The wholly unexpected turn to the British referendum on leaving the European Union has left the entire world shell shocked. Global markets have crashed and then recovered, the pound sterling has fallen to its lowest for the last 30 years and safe haven assets like gold have become more costly, reflecting spurt in demand.
The tremors from the decision of the UK from the EU are not necessarily related to the actual economic impact on countries as a result of this divorce. It is more a psychological reaction to a move that could lead to the ultimate destruction of an idea that seemed indestructible till now.The idea of a united Europe. An idea thathad brought hope to millions of people weary of battles after two successive world wars. The hope that economic unity would bring lasting peace has been theunderlying philosophy of the European union. And it has been held up as a model for other regions like South Asia. The centuries old bitterness between France andGermany having metamorphosed into a highly successful economic union is always cited as an example to show that India and Pakistan too can overcome thepast and move forward as economic partners in the future.The vision has been destroyed by the referendum gracelessly described as Brexit. No doubt this is going to lead to more complications for the U.K. as Scotland nowconsiders the possibility of independence so it can opt to stay within the E.U. Not to mention that credit rating agencies are lowering the outlook for a country thathas normally been rated very highly as an investment destination. Be that as may, the repercussions are also going to be felt around the world. As for India, it isimportant to look at the implications simply because there is an inextricable link between the two countries owing to the colonial past. It is this that prompted hugenumbers to emigrate to the UK in search of a better life. This has now become a large and thriving diaspora in a country which has even dropped fish and chips tomake chicken tikka masala a national dish. The exchange has been two way with nearly all major British companies and banks having been established here beforeindependence and well before the reforms of 1991 lured the rest of the world.The economic relationship has deepened over the years with Indian companies like Tatas taking over Corus, Jaguar Land Rover and Tetley Tea. The UK is the thirdlargest investor in India but India is also the third largest investor in that country. The level of Indian investment in the UK is as much as in the entire EU. Thereason is clear, the comfort level of working in the same language and a relatively similar legal and financial system. Given this ease of comfort of working in the UKalong with the presence of the Indian diaspora, it is not likely that the pattern of investments will undergo any major change. The UK may have been described as the gateway to Europe but Indian companies are not going to hastily shift headquarters to another capital despite the divorce with the EU. There may be some travel restrictions unlike in the past but this is a minor hurdle facing Indian companies who are used to operating from London.In fact, it will become easier for some Indian professionals to work in the UK now. In the past, the stringent EU regulations did not allow entry of specialized workersto enter unless their incomes were above a specified level. This has impacted skilled workers like chefs and nurses, who have in the past come in large numberfrom India.It is in the information technology sector that there should be some concern over the prospect of Brexit. The UK is the second largest market for Indiaâ€™s IT exportsand the separation from the EU could mean lower demand for software exports. Besides, the mobility of IT professionals from the UK to Europe could becomemore expensive and cumbersome with travel regulations coming into place. On the trade side, there may actually be some jubilation in the Commerce Ministrythat it will be possible to go ahead with a separate free trade pact with the UK. The proposed EU-India FTA has been hanging fire since 2007 largely due tointransigence on many areas by the EU bureaucracy. While India is willing to make concessions on automobiles and liquor tariffs, the EU is not prepared tomove forward on issues relating to movement of professionals which is critical for India. In case a separate FTA is now concluded with the UK, these issues willprobably be resolved much more easily. On the negative side, this will mean that the entire EU-India FTA will have to be reworked, leading to even more delay infinalizing the pact.In sum, there is not going to be a great deal of change in the Indo-British economic relationship owing to Brexit. The impact will be far more positive than negative.At the same time, the tremors around the world will affect India in an indirect way. The fluctuation in the rupee being seen now should subside in a while but thedecline of the pound sterling will surely affect IT exports unless it is contained in the medium term. In addition, if London loses its cachet as the financial capital ofEurope, it is bound to affect all companies located in this iconic city. The exit of the UK from the European Union may not affect India significantly or even impactit in a good way, but in the ultimate analysis it cannot be positive for the global economy. The economic integration of Europe makes eminent sense. It has madelife easier for most of those who live in the region. The very fact that the referendum has been by so narrow a margin and that analyses are showing that younger people prefer to be part of the EU, shows only too clearly that the European economic union with the UK is the way of the future. It is not inconceivable that this new generation may once again turn the tables after a while and become part of a united Europe once again.(This Edit page article appeared in The Tribune on June 28, 2016.)”