BREXIT

BREXIT – Impact on India

What does BREXIT mean ?

Britain has been a part of the European Union ( EU ) for a very long time. The EU is a union of 28 politico-economic countries established to foster economic growth and to avoid conflicts.[1] EU has many stringent and strict policies with regard to its policies and all the countries who are a part of the EU are forced to abide by it. The problem that Britain faces is that due to its membership in the EU, it is forced to pay a very high rate of contributive membership fee (about 8.5 billion pounds ) on an yearly basis.[2] Also, the authoritarian and bureaucratic nature of the EU parliament has been impacting Britian in a negative way with respect to Trade and Migration issues.

The people of Britain on a referendum held on 23rd June 2016 by a 52% mandate voted Britain to leave the EU.[3] The referendum resulted in devaluation of the currency of Britain by almost 10%.[4] The impact of the referendum was anticipated in a negative sense to the world market. However the impact of the referendum vis-à-vis India would be ennumerated in the following article. While some say that the referendum would only have a minimal impact on Indian markets, others argue to be prepared for medium and long term impacts.

The Impacts BREXIT would have over India –

Impacts vis-à-vis Trade, Markets and Insolvency

  • As a short term impact, a slight ripple in the market would be felt following the results of the referendum. EU is one of the largest trading partners to India and a slight fall in the Indian market conditions are inevitable.
  • Now that Britain has left the EU, India would have a strong marketable position as it can independently trade with both Britain and the entire EU seperately.
  • Several IT companies along with Automotive and Pharmaceutical companies would continue to face heavy losses thereby showing a considerable reduction in their share values. This is because EU is a very wide market for these companies.[5]
  • IT firms in India have a large revenue making market in the EU via United Kingdom ( UK ). Following the referendum, a fall in the revenue of IT firms is expected and those firms will now have to establish a separate headquarter for EU and the UK.[6] This is as a result of an uneasy movement of workers between UK and EU post the Brexit.
  • A fall in the value of Euro could also slowdown Indian markets.
  • India has trade relations with the EU and Britian acted as a gateway to EU for such trade practices. With Britain leaving the EU, it becomes uncertain about the trade barriers which could increase,leaving India vulnerable to firewalled trade practices with the EU.
  • One of the reasons why Britain is leaving the EU is because of its strict trade practices. Therefore India can now expect those practices to be free and deregulated in terms of a trade with Britain. Financial and other trade incentives can be expected from Britain in this regard.[7]
  • Till the Brexit procedures are complete, a slowdown can be expected with regard to trade relations with UK due to a slow economy.
  • EC Regulation would cease to have a direct impact on UK following the Brexit. Consequently all cross-border insolvency cases will have to be decided by UK if after the Brexit would they adopt their own laws or would they still follow the EC Regulation regime.[8]
  • Reduction in opportunities for Indian companies as a result of slow British economy.
  • With the decrease in the value of pound post the referendum, any Indian company which had borrowed in pounds would find it cheaper to repay.

Impacts vis-à-vis Treaties

  • After the referendum result, both Britain as well as the EU would be competetive enough to portray themselves as a stronger market. Consequently, both of them would try and invest in the major developing economies of the world. Since India is one of the most developing economy in the world right now, a hike in Foreign Direct Investments could be expected from that region. Separate agreements would have to be signed in this regard.
  • Since Britain is leaving the EU, India will lose its gateway to trade in EU. However in the long run, India could find other EU countries and independentlty make treaties with them who can trade with India consequently gaining wider access to the markets of EU.
  • Post Brexit, to continue trading relations with UK and the rest of EU, India will have to make a bilateral agreement seperately with UK in order to perform trade practices.

Impacts vis-à-vis Investments

  • The British exiting from the EU would also improve investments in less risky assets like Gold.[9]
  • Since rupee is now stronger against pound, more Indians will seek to invest in real estate in Britain. It could be the best time for them to buy property.[10]
  • According to the Ministry of External Affairs, India is the third largest investor in Britain.[11] The volatility of the pound post referendum would create big market risks in India due to such heavy rate of investments.

Impacts vis-à-vis Intellectual Property Rights

  • At present, the registered trademarks in EU known as the EU Trade marks (EUTM) or a Geographical Indication is protected with a single application to all EU states. Since, UK is out of EU, a new law would need to be applied to UK alone to protect those rights.[12] In such a situation, Indian firms or individuals who had a registered trade mark or a geographical indication in the EUTM would be impacted.
  • Registered Indian patent holders in the UK would require a separate registration exclusively for UK as EU is working on a Unified Patent System (UPS) and with UK no longer being a part of EU, the UPS would not be applied on UK.[13]

Conclusion

The referendum results are out but it would atleast take another two years for all the formalities and negotiations to be completed and to officially end Britain’s membership with the EU.[14] By and large, it seems that Britain’s exit from the EU would not create much risks for the Indian market and the positives at this point seem more apparent than the negatives.

Finance Minister of India has assured that the Brexit situation is being monitored closely and the structural framework of Indian market is such that only a short or a medium term consequence is to be expected.[15] Even then the Indian markets have a comfortable edge over any consequence that may occur.

India has no role to play in the negotiation or the decision making processwith respect to the referendum and it only needs to perform a damage control if any consequence to the Brexit occurs.


References:

[1]European union, ‘The EU in brief’ (Wwweuropaeu, 13 April 2016) <http://europa.eu/about-eu/basic-information/about/index_en.htm> accessed 28 June 2016

[2]Full fact team, ‘The UK’s EU membership fee’ (Wwwfullfactorg, 27 May 2016) <https://fullfact.org/europe/our-eu-membership-fee-55-million/> accessed 28 June 2016

[3]AlexHunt Brian wheeler, ‘The UK’s EU referendum: All you need to know’ (Wwwbbccom, 24 June 2016) <http://www.bbc.com/news/uk-politics-32810887> accessed 28 June 2016

[4]Dev Chaterjee, ‘Brexit Impact; India Inc braces for huge losses’ (Wwwbusiness-standardcom, 24 June 2016) <http://www.business-standard.com/article/companies/brexit-impact-india-inc-braces-for-huge-losses-116062400313_1.html> accessed 28 June 2016

[5]Ruchika Shah, ‘Brexit’s India Impact: Cheaper travel, UK homes, more jobs? What Britain’s decision spells on us’ (Wwwdnaindiacom, 26 June 2016)<http://www.dnaindia.com/money/report-brexit-the-good-and-bad-for-india-2227678> accessed 28 June 2016

[6]Press Trust of India, ‘BREXIT to impact Indian IT Sector in short term: Nasscom’ (Wwwtimesofindiaindiatimescom, 20 June 2016) <http://timesofindia.indiatimes.com/city/delhi/Brexit-to-impact-Indian-IT-sector-in-short-term-Nasscom/articleshow/52838399.cms> accessed 28 June 2016

[7]Anuapam Manur, ‘Brexit: Bad for Britain, but potentially good for India’ (Wwwndtvcom, 22 June 2016) <http://www.ndtv.com/opinion/your-guide-to-brexit-and-5-ways-it-will-impact-india-1421554#Comments> accessed 28 June 2016

[8]Anna Jeffrey, ‘Brexit—implications for the UK restructuring and insolvency market’ (blog.lexisnexis.co.uk, 6 March) <http://blogs.lexisnexis.co.uk/randi/brexit-implications-for-the-uk-restructuring-and-insolvency-market/> accessed 29 June 2016

[9]IANS, ‘What Brexit could mean for India’ (Wwweconomictimesindiatimescom, 20 June 2016) <http://economictimes.indiatimes.com/news/economy/foreign-trade/what-brexit-could-mean-for-india/articleshow/52831547.cms> accessed 28 June 2016

[10]Ruchika Shah, ‘Brexit’s India Impact: Cheaper travel, UK homes, more jobs? What Britain’s decision spells on us’ (Wwwdnaindiacom, 26 June 2016)<http://www.dnaindia.com/money/report-brexit-the-good-and-bad-for-india-2227678> accessed 28 June 2016

[11]IANS, ‘What Brexit could mean for India’ (Wwweconomictimesindiatimescom, 20 June 2016) <http://economictimes.indiatimes.com/news/economy/foreign-trade/what-brexit-could-mean-for-india/articleshow/52831547.cms> accessed 28 June 2016

[12]William Fry, ‘Brexit And Your Business – June 2016 – Intellectual Property and Data Protection – Top 5 Issues’ (Wwwlexologycom, 27 June 2016)<https://www.lexology.com/library/detail.aspx?g=181d3040-b93c-4302-a9ec-df243078ab56> accessed 29 June 2016

[13]William Fry, ‘Brexit And Your Business – June 2016 – Intellectual Property and Data Protection – Top 5 Issues’ (Wwwlexologycom, 27 June 2016)<https://www.lexology.com/library/detail.aspx?g=181d3040-b93c-4302-a9ec-df243078ab56> accessed 29 June 2016

[14]Ross hawkins, ‘Reality Check: Could Brexit be negotiated in two years ?’ (Wwwbbccom, 30 March2016) <http://www.bbc.com/news/uk-politics-eu-referendum-35926576>accessed 28 June 2016

[15]Sujatha , ‘How will brexit impact India’ (Wwwmapsofindiacom, 24 June 2016) <http://www.mapsofindia.com/my-india/business/how-will-brexit-impact-india> accessed 28 June 2016

 

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