Talking Brexit: How will UK and India Economic Relations be Affected?

Britain’s economic and political relationships with the European Union and the rest of the world will be impacted by the Brexit decision. Established partnerships will unfurl, and a new blueprint will have to be implemented. According to the UK foreign minister, ‘… Are we really unable to do trade deals? We will have at least two years in which the existing treaties will be in force.’ Of course, the chief proponent of the Brexit and former London mayor was referring to Britain’s ability to negotiate an extrication plan from the European Union. The UK has been a power player on the global stage for centuries, forging economic and political alliances with major trading partners around the world. Many considered India to be the crowning jewel in the British Empire.

Nowadays, India operates independently on a political, economic, and military basis. It is a powerful nation with a large up-and-coming middle-class. In the UK alone, it is estimated that there are over 800 Indian majority-owned companies. More impressive is the fact that these majority Indian-owned businesses employ over 110,000 people in the UK and their turnover exceeds £26 billion.

Owing to these deep and established bonds between the two nations, it behooves Britain to negotiate carefully any deal with the EU that may unfavorably affect its partnership with India. If it turns out that Britain’s negotiating position is adversely affected, India could seek other economic alliances with EU countries. But that hardly seems the case. Part of the reason why the UK was pushing so hard for a Brexit was to forge new alliances with emerging market economies such as BRICS countries. These include Brazil, Russia, India, China and South Africa.

How deep do UK Bonds with India Run?

The colonial bonds between India and the UK run deep, as evidenced by India’s adoption of English, it’s love of cricket and its parliamentary system of governance. Consider that India has more English speakers today than the United Kingdom. In fact, after the United States, India is the second largest English-speaking country on the planet – thanks to the influence of the UK. Some 33% of people in India have English-speaking abilities, albeit idiosyncratic at times.

India is also a power player in high-tech, second to Silicon Valley in the United States. As such, the implications of a Brexit on international trade relations between Britain and its partners cannot be underestimated. India has become a global front-runner in technology transfer, computer hardware, pharmaceuticals, engineering, computer software and much more. The dramatic growth in India’s economy and its presence on the global stage is largely due to the country’s adoption of English as its lingua franca.

Now that the UK is on a pathway to Brexit, the country can independently negotiate enhanced treaties and trade agreements with countries like India. For example, both parties could work on cutting trade tariffs and other barriers between them. It remains uncertain how India feels about this highly contentious issue, but tongues are wagging about the possibilities. Already we can see that a weakened GBP has helped inject new life into shares trading on the FTSE 100 index and the FTSE 250 index. This is evident in the inverse relationship between the sterling and the FTSE 100.

Recall that the majority of revenues reported by companies on the FTSE 100 index are generated abroad and when this money is repatriated back to the UK it is worth more in sterling terms. For now, major multinational Indian companies are taking a wait and see approach about how their investments in the UK will pan out. There is tremendous benefit to be had from a weakening GBP, and Indian companies will want to exploit these opportunities while they are available. The Indian perspective is future oriented, while the Brits may be holding onto past realities thinking that India as a member of the Commonwealth will stay loyal regardless of the economic consequences.