining analogy. She said that for Britain to start trade negotiations with another country while it was still part of the EU was like negotiating your next marriage while you were still with your ex-wife.

The fastest growing countries are in Asia and Britain sells more to outside countries than the EU. So, it makes sense for the UK to look at opportunities in Asia which will have growing middle-class consumers and all countries will have to pivot to Asia at some point. The snag is that while Britain is the world’s second biggest exporter of services, most trade agreements do not cover services. There is also doubt about whether India would want legal services from UK. Analysts warn that Britain must not assume that because it wants to export services other countries will welcome them.

So, what happens the day after Britain officially leaves the EU on March 29, 2019? Leavers present a glowing prospect of a world trade boom. However, if one looks at practicalities, there are many hurdles ahead. Britain will no longer have a free trade agreement with the EU, so it will need to work under WTO rules. The transition will not be simple since all 160 plus members of the WTO will be required to sign off on any deals. If the UK opts for the Norwegian model it will have to accept free movement of people – and this was one of the main factors that drove the campaign for the vote for Brexit; many supporters were vehemently opposed to immigration, especially from Europe.

Negotiations for a post-Brexit future are so tortuous the government disclosed that it will have recruited up to 8,000 officials including lawyers and civil servants by the end of next year as it unveiled preparations for leaving the EU without a deal.

The arch Brexiteer and Conservative MP Jacob Rees-Mogg admitted, it may take 50 years to get a clear idea of the impact of Brexit on the British economy. Brexit secretary Dominic Raab set off ripples of alarm when he acknowledged that the government would have to take steps to ensure that there were adequate food supplies for Britain to cover the eventuality of a no-deal departure from the European Union.

Against this background, Brexiteers are talking up opportunities for Britain to expand trade with non-EU countries once the break takes effect. Both India and the UK have spoken optimistically about the potential for expanding links once Brexit takes effect. A visiting delegation from the Confederation of Indian Industry, after meeting their British counterparts and government ministers, said new opportunities were there to be explored, with India and the UK representing two of the world’s leading economies. However, they warned that the lack of clarity was holding back progress. The main message to the UK from Indian business leaders was blunt: “ You need to make up your minds what you want to do. This is real life one needs to get on with. Recognizing reality will be a great help for us. This is a unique opportunity for both sides.”

Dr. David Landsman, Executive Director of the Tata group and Chair of CII-UK, outlined the multiple sectors opening up for India-UK co-operation. One key area is advanced technology. India wants a skilled work force from top universities. He identified the hospitality, automobile and engineering industries as other areas ripe for development. He said that India and UK needed to present in a more modern way what they can offer each other. While there were many opportunities, Dr. Landsman admitted that overheads might rise depending on the model of Brexit.

There is on the whole overwhelming agreement among Indian business leaders on the huge potential waiting to be tapped with India’s double-digit growth and the expectation that it would soon overtake China as a leading global economy. However, they point to one issue that remains a key impediment – the difficulties Indians faced in obtaining visas to the UK. They complained that Indian students, in particular, were not getting a fair deal. It was highlighted that fears of Indian students outstaying their visas were totally unjustified since there was evidence that 95% of Indian students returned home once they completed their courses.

The CII President, Mr. Rakesh Bharti Mittal, highlights the potential for India to re-invigorate economic and trade links with other Commonwealth countries, especially in Africa. India is the biggest economy in the Commonwealth which represents a large trading block. Along with others in the business community, Mr. Mittal is keen that India should play a more central role in the Commonwealth.

The presence of the Indian Prime Minister, Narendra Modi, at the Commonwealth Heads of Government Meeting in the UK in April was regarded as a signal of India’s renewed interest in the 53-member organization. Richard Burge, Chief Executive of the Commonwealth Enterprise and Investment Council, says “The key to a successful exporting is having expeditionary and entrepreneurial exporters. The risk for the UK is that after decades of selling in the EU (in effect a domestic market) many British entrepreneurs may have lost the sense of adventure and appetite for risk that true exporting requires. But the good news is that the Commonwealth is now a collection of increasing vibrant and growing economies based in increasingly strong and resilient democracies with whom the UK should have a natural partnership”.

There are inevitable comparisons between the approaches of India and China on the global stage. India’s forays into infrastructure are seen by some commentators as benign compared to China’s, which is deemed to be more of an intrusion on sovereign territories. China’s $62 billion infrastructure-building program in Pakistan is regarded by some as an encroachment on its sovereignty. Similarly, Sri Lanka has borrowed billions of dollars from China to develop mega-projects. Critics fear that Sri Lanka will be unable repay these loans allowing China to take control of these vital infrastructure projects, providing it with a strategic presence in the country.

For India, the EU, with Britain as a member, offers a counterweight to China’s dominance in Asia. The critical question is whether Britain will still be regarded by India as an important economic partner on its own outside the EU. Why would India wish to negotiate separate agreements with Britain once it leaves the EU when under the present arrangement it has immediate access to all 27 member countries? At the moment, India appears to be willing to explore investment and trade opportunities with Britain when it leaves the EU. However, its patience could well run out if the confusion continues over the exact terms of Britain’s break from Europe. India’s view is that, now the people of Britain have voted, Britain needs now to get on with adjusting to a future outside the European Union. Of course, there is still one more possibility, Brexit may not materialize at all. So, while there is endless debate and speculation, confusion reigns supreme.