As Britain and the world tries to come to grips with Brexit and the subsequent grim economic scenario, India, it seems, is economically in a better position to absorb and withstand the shock.
Ratings agency Crisil has said Brexit may not have a notable impact on India’s GDP growth in fiscal 2016. It retains its forecast of 7.9% growth, with agriculture as the swing factor.
“In the short run, we do not see a significant downside to India’s exports. UK accounts for 3% of merchandise exports from India. Further, India’s total trade with the UK is only 2% of its external trade,” the agency said according to a report in The Times of India.
But Crisil said: “Brexit has added to the weakness, fragility and uncertainty, and not surprisingly, riled markets. Companies in sectors such as automobiles, auto components, information technology services, textiles, pharmaceuticals, gems and jewellery, leather, and leather products are most vulnerable to changes in demand and currency value.”
The UK accounts for about 17% of overall IT exports from India. “The economic uncertainty in the EU and the consequent impact on discretionary spends such as IT would, therefore, hurt domestic software companies,” Crisil said.
The EU is the largest market for garment exports. The UK is the largest market for Indian garments within EU. The weakening of the euro against the dollar would affect revenues in dollar terms, the report added.
Within the automobile space, component suppliers will be more adversely hit compared to original equipment manufacturers with the exception of the JLR business of Tata Motors, the ratings agency said. Around a quarter of India’s auto component exports are to Europe. The UK has a share of about 5% in overall auto components exports.
As far as trade and business is concerned India has always maintained that the UK is a gateway to the EU.
In November 2015 when Indian Prime Minister Narendra Modi visited Britain, he said: “As far as India is concerned, if there is an entry point for us to the EU, that is the UK.”
But on June 24, 2016, India had a rude awakening when it came to know that the entry point (UK) has now voted for Brexit.
India has a huge stake in the UK in terms of business and trade. There are around 800 Indian-owned companies in Britain employing about 110,000 people, with many of them setting up units eyeing the European market.
The Tata group is one of India’s oldest, largest and most respected business entities. It operates 19 different companies in the UK, including automaker Jaguar Land Rover whose nearly 20% sales comes from Europe.
Following Brexit Tatas said they would review their strategies in the UK.
“Each company continuously reviews its strategy and operations in the light of developments, and will continue to do so. Access to markets and to a skilled workforce will remain important considerations,” a spokesperson of the Tata group said according to a BBC report.
Many Indian IT firms too have invested in the UK. India’s software sector makes nearly £22bn each year from Europe.
Together, the UK and Europe account for over-a-quarter of the country’s IT exports, worth around $30bn.
The National Association of Software and Services Companies (Nasscom) has said the falling value of the pound could render several existing contracts loss making.
But there are others who think otherwise.
“With the lower pound, if there are some hi-tech assets which can be acquired in the UK, suddenly this makes the UK a much better shopping mall for Indian companies,” says Anand Mahindra, chairman of the Mahindra Group, according to a BBC report.
SBI chairman Arundhati Bhattacharya, in a Business Standard report, said: “Uncertainty of any sort results in volatility and Brexit will be no exception. As risk aversion sets in, there would be a decline in financial markets and India would see this impact along with other nations. However as trade strategies are reworked there could be potential advantages in the form of better market access for India to EU & UK.”
Mr Sanjiv Chadha, Regional Head UK, State Bank of India told Asian Voice, “The State Bank of India has operated a successful banking offer in the UK and in parts of Europe for many years, and while we understand that the vote to leave Europe will create a high level of uncertainty in the coming weeks and months, we remain committed to our customers and do not expect the vote’s outcome to impact our operations in a significant manner. We operate in the UK as part of the largest commercial bank in India and are able to offer our customers a high level of protection and transparency.”
Like exchanges around the world, Indian financial markets too saw volatile trading following the referendum result.
India’s Sensex fell by 3.4% to 26,022.60 points soon after the outcome of the vote became clear.
Indian Finance Minister Arun Jaitley has assured investors that India’s economic fundamentals are strong.
Jaitley even suggested that there could be an opportunity in this adverse economic environment.
“As investors look around the world for safe havens in these turbulent times, India stands out both in terms of stability and of growth,” he said.
However, the finance minister acknowledged that “Brexit” would cause financial uncertainties for India and other markets around the world.
Writing on his Facebook page, Jaitley said: “As I have often said, 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. The government and the Reserve Bank of India as well as other regulators are well prepared, and working closely together, to deal with any short term volatility.”
Reserve Bank of India Governor Raghuram Rajan has also said that India is capable of mitigating the Brexit “shock”.
“If we can manage properly it will be a non-event. A larger question is to find places where we can put money going forward,” he said according to the BBC report.
“If Britain decides to leave, market adjustment process will happen and the government will provide liquidity in close collaboration with the leaders around the world,” Minister of State for Finance Jayant Sinha told CNBC-TV18. He added that India still remains a haven of stability in a troubled world. He also said that contingency plans were already in place and that the government would implement them “once the market resets”.
Some hope that Britain quitting the EU might give a boost to trade ties between India and the UK. Exports and imports between the two sides have been growing, but Britain is only India’s 12th largest trade partner, much behind Germany and Switzerland.
Following the referendum there is hope that Britain will now be free to discuss the much-demanded bilateral trade pact with India.
FICCI issued a statement and said, “...We would like to reiterate our strong commitment to work with UK business as the UK remains an important economic partner for India, and with 1.5million Indian diaspora, strong links between the two countries will continue.
“In this period of uncertainty, as investors look for safe havens globally, we would like to emphasise the Indian growth potential and reforms that have resulted in a stable policy and economic environment, and FDI policies that have made India more attractive for foreign investors.
Commenting on the outcome of the Brexit referendum in the UK, Dr. Naushad Forbes, President CII said, “The India-UK relationship is an important one, within or without the EU. CII reaffirms its commitment towards strengthening bilateral trade and investment ties and enhancing business linkages.”
