Will Brexit impact Indian exports?

Now that the Britain is free from EU membership, focus shifts to the roadmap that needs to be negotiated between these countries.

It will take about two years or more for the UK parliament to constitutionally integrate changes in line with the Brexit referendum, which is not legally binding.

One such section is trade for UK that needs to be reworked with EU and other countries. About 50% of Britain’s exports are to European countries.

However there is no clarity, if trade negotiations will be organised separately with each European country or with the entire union; the former would take longer.

According to Phillip Capital, exports to Europe are expected to become expensive, as more tariffs will be imposed by the EU, which will negatively impact UK’s current account deficit of 6‐7% of GDP.   

Well what will be the outcome; we’ll have to wait and watch. 

Impact on India’s trade:

India is a small trading partner of UK with only 3.4% and 1.4% of India’s merchandise exports and imports, respectively, as of FY16.

According to HDFC mutual fund, it is difficult to make a case of any meaningful impact on Indian economy of Brexit – either direct or indirect. The current dealing stance should also not be impacted as Brexit will change the terms of trade between UK and EU and not with India. FDI flows from UK to India stood at only US$1bn in FY15 and US$0.8bn in FY16; hence, not that significant.

Federation of Indian Export Organisations on Indian Express reported, that India’s export will face pressure led by currency volatility post Brexit decision in the immediate future as both British Pound and Euro will depreciate, giving greater competitiveness to their products.

However, in the long run India is not likely to be impacted added FIEO.

But everything will depend upon on the kind of negotiations Britain works out with European members.

“If Britain receives the same treatment in regards to free tariff and free movement of persons, then not much will change for India. However, if Britain gets the treatment as applicable to a non-member country, it may lead to positive impact on India’s exports to EU as well as to Britain,” FIEO report on Indian Express.  

India’s exports to EU and Britain stood at USD 35.35 billion and USD 9.35 billion in 2015-16, respectively.

Until the terms of trade are revised, Brexit will disturb the manufacturing facilities for medium term for some Indian companies that have businesses in UK/ EU.  

Meanwhile, a GBP depreciation is an unexpected positive for companies like Tata Steel and Tata Motors (JLR) that have manufacturing operations in the UK, as per HDFC mutual fund reports.