Brexit: the silver lining for India
Pratik Dattani says Britain’s vote to quit the EU could have economic benefits as London realigns its foreign policy and trade relationships
The Brexit vote caused a political earthquake, with tremors felt around the world. But there may be a silver lining for India-UK economic relations.
The Leave vote was strongest in regions economically dependent on the European Union. And although thousands of local jobs depend on the Indian-owned Jaguar Land Rover factory in Coventry, 55.6 per cent of voters in that constituency voted to leave.
But this anti-EU sentiment could benefit economic relations with India. As Priti Patel, minister of state for employment and one of the leading Brexiteers, said in February, “voting to leave the European Union would be a massive boost to UK-India relations. New opportunities for the UK and India to cooperate more closely and develop stronger trading links would emerge as the UK realigns its foreign policy and trade priorities.”
It’s important to put this in context. David Cameron said during his first visit to India as prime minister in November 2010 that doubling trade with India was a key foreign policy priority. Instead, year-to-date figures show that India is the 18th most important trade partner for the UK. China ranks fourth. UK exports to India since the start of 2010 have fallen by 14 per cent, whereas Indian exports to the UK have increased by 13 per cent.
On investment, the picture is rosier. India has been the fifth-largest job creator in the UK in the past four years, after the US, France, Canada and Germany, and ahead of China. According to consultancy Grant Thornton, 58 per cent of the 110,000 people employed in the UK by Indian companies are employed by just two companies, Tata Motors and Tata Steel. In terms of FDI into India, the UK ranks first between 2000 and 2015, with a cumulative US$22 billion investment, ahead of Japan at US$18.3 billion.
Indian Finance Minister Arun Jaitley has said that India is “well prepared” to deal with the fallout from Brexit. India’s former chief economic adviser Arvind Virmani thinks it will have little net effect because a continued weakness in demand in the UK and Europe may reduce demand for oil, of which India is a large net importer.
Another potential benefit to India may be the reduction in barriers for temporary movement of IT professionals to the UK. Because of an anti-immigration sentiment in the UK, restrictions on highly skilled non-EU migrants – an issue particularly impacting Indians – have increased in recent years.
First, however, policymakers need to make clear exactly what Brexit means in practical terms.
Pratik Dattani is managing director of EPG Economic and Strategy Consulting. He also runs the UK office for India’s oldest and largest trade body