Brexit fears overdone? India to benefit if UK exits European Union, say experts

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Published: June 23, 2016 2:38:33 PM

Will Brexit impact India? If yes, will it be negative for India or positive? Read on...

brexit, brexit news, brexit india impactBrexit, or Britain’s possible exit from the 20-member European Union through a referendum, has sparked concerns of ripples in the global economy and markets. (AP Photo)

Brexit, or Britain’s possible exit from the 20-member European Union through a referendum, has sparked concerns of ripples in the global economy and markets. The result of the referendum voting, which is currently underway, will be known by Friday morning, but there 50 per cent chances of Brexit becoming a reality.

But will Brexit impact India? If yes, will it be negative for India or positive? While the economists and experts that FE Online spoke to are divided on the immediate impact on the Indian economy, they concur on the opinion that from a long-term point of view, India will actually stand to benefit from Brexit.

Dr Arun Singh, Lead Economist at Dun & Bradstreet India tells FE Online, “There are 50-50 chances of Brexit happening and the immediate short-term impact will be negative, especially for Indian firms that have exposure to UK, such as IT firms and auto majors. Currency volatility will cause some negative impact as well. Additionally, UK has always been a gateway for Indian firms to enter into EU. If Brexit happens, this will cause short-term distress to Indian firms.”

Also read: LIVE Brexit or Bremain: Polls underway; will Britain create new history today?

“But from a long term angle India will gain both in terms of trade and labour. “EU’s immigration laws and trade restrictions are known. Once Britain exits EU, these laws will not apply and hence allow better trade and labour movement. From that point of view India would gain,” he explains.

According to reports, Indian IT companies get anywhere from 6-18 per cent of their revenues from the UK.

DK Srivastava, Chief Policy Advisor at EY India differs on the likely immediate impact. “In terms of short-term impact of Brexit on the Indian economy, I think it will be negligible. If the referendum result shows that UK will exit EU, even then the whole activity will take 2-3 years to pan out,” he says. “Till then all Indian firms that have exposure to UK will be able to re-adjust and re-align. The cost of Brexit will not be too great even for them,” he believes.

But like Arun Singh, Srivastava also sees India being an eventual beneficiary of Brexit. “From a medium-term perspective India stands to benefit from Brexit. India is a leading global destination for investments and will continue to be so in the coming 4-5 years. Britain will increasingly tilt towards investing in emerging markets and to that extent India will see investments from UK rising if Brexit happens,” he tells FE Online. “Also, labour movement from India to UK would increase, so from an employment perspective also Indians will be at an advantage,” he adds.

Britain’s exit from the bloc is being debated globally as such a development could have far reaching implications for the international financial markets, exchange rates and the world economy as a whole.

There are also fears that exit of Britain from the EU could trigger significant capital outflows, including that from the Indian market. However, market experts that FE Online spoke to see only a knee-jerk reaction from Brexit.

Sahil Kapoor, Chief Market Strategist at Edelweiss Securities says, “I don’t see Britain exiting EU. Even if it does happen, markets will see some immediate reaction, digest the news and move on.” “Ultimately India’s domestic indicators are of paramount importance and will ultimately be the ones that will decide markets’ long-term course,” he concludes.

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