Looming Brexit and Potential Fallout

Context: In the light of Brexit, India needs to diversify its trade and look beyond the United States (US) and the European Union (EU) to widen its investments.

Issues with the Brexit

• Differences with Ireland: Post Brexit, the UK would impose control on the movement of goods and people between Northern Ireland and Ireland.

• Since Scotland and Ireland voted to remain within the EU by 62 and 56%, in the referendum.
• This issue has become similar to what the Kashmir issue is for India.

• The difference with the EU: 

• The UK wishes to cherry-pick and carve out a free trade agreement with the EU to allow free exchanges of goods but not all services and labour.

• While Germany and France, view the EU as a political cohesion rather than just about economic integration, they are forced to treat the UK as a large market nearby. 

India-UK partnership: 

• Trade Statistics:

• In 2019-20, India’s exports to and imports from the UK amounted to 2.8 and 1.42% of the respective totals of its goods trade, a combined trade worth $9 billion.
• Foreign Direct investments (FDI) reaching and $9 billion and $10 billion in 2018-19 and 2019-20 respectively, accounting for 6% of the total FDI (in 2 years) in India.
• India’s Investments: two high-value investments were the Tata group’s acquisitions of Corus steel and Jaguar Land Rover (JLR) in 2007 and 2008.

• Aligned Strategic Interests: While the UK has been aligned towards Pakistan in the past, the recent comment by UK’s PM Boris Johnson on Kashmir being a bilateral issue has lifted the partnership with India.

Way Forward:

• Diversify trade relations: While India needs to engage with the US and EU due to their large sizes, India is not as important to them.

• India’s efforts to promote trade, investment and technology transfer directed at raising manufacturing at home should focus on Japan, South Korea, Germany, US, Holland, France and ASEAN nations in descending order of importance.

• Careful Avoidance of China: The US/G7 may dilute economic-high technology exchanges with China and India needs to tread carefully to be a part of supply chains that do not include China.