Brexit or not, India is going to be impacted

The polls are neck-to-neck and no side is ready to accept defeat just yet. The world is also watching the referendum with bated breath—so is India.

Will there be a Brexit or a Bremain will be clear this week. However, one thing is clear. Both camps believe that their roads are the best for Britain’s future.

Also, a Brexit, which means Britain leaving the European Union (EU) is likely to have a massive short-term impact on the financial markets and labour movements. According to India’s corporate lobby group Assocham, the referendum is expected to be a close call.

What will be the impact of Brexit on India?

Indian government has just declined to make any statement so far. Sushma Swaraj, Union Minister of External Affairs told the Hindu Business Line, “The decision has to be taken by the people of Britain and they would decide keeping in mind their national interest. India has no role to play in it.”

However, as far as India is concerned, Assocham believes that a Brexit will result in strong ripples for the Indian markets as well, necessitating a contingency plan by the government and the Reserve Bank of India.

Overall impact on India would be low as the flows of trade and investment between these nations will continue as it was.

The impact will be distinct, however, in four cases:

Rupee Movements:

If UK exits the EU, the chances of investors departing would be more from emerging market currencies and euro/pound investments, which in turn will lead investors to store their funds in safe haven of dollar and US treasury, strengthening dollar against currencies.

As EU is among the largest trading partner to India, probable depreciation in Rupee/Dollar could be expected. However, as dollar is the India’s local currency’s primary anchor, there will be some element of volatility in these markets, CARE Ratings believe.

Indian Market may feel the pressure:

As per CARE Ratings, equity markets, universally would be nervous. India, too, could suffer wild fluctuations or large outflows in sync with the overall trend. That is something to watch out for,” Assocham said.

India Trade with EU and UK:

Trade is expected to go down after Brexit, as European Union is among the largest trade partner of India, embracing 13% of its trade, which surpasses China (9.6%) and US (8.5%).

Even if trade with Britain increases, there is no certainty that a UK outside of Europe would drive bilateral trade.

At this point, such an argument is mere speculation. A re-negotiation of the EU-UK agreement following Brexit would mean further uncertainty for India since a conflict of interest could arise, restricting UK from adapting certain deals with India.

Migration effect:

Presently, the impact on migration will be a case of assumptions, it is believed that India may benefit from it, as labour does come at a lower cost unlike that from the EU. But, one cannot be too certain, says CARE Ratings.